<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
QUARTERLY PERIOD ENDED JULY 31, 1995
Commission file number 1-5407
WHITTAKER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-4033076
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1955 North Surveyor Avenue, Simi Valley, California 93063
(Address of principal executive offices) (Zip Code)
(805) 526-5700
(Registrant's telephone number, including area code)
10880 Wilshire Boulevard, Los Angeles, California 90024
(Former address of principal executive offices) (Zip 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
8,562,571 shares, par value $.01 per share, as of July 31, 1995.
<PAGE>
Part I. FINANCIAL INFORMATION
-----------------------------
WHITTAKER CORPORATION
---------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
-------------------------------------------
($ in 000)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended July 31, Ended July 31,
-------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales................................ $ 44,347 $ 33,110 $ 102,715 $ 87,727
--------- --------- ---------- ---------
Costs and expenses
Cost of sales................... 23,109 19,396 58,196 51,091
Engineering, selling and
general and administrative... 16,143 7,905 30,984 23,314
Acquired in-process research
and development.............. 0 0 3,250 0
Restructuring costs............. 382 0 382 0
Other expense................... 91 20 134 56
Interest on long-term debt...... 1,741 1,070 4,155 2,858
Interest income................. (149) (141) (479) (444)
--------- --------- ---------- ---------
41,317 28,250 96,622 76,875
--------- --------- ---------- ---------
Income before provision for taxes.... 3,030 4,860 6,093 10,852
Provision for taxes.................. 1,277 1,918 2,465 4,331
--------- --------- ---------- ---------
Net income........................... $ 1,753 $ 2,942 $ 3,628 $ 6,521
========= ========= ========== =========
Average common and common
equivalent shares
outstanding (000)................. 9,658 9,466 9,609 9,479
========= ========= ========== =========
Earnings per share................... $ .18 $ .31 $ .38 $ .69
========= ========= ========== =========
</TABLE>
Unaudited
See notes to Consolidated Condensed Financial Statements.
(2)
<PAGE>
WHITTAKER CORPORATION
---------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
($ in 000)
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
=========== ===========
<S> <C> <C>
ASSETS
Current Assets:
Cash ........................................ $ 675 $ 3,507
Receivables ................................. 60,276 65,292
Inventories ................................. 42,698 32,013
Current assets held for sale ................ 1,770 1,551
Other current assets ........................ 2,704 2,475
Income taxes recoverable .................... 1,620 66
Deferred income taxes ....................... 17,597 13,395
--------- ---------
Total Current Assets ........................ 127,340 118,299
--------- ---------
Property, plant and equipment, at cost ...... 78,358 70,273
Less accumulated depreciation ............... 37,021 33,506
--------- ---------
41,337 36,767
--------- ---------
Other Assets:
Goodwill .................................... 36,493 19,604
Other intangible assets ..................... 5,370 2,336
Notes and other noncurrent receivables ...... 4,664 3,682
Other noncurrent assets ..................... 10,451 4,681
Net assets held for sale .................... 24,787 23,938
--------- ---------
81,765 54,241
--------- ---------
$ 250,442 $ 209,307
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ........ $ 5,796 $ 5,540
Accounts payable ............................ 21,841 10,713
Accrued liabilities ......................... 21,789 20,512
--------- ---------
Total Current Liabilities ................... 49,426 36,765
--------- ---------
Long-Term Debt .............................. 62,019 54,742
--------- ---------
Convertible subordinated debt................ 15,000 0
--------- ---------
Other Noncurrent Liabilities ................ 8,601 11,880
--------- ---------
Deferred Income Taxes ....................... 17,609 11,970
--------- ---------
Stockholders' Equity:
Capital Stock
Preferred stock .......................... 1 3
Common stock ............................. 85 85
Additional paid-in capital................... 19,088 17,787
Retained earnings ........................... 78,613 76,075
--------- ---------
Total Stockholders' Equity .................. 97,787 93,950
--------- ---------
$ 250,442 $ 209,307
========= =========
</TABLE>
Unaudited
See Notes to Consolidated Condensed Financial Statements
(3)
<PAGE>
