<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 APRIL 30, 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.)
10880 Wilshire Boulevard, Los Angeles, California 90024
(Address of principal executive offices) (Zip Code)
(310) 475-9411
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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.
8,498,053 shares, par value $.01 per share, as of April 30, 1995.
1
<PAGE>
PART I. FINANCIAL INFORMATION
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
($ in 000)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended April 30, Ended April 30,
-------------------- --------------------
1995 1994 1995 1994
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Sales ................................... $31,682 $28,850 $58,368 $54,617
------- ------- ------- -------
Costs and expenses
Cost of sales ........................ 19,057 17,510 35,087 31,695
Engineering, selling and
general and administrative ....... 8,113 7,438 14,841 15,409
Acquired in-process research
and development................... 3,250 0 3,250 0
Interest on long-term debt ........... 1,192 882 2,414 1,788
Other interest expense ............... 28 18 43 36
Interest income ...................... (202) (147) (330) (303)
------- ------- ------- -------
31,438 25,701 55,305 48,625
------- ------- ------- -------
Income before provision for taxes ....... 244 3,149 3,063 5,992
Provision for taxes ..................... 89 1,278 1,188 2,413
------- ------- ------- -------
Net income .............................. $ 155 $ 1,871 $ 1,875 $ 3,579
======= ======= ======= =======
Average common and common
equivalent shares
outstanding (000) .................... 9,585 9,485
======= =======
Earnings per share ...................... $ 0.02 $ 0.20 $ 0.20 $ 0.38
======= ======= ======= =======
</TABLE>
Unaudited
See notes to Consolidated Condensed Financial Statements.
2
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ IN 000)
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash ................................... $ 1,731 $ 3,507
Receivables ............................ 63,342 65,292
Inventories ............................ 40,157 32,013
Current assets held for sale ........... 1,741 1,551
Other current assets ................... 2,971 2,475
Income taxes recoverable ............... 0 66
Deferred income taxes .................. 18,733 13,395
-------- --------
Total Current Assets ................... 128,675 118,299
-------- --------
Property, plant and equipment, at cost . 76,959 70,273
Less accumulated depreciation .......... 35,248 33,506
-------- --------
41,711 36,767
-------- --------
Other Assets:
Goodwill ............................... 34,983 19,604
Other intangible assets ................ 5,336 2,336
Notes and other noncurrent receivables . 4,840 3,682
Miscellaneous .......................... 9,673 4,681
Net assets held for sale ............... 24,550 23,938
-------- --------
79,382 54,241
-------- --------
$249,768 $209,307
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 5,544 $ 5,540
Accounts payable ....................... 18,323 10,713
Accrued liabilities .................... 25,923 20,512
-------- --------
Total Current Liabilities .............. 49,790 36,765
-------- --------
Long-Term Debt ......................... 63,544 54,742
-------- --------
Convertible subordinated debt........... 15,000 0
-------- --------
Other Noncurrent Liabilities ........... 9,571 11,880
-------- --------
Deferred Income Taxes .................. 15,891 11,970
-------- --------
Stockholders' Equity:
Capital Stock
Preferred stock ..................... 1 3
Common stock ........................ 85 85
Additional paid-in capital.............. 19,026 17,787
Retained earnings ...................... 76,860 76,075
-------- --------
Total Stockholders' Equity ............. 95,972 93,950
-------- --------
$249,768 $209,307
======== ========
</TABLE>
Unaudited
See Notes to Consolidated Condensed Financial Statements
3
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ IN 000)
<TABLE>
<CAPTION>
For the Six Months
-------------------------
Ended April 30,
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ...................................... $ 1,875 $ 3,579
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 3,059 2,918
Net periodic pension cost (income) ............ (1,100) 573
Acquired in-process research and development,
after tax.................................... 1,950 0
Decrease in income taxes recoverable ............ 66 2,215
Increase in deferred taxes....................... 375 330
Changes in operating assets and liabilities:
Decrease in accounts receivable.................. 9,253 3,951
Increase in inventories and prepaid expenses..... (2,358) (3,007)
