<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1996
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 1-5407
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)
(805) 526-5700
(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 (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
--- ---
The number of outstanding shares of the registrant's Common Stock, par
value $.01 per share, was 11,029,155 as of August 31, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WHITTAKER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ in 000, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended July 31, Ended July 31,
-------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $62,162 $44,347 $154,187 $102,715
------- ------- -------- --------
Costs and expenses
Cost of sales 36,824 23,109 89,208 58,196
Engineering and development 6,879 3,332 13,856 4,441
Selling, general and administrative 24,025 12,920 51,040 26,543
Acquired in-process research and development - - 11,700 3,250
Restructuring costs 866 382 1,406 382
------- ------- -------- --------
Operating profit (loss) (6,432) 4,604 (13,023) 9,903
Interest expense 3,374 1,741 7,060 4,155
Interest income (479) (149) (6,101) (479)
Other expense 296 (18) 342 134
------- ------- -------- --------
Income (loss) before provision for taxes (9,623) 3,030 (14,324) 6,093
Provision (benefit) for taxes (3,677) 1,277 (5,378) 2,465
------- ------- -------- --------
Net income (loss) $(5,946) $ 1,753 $ (8,946) $ 3,628
======= ======= ======== ========
Average common and common
equivalent shares outstanding (000) 11,029 9,658 9,704 9,609
======= ======= ======== ========
Earnings (loss) per share $ (0.54) $ 0.18 $ (0.92) $ 0.38
======= ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
(2)
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in 000)
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
- --------------
Cash $ 9,497 $ 161
Receivables 74,966 64,708
Inventories 52,085 38,975
Other current assets 3,008 2,053
Income taxes recoverable 7,705 1,452
Deferred income taxes 17,908 15,151
-------- --------
Total Current Assets 165,169 122,500
Property and equipment, at cost 105,749 78,059
Less accumulated depreciation and amortization (59,020) (36,641)
-------- --------
Net Property and Equipment 46,729 41,418
Other Assets
- ------------
Goodwill, net of amortization 94,720 33,414
Other intangible assets, net of amortization 47,236 10,585
Notes and other noncurrent receivables 3,396 4,218
Other noncurrent assets 14,485 11,709
Net assets held for sale 30,369 27,115
-------- --------
Total Other Assets 190,206 87,041
-------- --------
Total Assets 402,104 250,959
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