WHITTAKER CORPORATION
---------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
($ IN 000)
<TABLE>
<CAPTION>
For the Nine Months
-------------------
Ended July 31,
-------------
1995 1994
========= =========
<S> <C> <C>
OPERATING ACTIVITIES
Net income ....................................................... $ 3,628 $ 6,521
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................. 5,663 4,561
Net periodic pension cost (income)........................ (2,040) 861
Acquired in-process research and
development, after taxes................................. 1,950
Decrease (increase) in income taxes recoverable........... (1,554) 1,131
Increase in deferred tax.................................. 3,229 1,990
Changes in operating assets and liabilities:
Decrease in receivables......................... 13,938 3,929
Increase in inventories and prepaid expenses...... (3,966) (5,891)
Decrease in accounts payable and other liabilities (6,019) (3,147)
--------- ---------
Net cash provided by operating activities......................... 14,829 9,955
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment......................... (3,644) (2,000)
Purchased businesses.............................................. (31,013) (13,459)
Proceeds from sales of assets..................................... 1,662
Net decrease (increase) in notes receivable....................... (942) 459
Decrease (increase) in assets held for sale....................... (1,068) 102
Other items, net.................................................. (4,076) (1,069)
--------- ---------
Net cash used by investing activities............................. (39,081) (15,967)
--------- ---------
FINANCING ACTIVITIES
Issuance of convertible subordinated debt......................... 15,000
Net increase in debt.............................................. 7,533 6,284
Deferred debt costs............................................... (1,322)
Dividends paid.................................................... (6) (9)
Shares redeemed................................................... (1,093)
Proceeds from shares issued under stock plans..................... 597 115
Tax benefit from exercise of employee stock options............... 711
--------- ---------
Net cash provided (used) by financing activities.................. 21,420 6,390
--------- ---------
Net increase (decrease) in cash................................... (2,832) 378
Cash at beginning of year......................................... 3,507 170
--------- ---------
Cash at end of period............................................. $ 675 $ 548
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................. $ 3,763 $ 2,715
========= =========
Income taxes ............................................. $ 1,377 $ 2,799
========= =========
</TABLE>
Unaudited
See Notes to Consolidated Condensed Financial Statements.
(4)
<PAGE>
WHITTAKER CORPORATION
---------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
The Consolidated Financial Statements include accounts of Whittaker Corporation
and its subsidiaries (herein "Whittaker," the "Company" or the "Registrant").
The Consolidated Financial Statements reflect all adjustments which are of a
normal recurring nature and, in the opinion of management, necessary to present
a fair statement of the results for the interim periods reported.
Whittaker's operations in interim periods are not necessarily indicative of the
sales and earnings for the full year. For further information, refer to the
Consolidated Financial Statements and footnotes thereto included in Whittaker's
annual report on Form 10-K for the year ended October 31, 1994.
Assets held for sale at July 31, 1995, include $24.6 million of land formerly
used by the Company's former Bermite division, a discontinued technology unit.
The Company has entered into a development agreement with a real estate
developer to seek entitlements (the right granted by political authorities to
develop real property) to develop this property as a mixed-use residential,
commercial, retail, and light industrial development.
Primary earnings per share have been computed based on the weighted average
number of common and common equivalent shares outstanding, after deducting from
net income the dividend requirements on the $5.00 Cumulative Convertible
Preferred Stock. Effective April 28, 1995 all outstanding shares of the $5.00
Cumulative Convertible Preferred Stock were either converted into common shares
or redeemed. Common stock equivalents include Series D Participating
Convertible Preferred Stock and dilutive employee stock options, calculated
using the treasury stock method.