Decrease in accounts payable and other
liabilities.................................... (4,433) (6,566)
-------- --------
Total cash provided by operating activities...... 8,687 3,993
-------- --------
INVESTING ACTIVITIES
Purchases of property, plant and equipment....... (2,022) (1,324)
Purchased businesses............................. (31,013) (13,517)
Retirement of property, plant and equipment...... 1,624 0
Net (increase) decrease in notes receivable...... (1,110) 296
Other items, net................................. (862) 594
-------- --------
Net cash used in investing activities............ (33,383) (13,951)
-------- --------
FINANCING ACTIVITIES
New convertible subordinated debt................ 15,000 0
Net increase (decrease) in debt.................. 8,806 10,305
Deferred debt costs.............................. (1,033) 0
Dividends paid................................... (6) (7)
Shares redeemed.................................. (8) 0
Proceeds from shares issued under stock plans.... 161 106
-------- --------
Net cash provided by financing activities........ 22,920 10,404
-------- --------
Net increase (decrease) in cash.................. (1,776) 446
Cash at beginning of year........................ 3,507 170
-------- --------
Cash at end of period............................ $ 1,731 $ 616
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ...................................... $ 2,318 $ 1,864
======== ========
Income taxes .................................. $ 1,307 $ 1,721
======== ========
</TABLE>
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
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 April 30, 1995 include $24.3 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 April 30, 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. One claim in the amount of $1.6
million, which was included in accounts receivable at October 31, 1994, was
reclassified to other long-term assets, 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. An additional receivable of $1.1 million was
recorded in the second quarter of 1995 reflecting the final negotiated
settlement of $5.1 million on this claim.
5
<PAGE>
WHITTAKER CORPORATION
---------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Continued)
Inventories consisted of the following:
<TABLE>
<CAPTION>
($ in 000)
April 30, October 31,
1995 1994
----------- ------------
<S> <C> <C>
Raw materials $21,013 $18,391
Work in process 12,165 11,643
Finished goods 4,277 1,174
Costs relating to long term contracts 2,954 805
Unliquidated progress billings (252) (0)
------- -------
$40,157 $32,013
======= =======
</TABLE>
On April 24, 1995, the Company acquired all of the stock of Hughes LAN Systems,
Inc. (HLS), a subsidiary of Hughes Electronics Corporation. 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 $17.5 million in
cash (subject to adjustments) and $15.0 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 is 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 $15.6 million which will be amortized on a
straight-line basis over twenty years. The Company also assumed liabilities of
WCI of $15.1 million. Because the transaction was recorded as of the end of the
reporting period, the results of operations for WCI are not included in the
Company's income statement. The purchase price allocation is preliminary based
on the best information available at the time the financial statements were
prepared and may be subject to subsequent adjustment. Pro forma income
information is not currently available and will be filed pursuant to the
Company's Form 8-K dated May 8, 1995.
6
<PAGE>
WHITTAKER CORPORATION
---------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Continued)
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.
At April 30, 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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
Results of Operations
- ---------------------
Comparison of Six Months of 1995 to Six Months of 1994
- ------------------------------------------------------
Sales for the first six months of fiscal 1995 were $58.4 million, an increase of
$3.8 million from the six month period of 1994. The Company acquired an
aerospace business during the second quarter of 1994 which contributed $10.3
million to revenue in the six month period of 1995, compared to $1.8 million in
1994. Sales for the six month period of 1994 included the recognition of $4.0
million of sales from the partial settlement of a termination claim against a
defense electronics products customer. An additional settlement amount of $1.1
million was recognized in 1995. Sales of defense electronic and communications
products decreased $2.5 million.