Included in accounts receivable at July 31, 1995 is a claim of $1.1 million,
compared to two claims totaling $5.6 million at October 31, 1994. These claims
relate to United States Government prime contracts and subcontracts in which the
Company contends that costs were incurred in connection with customer caused
delays and disruptions, errors in technical data, a partial termination for
convenience and other unanticipated causes. A claim in the amount of $1.6
million, which was included in accounts receivable at October 31, 1994, has been
reclassified to other long-term assets in 1995 because the claim is in
litigation, and management does not expect a resolution of the claim within the
next twelve months. The Company received payment on the second claim, for $4.0
million, in the second quarter of 1995. At that time, an additional receivable
of $1.1 million was recorded, reflecting the final negotiated settlement of $5.1
million on this claim.
(5)
<PAGE>
WHITTAKER CORPORATION
---------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
Inventories consisted of the
following:
($ in 000)
July 31, October 31,
1995 1994
---------- -----------
<S> <C> <C>
Raw materials $ 24,507 $ 18,391
Work in process 11,168 11,643
Finished goods 4,965 1,174
Costs relating to long term contracts 2,939 805
Unliquidated progress billings ( 881) ( 0)
-------- --------
$42,698 $32,013
-------- --------
</TABLE>
On April 24, 1995, the Company acquired all of the stock of Hughes LAN Systems,
Inc., a subsidiary of Hughes Aircraft Company. The Company changed the name of
the subsidiary to Whittaker Communications, Inc. ("WCI") and made it part of
the Company's Communications division. WCI, based in Santa Clara, California,
designs, manufactures, and sells high speed switching and Asynchronous Transfer
Mode (ATM) compatible local area network communications hubs and network
management software systems. The Company paid approximately $16 million in cash
(subject to adjustments) and $15 million in convertible subordinated debt. The
7% convertible subordinated debt is due in May, 2005 and could be converted to
the Company's common stock at a price of $24-1/4 per share. The agreement also
provides for contingent deferred payments, not to exceed $25 million, over four
years based on future sales of WCI's hub products. The transaction was
accounted for using the purchase method of accounting and the balance sheet of
WCI was combined with the Company's balance sheet as of April 30, 1995. The
transaction resulted in the acquisition of developed technology with a value of
$3.3 million which was capitalized and will be amortized on a straight-line
basis over five years; acquired in-process research and development valued at
$3.3 million which was recorded as an expense at the acquisition date, and
goodwill of $17.1 million which will be amortized on a straight-line basis over
twenty years. The Company also assumed liabilities of WCI of $16.5 million at
the acquisition date. The pro forma unaudited results of operations for the
nine months ended July 31, 1995 and July 31, 1994, assuming consummation of the
purchase and issuance of the 7% debt as of November 1, 1993, are as follows:
(6)
<PAGE>
WHITTAKER CORPORATION
---------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended July 31,
1995 1994
---- ----
(000 omitted, except
per share data)
<S> <C> <C>
Net sales 127,775 119,319
Net income 97 (3,183)
Earnings (loss) per share $0.01 ($0.38)
</TABLE>
The Company has typically purchased insurance annually. In certain years, after
evaluating the availability and cost of insurance, the Company did not purchase
insurance for certain risks, including workers' compensation and product
liability. Moreover, the Company's insurance carriers have taken the position
that in certain cases the Company is uninsured for environmental matters, a
position that the Company disputes in certain instances. Consequently, the
Company is without insurance for various risks, including product liability for
certain products manufactured in the past. The Company does, however, have
product liability insurance for products it currently manufactures.
As a result primarily of the activities of its discontinued operations, the
Company is a potentially responsible party in a number of actions filed under
the Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"). CERCLA, also known as "Superfund," is the main Federal law enacted
to address public health and environmental concerns arising with respect to the
past treatment and disposal of hazardous substances. The Company is also a
potentially responsible party in a number of other actions brought under state
laws patterned after CERCLA. In nearly all of these matters, the Company
contributed a small amount (generally less than 1%) of the total treated or
disposed of waste. In addition to the CERCLA and similar actions described
above, the Company also, from time to time, conducts or participates in remedial
investigations and cleanup activities at facilities currently or formerly
occupied by its operating units. There are also various other claims and suits
pending against the Company.
(7)
<PAGE>
WHITTAKER CORPORATION
---------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Continued)
At July 31, 1995, the Company had provided for its aggregate liability related
to various claims, including uninsured risks and potential claims in connection
with the environmental matters noted above. The amounts provided on the
Company's books for contingencies, including environmental matters, are recorded
at gross amounts. Because of the uncertainty with respect to the amount of
probable insurance recoveries, these potential insurance recoveries are not
taken into account as a reduction of those amounts provided unless an insurance
carrier has agreed to such coverage. The Company does not anticipate that these
matters will have a material adverse effect on the Company's financial position,
or on its ability to meet its working capital and capital expenditure needs.
Although the Company has recorded estimated liabilities for contingent losses,
including uninsured risks and claims in connection with environmental matters,
in accordance with generally accepted accounting principles, the absence of or
denial of various insurance coverages represents a potential exposure for the
Company, and the net income of the Company in future periods could be adversely
affected if uninsured losses in excess of amounts recorded were to be incurred.
(8)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
Results of Operations
---------------------
Comparison of Nine Months of 1995 to Nine Months of 1994
--------------------------------------------------------
Sales for the first nine months of fiscal 1995 were $102.7 million, an increase
of $15.0 million (17.1%) from the nine month period of 1994. An increase of
$13.2 million was due to the acquisition of Hughes LAN Systems Inc., a
communications business, in the second quarter of 1995. The Company has since
changed the name of Hughes LAN Systems to Whittaker Communications, Inc.
("WCI"). The Company acquired an aerospace business during the second quarter of
1994 which contributed $15.6 million during the nine months of 1995, compared to
$6.1 million during the same period of 1994, while sales of defense electronics
products decreased by $9.7 million during 1995. Sales for the first nine months
of 1994 included the recognition of $4.0 million of sales from the partial
settlement of a termination claim against a defense electronics customer.
Sales for the first nine months of 1995 included an additional, final settlement
of $1.1 million.
Gross margin increased in the nine month period in 1995 to $44.5 million, or
43.3% of sales, from $36.6 million, or 41.8% in 1994. Affecting the
comparability of the periods are three items which had a net positive impact of
$4.4 million on gross margin in the nine months of 1995, compared to $2.8
million in 1994. The first item is recognition in 1995 of $1.8 million of gross
margin related to the Company's insurance claim for earthquake damage brought
about by the January 17, 1994 Northridge earthquake. The second item is
recognition of $1.6 million of income related to the Company's defined benefit
pension plan, while related expense in the same period of 1994 was $0.7
million. This actuarially determined pension income is the result of an
expected return on plan assets which exceeded the interest cost on the projected
benefit obligation. The last item is a termination claim settlement which
contributed $1.1 million of gross margin in 1995, compared to $3.5 million in
1994. When the effects of these items are removed from both periods, the
percent of gross margin to sales is 40.2% in 1995 compared to 40.4% in 1994.
Engineering, selling and general and administrative expenses as a percentage of
sales increased in the nine month period in 1995 to 30.2% of sales, from 26.6%
in 1994. Included in 1995 results are reduced costs due to the earthquake
recovery of $1.3 million and pension income of $0.5 million. Excluding the
effect of these unusual items, the percentage of engineering, selling and
general administrative expenses for 1995 is 31.9% of sales. While the
percentage of these expenses increased modestly (1-2% of sales) in the aerospace
and defense electronics businesses, the primary reason for the year-to-year
increase is the acquisition of WCI. WCI, a communications business, operates in
a different business environment than the Company's other businesses and incurs
higher independent company-funded engineering and development costs as a
percentage of sales. In addition, the effect of restructuring actions taken at
WCI during the
(9)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Results of Operations (Continued)
---------------------------------
third quarter were not fully reflected in the level of engineering, selling and
general and administrative expenses incurred during the third quarter.