Gross margin increased in the six month period of 1995 to $23.3 million, or
39.9% of sales, from $22.9 million, or 42.0% of sales in 1994. Affecting the
comparability of the periods is the inclusion in 1994 of the termination claim
settlement, noted above, which contributed $3.5 million of gross margin from
1994 sales, compared with $1.0 million of gross margin from 1995 sales. When
the effect of the claim is removed from both periods the percent of gross margin
to sales is 38.8% in 1995 compared to 38.4% in 1994.
Engineering, selling and general and administrative expenses as a percentage of
sales declined from 28.2% in 1994 to 25.4% in 1995. The decline resulted
primarily from the inclusion of $1.1 million of income related to the Company's
defined benefit pension plan and the recognition of an $0.8 million recovery
related to the Company's insurance claim for earthquake damage which was
included in 1995.
Interest expense increased to $2.1 million in the six month period of 1995 from
$1.5 million in 1994, primarily as a result of higher interest rates which were
partially offset by lower average borrowing levels in the six month period of
1995.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Results of Operations (Continued)
- ---------------------
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, sales of new commercial products in the
expanding telecommunications markets, sales of telecommunications products by
Whittaker Communications, Inc. (described below), and sales of aerospace and
electronic products into industrial markets. Thus, past Company performances may
not be a reliable indicator of future performance.
Comparison of Second Quarter 1995 to Second Quarter 1994
- --------------------------------------------------------
Sales for the second quarter of fiscal 1995 were $31.7 million, an increase of
$2.8 million from the second quarter of 1994. The Company acquired an aerospace
business during the second quarter of 1994, which contributed $5.9 million to
revenue in the second quarter of 1995, compared to $1.8 million in the second
quarter of 1994. Sales of defense electronic and communications products
decreased by $1.6 million.
Acquisition
- -----------
On April 24, 1995, the Company acquired all of the stock of Hughes LAN Systems,
Inc.(HLS), a subsidiary of Hughes Electronics Corporation. The Company changed
the name of the subsidiary to Whittaker Communications, Inc. ("WCI"), and
integrated it with the Company's Communications Division. The Company's
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.
The Company paid $17.5 million in cash (subject to adjustments) and $15.0
million in convertible subordinated debt for the stock. 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 acquisition also provides for
contingent deferred payments, not to exceed $25
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Results of Operations (Continued)
- ---------------------
million, over four years beginning in 1996, based on future sales of WCI's hub
products.
No revenues, expenses, or net income from WCI are included in the second quarter
results because the acquisition was consummated at the end of the quarter.
Management expects that sales of WCI products and services will contribute
substantial revenues to the Company beginning in the third quarter. WCI had
operated at a substantial loss before its acquisition by the Company.
Management expects that restructuring actions that it has taken and intends to
take at WCI should significantly mitigate the risk of future operating losses by
the end of the third quarter, with the full effect of the restructuring actions
not likely to be reflected until fiscal 1996. The 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, may result in restructuring expenses in the third quarter. In
addition, the acquisition will increase interest expense resulting from the
addition of debt for the acquisition and amortization expense resulting from 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 was to reduce net income for the second quarter and
six month period by $1.9 million, or $0.20 per share.
Financial Condition
- -------------------
At April 30, 1995, the Company's debt totaled $84.1 million, which consisted of
$34.2 million of loans under a revolving bank credit facility, $33.8 million
under a bank term loan, $15.0 million convertible subordinated debt, and $1.1
million of other debt. In addition, there were $11.5 million of letters of
credit outstanding under the revolving credit facility. The Company and a group
of banks are parties to a credit agreement which provides for a $65.0 million
revolving credit facility and a three-year term expiring in January 1998 and a
term loan that is to be repaid in quarterly installments over five years.