Interest expense increased to $4.2 million for the nine month period of 1995
from $2.9 million in 1994 primarily as a result of higher interest rates and
incremental debt from the purchase of WCI.
On April 24, 1995, the Company acquired all of the stock of Hughes LAN Systems,
Inc., a subsidiary of Hughes Aircraft Company. The Company changed the name of
the subsidiary to WCI and made it part of the Company's Communications division.
The Company's pre-existing Communications Division, which had been based in
Beaverton, Oregon, produces Asynchronous Transfer Mode (ATM) Enterprise Network
Access Switches (ENAS), which allow for the high-speed transmission of data
between local area networks across wide area networks, and a series of ATM-based
video and file servers. WCI, based in Santa Clara, California, designs,
manufactures, and sells high speed switching and ATM compatible local area
network communications hubs and network management software systems. The
acquisition is intended to expand and enhance the Company's ATM product line
with advanced ATM hub technology, switched ethernet products, and network
management software systems.
WCI operated at a substantial loss before its acquisition by the Company at the
end of the second quarter. Management expects that restructuring actions that
it has taken at WCI during the third quarter should significantly mitigate the
risk of future operating losses, with the full effect of the restructuring
actions not likely to be reflected until fiscal 1996. As a result, management
does not expect total costs and expenses as a percentage of sales to remain at
the higher level incurred during the third quarter. The acquisition has
increased interest expense resulting from the addition of debt to finance the
purchase. In addition, amortization expense has increased due to the addition
to the Company's assets of a material amount of goodwill and other intangibles.
If management's restructuring actions are successful, management expects that
WCI could contribute a material amount of net income to the Company beginning
in fiscal 1996. There can be no assurance, however, that the actions will be
successful, or that, if successful, WCI will be profitable in 1996.
During the second quarter of 1995, a charge to earnings was recorded related to
in-process research and development, which was acquired when the Company
purchased WCI. The effect
(10)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Results of Operations (Continued)
---------------------------------
was to reduce net income for the second quarter and year-to-date period by $1.9
million, or $0.20 per share.
The outlook for future sales in the Company's aerospace (including defense
electronics) business is difficult to predict given the uncertainties related to
the declining U.S. defense budget and related reductions and terminations of
U.S. Government defense contracts. Any negative effect on sales related to this
uncertainty may be offset in the future by contracts for new, technologically
advanced electronic defense systems, new commercial products in the expanding
telecommunications markets, sales of telecommunications products by WCI, and
sales of aerospace and electronic products into industrial markets. Thus, past
Company performance may not be a reliable indicator of future performance.
Comparison of Third Quarter 1995 to Third Quarter 1994
------------------------------------------------------
Sales for the third quarter of fiscal 1995 were $44.3 million, an increase of
$11.2 million (18.7%) from the third quarter of 1994. The Company's acquisition
of WCI contributed $13.2 million to revenue in the third quarter of 1995. Sales
of defense electronics products decreased by $4.5 million.
Gross margin increased for the third quarter of fiscal 1995 to 47.9% of sales,
from 41.4% in 1994. Affecting the third quarter of 1995 is $0.8 million of
gross margin related to the Company's insurance claim for earthquake damage
brought about by the January 17, 1994 Northridge earthquake and recognition of
$1.6 million of income related to the Company's defined benefit pension plan.
When the effects of these items are removed from the third quarter of 1995, the
percent of gross margin to sales is 42.5%.
Engineering, selling and general and administrative expenses as a percentage of
sales for the third quarter of fiscal 1995 increased to 36.4% of sales, from
23.9% in 1994. The primary reason for the year-to-year increase is the
acquisition of WCI. WCI, a communications business, operates in a different
business environment than the Company's other businesses and incurs higher
independent company-funded engineering and development costs as a percentage of
sales. In addition, the effect of restructuring actions taken at WCI during the
third quarter were not fully reflected in the level of engineering, selling and
general and administrative expenses incurred during the third quarter. As a
result, management does not expect total costs and expenses as a percentage of
sales to remain at the higher level incurred during the third quarter.
(11)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Results of Operations (Continued)
---------------------------------
Interest expense increased to $1.7 million for the third quarter of 1995 from
$1.0 million in 1994 primarily as a result of higher interest rates and
incremental debt from the purchase of WCI.
During the third quarter of 1995, a charge to earnings was recorded to reflect
restructuring actions at WCI, along with expenses associated with combining a
substantial portion of the Company's Communications Division operation in
Beaverton into the WCI operation in Santa Clara. The effect was to reduce net
income for the third quarter and year-to-date by $0.2 million, or $0.02 per
share.
Financial Condition
-------------------
At July 31, 1995, the Company's debt totaled $82.8 million, which consisted of
$34.2 million of loans under a revolving bank credit facility, $32.5 million
under a bank term loan, $15.0 million of convertible subordinated debt, and $1.1
million of other debt. In addition, there were $12.9 million of letters of
credit outstanding under the revolving credit facility. At July 31, 1995, there
was $5.8 million of debt which is due within the next twelve months and
therefore is classified as current.
The Company's ratio of long-term debt, including the current portion, to
capitalization (stockholders' equity plus debt) was 45.9% at July 31, 1995,
compared to 39.1% at October 31, 1994, reflecting the increased debt resulting
from the acquisition of WCI, offset by increased equity during the nine month
period. It is anticipated that the Company will continue to use cash generated
from operations to reduce debt. However, some cash and debt availability may be
used to finance additional acquisitions. The current ratio at July 31, 1995 was
2.58, compared with 3.22 at October 31, 1994, while working capital was $77.9
million at July 31, 1995, compared with $81.5 million at October 31, 1994. The
reduction in the current ratio is due to the effect of the acquisition of WCI as
well as reduced levels of accounts receivable. The current ratio, without
including WCI at July 31, 1995, was 2.97.
Cash flow provided by operations in the nine month period of 1995 was $14.8
million, compared to $10.0 million in the nine month period of 1994. The
increase resulted primarily from payments received during the nine month period
of 1995 related to a contract claim settlement, the earthquake insurance claim,
and collections of receivables on defense and electronics contracts, offset by
an income tax recovery in 1994. Cash used in investing activities was $39.1
million in
(12)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Financial Condition (Continued)
-------------------
1995 compared to $16.0 million in 1994, resulting primarily from the
acquisitions of WCI in 1995 and the aerospace business in 1994. Cash flow
provided by financing activities was $21.4 million in 1995 and $6.4 million in
1994 as a result of new borrowings to finance the acquisitions, offset by a
repayment of debt from operational cash flow.
Included in accounts receivable at July 31, 1995 is a claim of $1.1 million,
compared to two claims totaling $5.6 million at October 31, 1994. These claims
relate to United States Government prime contracts and subcontracts in which the
Company contends that costs were incurred in connection with customer caused
delays and disruptions, errors in technical data, a partial termination for
convenience and other unanticipated causes. A claim in the amount of
$1.6 million, which was included in accounts receivable at October 31, 1994, has
been reclassified to other long-term assets in 1995 because the claim is in
litigation, and management does not expect a resolution to the claim within the
next twelve months. The Company received payment on the second claim, for $4.0
million, in the second quarter of 1995. At that time, an additional receivable
of $1.1 million was recorded, reflecting the final negotiated settlement of $5.1
million on this claim.
The Company has settled a claim with its insurance carriers to recover the costs
of repair and replacement of assets and for the costs of business interruption
brought about by the January 17, 1994 Northridge, California earthquake. The
final settlement amount was $8.3 million, all of which has been received.
Capital expenditures during the nine months of 1995 were $3.6 million, compared
to $2.0 million in 1994. At July 31, 1995, there were approximately $2.0
million of approved capital expenditures outstanding for the replacement and
upgrade of existing plant and equipment at the Company's various facilities.