Interest on loans outstanding under the credit agreement are based, at the
Company's option, on LIBOR or the
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Financial Condition (Continued)
- -------------------
agent bank's prime rate. The annual interest rate based on LIBOR may range
between LIBOR plus 1.0% and LIBOR plus 1.875%, and the annual interest rate
based on the prime rate may range between prime and prime plus 0.50%. The
agreement includes financial covenants with respect to financial leverage, cash
flow, and tangible net worth. At April 30, 1995, there was $5.5 million of debt
which is due within the next twelve months and is therefore classified as
current. At April 24, 1995, the Company issued a $15.0 million convertible
subordinated note in connection with the acquisition of WCI as described above.
The note bears interest at 7% per annum, is due in May, 2005 and is convertible
into the common stock of the Company, at the option of the holder, at a price of
$24 1/4 per share.
The Company's ratio of long-term debt, including the current portion, to
capitalization (stockholders' equity plus debt) was 46.7% at April 30, 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 six 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 April 30, 1995
stood at 2.58 compared with 3.22 at October 31, 1994, while working capital was
$78.9 million compared with $81.5 million. The reduction in the current ratio
is the result of including WCI in the Company's consolidated balance sheet. The
current ratio, without including WCI at April 30, 1995, stood at 3.15.
Cash flow provided by operations in the six month period of 1995 was $8.7
million, compared to $4.0 million in the six month period of 1994. The increase
resulted primarily from payments received during the six month period of 1995
related to a contract claim settlement and the earthquake insurance claim,
offset by an income tax recovery in 1994. Cash used in investing activities was
$33.4 million in 1995, compared to $14.0 million in 1994, resulting primarily
from the acquisition of WCI in 1995 and the aerospace business in 1994. Cash
flow provided by financing activities was $22.9 in 1995 and $10.4 million in
1994 as a result of new borrowings to finance the acquisitions offset by
repayment of debt from operational cash flow.
Included in accounts receivable at April 30, 1995 is a claim of $1.1 million,
compared to two claims of $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,
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF
------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Financial Condition (Continued)
- -------------------
a partial termination for convenience and other unanticipated causes. One claim
in the amount of $1.6 million, which was included in accounts receivable at
October 31, 1994, was reclassified to other long-term assets, 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, of
$4.0 million, in the second quarter of 1995. An additional receivable of $1.1
million was recorded in the second quarter of 1995 reflecting the final
negotiated settlement of $5.1 million on the second claim.
The Company has submitted a claim to 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 earthquake. To date, the
Company has been paid $5.9 million on account and is negotiating with the
carriers to reach a final settlement. The Company provided reserves of $1.0
million in January 1994 to cover insurance deductibles and does not believe that
additional reserves will be required. There are no deferred costs related to the
earthquake recovery at April 30, 1995.
Capital expenditures during the six month period of 1995 were $2.0 million
compared to $1.3 million in 1994. At April 30, 1995, there were approximately
$1.9 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 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.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF
------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Financial Condition (Continued)
- -------------------
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.
At April 30, 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
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF
-----------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
(Continued)
Financial Condition (Continued)
- -------------------
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.
14
<PAGE>
EXHIBITS TO PART I
------------------
I(a) Calculation of Earnings Per Share.
15
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Stated in Thousands of Dollars
------------------------------
Six Months Ended April 30,
------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
- --------------------------
Earnings
Net income (Note A) $1,875 $3,579
Deduct:
Dividends on preferred stock -
$5.00 convertible preferred series (5) (6)
------ ------
Net income used in primary earnings
per share calculations $1,870 $3,573
====== ======
Average Common and Common Equivalent
Shares in (000)
Weighted average number of
common shares outstanding 8,498 8,476
Common equivalent shares -
Series D participating convertible
preferred stock 292 292
Stock options included under treasury
stock method 795 717
------ ------
TOTAL 9,585 9,485
====== ======
Primary Earnings Per Share $ 0.20 $ 0.38
====== ======
</TABLE>
(A) 1995 net income after write-off of acquired in-process research and
development of $1,950 net of tax.