Funds for these and other capital expenditures are expected to be provided from
operations. Capital expenditures are limited by covenants contained in the
Company's credit agreement. It is anticipated that the amounts permitted under
the covenants will be sufficient to allow the Company to continue to maintain
and upgrade existing facilities.
The Company intends to continue its previously announced strategy of growth by
selective acquisitions that complement the Company's core businesses, financed
by cash from operations and from borrowings under its revolving credit facility
and, where appropriate, by issuance of new debt or equity securities of the
Company. The Company intends to pursue its acquisition
(13)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Financial Condition (Continued)
-------------------
strategy with careful regard for profitability and the Company's need for
liquidity. There can be no assurance, however, that any acquisitions will occur
or that an acquisition that does occur will not adversely affect the Company's
net income or liquidity.
The Company's program for divestiture of its discontinued operations was
substantially complete by the end of fiscal 1992. Remaining to be divested is a
996-acre parcel of land, which was used until 1987 by the Company's former
Bermite division, a discontinued technology unit. The land is located in the
city of Santa Clarita, California, approximately 35 miles from downtown Los
Angeles. The Company has entered into a development agreement with a real
estate developer to seek entitlements (the right granted by political
authorities to develop real property) to develop this property as a mixed-use
residential, commercial, retail, and light industrial development. Following
receipt of these entitlements, the Company will pursue the most advantageous
means to realize the value of this asset.
As a result primarily of the activities of its discontinued operations, the
Company is a potentially responsible party in a number of actions filed under
the Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA"). CERCLA, also known as "Superfund," is the main Federal law enacted
to address public health and environmental concerns arising with respect to the
past treatment and disposal of hazardous substances. The Company is also a
potentially responsible party in a number of other actions brought under state
laws patterned after CERCLA. In nearly all of these matters, the Company
contributed a small amount (generally less than 1%) of the total treated or
disposed of waste. In addition to the CERCLA and similar actions described
above, the Company also, from time to time, conducts or participates in remedial
investigations and cleanup activities at facilities currently or formerly
occupied by its operating units.
The Company has typically purchased insurance annually. In certain years, after
evaluating the availability and cost of insurance, the Company did not purchase
insurance for certain risks, including workers' compensation and product
liability. Moreover, the Company's insurance carriers have taken the position
that in certain cases the Company is uninsured for environmental matters, a
position that the Company disputes in certain instances. Consequently, the
Company is without insurance for various risks, including product liability
insurance for certain products manufactured in the past. The Company does,
however, have product liability insurance for products it currently
manufactures.
(14)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Financial Condition (Continued)
-------------------
At July 31, 1995, the Company had provided for its aggregate liability related
to various claims, including uninsured risks and potential claims in connection
with the environmental matters noted above. The amounts provided on the
Company's books for contingencies, including environmental matters, are recorded
at gross amounts. Because of the uncertainty with respect to the amount of
probable insurance recoveries, these potential insurance recoveries are not
taken into account as a reduction of those amounts provided unless an insurance
carrier has agreed to such coverage. The Company does not anticipate that these
matters will have a material adverse effect on the Company's financial position,
or its ability to meet its working capital and capital expenditure needs.
Although the Company has recorded estimated liabilities for contingent losses,
including uninsured risks and claims in connection with environmental matters,
in accordance with generally accepted accounting principles, the absence of or
denial of various insurance coverages represents a potential exposure for the
Company, and the net income of the Company in future periods could be adversely
affected if uninsured losses in excess of amounts recorded were to be incurred.
(15)
<PAGE>
EXHIBITS TO PART I
------------------
I(a) Calculation of Earnings per Share.
(16)
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
---------------------
CALCULATION OF EARNINGS PER SHARE
---------------------------------
($ in 000)
<TABLE>
<CAPTION>
For the Nine Months
Ended July 31,
-------------
1995 1994
======== ========
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings
--------
Net income (Note A).................................... $ 3,628 $ 6,521
Deduct:
Dividends on $ 5.00 Cumulative
Convertible Preferred Stock............ (5) (9)
-------- --------
Net income used in primary earnings
per share calculations................. $ 3,623 $ 6,512
======== ========
Average Common and Common Equivalent Shares in (000)
---------------------------------------------------
Weighted average number of common shares
outstanding................................... 8,517 8,479
Common equivalent shares:
Series D Participating Convertible
Preferred Stock....................... 292 292
Stock options included under treasury
stock method.......................... 800 708
-------- --------
TOTAL................................................. 9,609 9,479
======== ========
Primary Earnings Per Share............................ $ .38 $ .69
======== ========
</TABLE>
NOTES
(A) 1995 net income after write-off of acquired in-process research and
development of $1,950 and restructuring expenses of $229 net of tax.
Unaudited
(17)
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
---------------------
CALCULATION OF EARNINGS PER SHARE
---------------------------------
(Continued)
($ in 000)
<TABLE>
<CAPTION>
For the Nine Months
Ended July 31,
-------------
1995 1994
===== =====
<S> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Earnings
--------
Net income used in primary earnings
per share calculation (Note A)............ $ 3,623 $ 6,512
Adjustments: - -
Net income used in fully diluted earnings
per share calculations.................... $ 3,623 $ 6,512
======== ========
Average Shares used to Calculate Fully Diluted
----------------------------------------------
Earnings Per Share in (000)
---------------------------
Average common and common equivalent
shares (above)............................ 9,609 9,479
Add:
Additional stock options included
under treasury stock method.............. 107 24
-------- --------
TOTAL........................................ 9,717 9,503
======== ========
Fully Diluted Earnings Per Share............. $ .37 $ .69
======== ========
</TABLE>
NOTES
(A) 1995 net income after write-off of acquired in-process research and
development of $1,950 and restructuring expenses of $229 net of tax.
(B) Earnings per share have been computed based on the weighted average number
of common and common equivalent shares outstanding during the periods,
after deducting from net income the dividend requirements on the
outstanding $5.00 cumulative convertible stock. Common stock equivalents
include series D participating convertible preferred stock and dilutive
employee stock options, calculated using the treasury stock method.
(C) Fully diluted earnings per share have been calculated without conversion of
the convertible subordinated note at July 31, 1995 because the impact of
conversion would be antidilutive.
Unaudited
(18)
<PAGE>
Part II. OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11. Statements re computation of per share earnings for the nine
months ended July 31, 1995 (Exhibit I(a) of Part I to this
Form 10-Q).
27. Financial Data Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K/A was filed on July 7, 1995. The form reports,
in Item 7 thereof, the financial statements and pro forma financial
information related to the acquisition by the registrant of Hughes
LAN Systems, Inc.
(19)
<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.
WHITTAKER CORPORATION
Date: September 12, 1995 By: /s/ Richard Levin
-----------------------------
Richard Levin, Vice President
Chief Financial Officer
(20)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 675
<SECURITIES> 0
<RECEIVABLES> 60,276
<ALLOWANCES> 0
<INVENTORY> 42,698
<CURRENT-ASSETS> 127,340
<PP&E> 78,358
<DEPRECIATION> 37,021
<TOTAL-ASSETS> 250,442
<CURRENT-LIABILITIES> 49,426
<BONDS> 77,019
<COMMON> 85
0
1
<OTHER-SE> 97,701
<TOTAL-LIABILITY-AND-EQUITY> 250,442
<SALES> 102,715
<TOTAL-REVENUES> 102,715
<CGS> 58,196
<TOTAL-COSTS> 58,196
<OTHER-EXPENSES> 31,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,676
<INCOME-PRETAX> 6,093
<INCOME-TAX> 2,465
<INCOME-CONTINUING> 3,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,628
<EPS-PRIMARY> .38
<EPS-DILUTED> .37
</TABLE>