Unaudited
16
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Stated in Thousands of Dollars
------------------------------
Six Months Ended April 30,
------------------------------
1995 1994
-------------- ------------
<S> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
- -----------------------------------
Earnings
Net income used in primary earnings
per share calculation (Note A) $1,870 $3,573
Adjustments - interest on convertible
subordinated debt - -
------ ------
Net income used in fully diluted
earnings per share calculations $1,870 $3,573
====== ======
Average Shares used to Calculate Fully Diluted
Earnings Per Share in (000)
Average common and common equivalent
shares (above) 9,585 9,485
Add:
Additional stock options included
under treasury stock method 74 -
Average shares outstanding assuming
conversion of subordinated
convertible debt 88 -
------ ------
TOTAL 9,747 9,485
====== ======
Fully Diluted Earnings Per Share $ 0.19 $ 0.38
====== ======
</TABLE>
NOTES
(A) 1995 net income after write-off of acquired in-process research and
development of $1,950 net of tax.
(B) In connection with those securities outstanding prior to June 1, 1969 the
Company elected under paragraph 46 of APB Opinion Number 15 to classify as
common stock equivalents only those which were classified as residual
securities under APB Opinion Number 9.
(C) 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.
(D) Fully diluted earnings per share have been calculated assuming conversion
of the convertible subordinated note at April 30, 1995.
Unaudited
17
<PAGE>
Part II. OTHER INFORMATION
===========================
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of the Registrant was held on March
24, 1995.
(b) At the annual meeting, stockholders voted on the election of Class III
Directors; the ratification of an amendment to the Whittaker
Corporation Long-Term Stock Incentive Plan (1989), increasing the
number of shares of Common Stock authorized to be issued thereunder
from 1,000,000 shares to 2,000,000 shares; and the ratification of the
appointment of Ernst & Young LLP as the Registrant's independent
auditor for the fiscal year ending October 31, 1995. The votes cast
with respect to each of such matters were as follows:
<TABLE>
<CAPTION>
Against
or Broker
For Withheld Abstentions Non-Votes
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Class III Directors
George H. Benter, Jr. 6,774,665 57,487 ----- -----
Thomas A. Brancati 6,774,571 57,581 ----- -----
Gregory T. Parkos 6,772,327 59,825 ----- -----
Ratification of
Long-Term Plan
Amendment 4,642,122 1,196,339 39,769 953,992
Ratification of
Appointment of
Ernst & Young LLP 6,804,238 12,788 15,126 -----
</TABLE>
18
<PAGE>
Part II. OTHER INFORMATION
===========================
(Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
11. Statements re computation of per share earnings for the three
months ended April 30, 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 was filed on May 9, 1995. The form reports, in
Item 2 thereof, the acquisition by the registrant of Hughes LAN
Systems, Inc. The financial statements required to be filed with the
Form 8-K will be filed pursuant to Item 7(a)(4) thereof.
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: June 14, 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> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> APR-30-1995
<CASH> 1,731
<SECURITIES> 0
<RECEIVABLES> 63,342
<ALLOWANCES> 0
<INVENTORY> 40,157
<CURRENT-ASSETS> 128,675
<PP&E> 76,959
<DEPRECIATION> 35,248
<TOTAL-ASSETS> 249,768
<CURRENT-LIABILITIES> 49,540
<BONDS> 78,794
0
1
<COMMON> 85
<OTHER-SE> 95,886
<TOTAL-LIABILITY-AND-EQUITY> 249,768
<SALES> 58,368
<TOTAL-REVENUES> 58,368
<CGS> 35,087
<TOTAL-COSTS> 35,087
<OTHER-EXPENSES> 18,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,127
<INCOME-PRETAX> 3,063
<INCOME-TAX> 1,188
<INCOME-CONTINUING> 1,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,875
<EPS-PRIMARY> .20
<EPS-DILUTED> .19
</TABLE>
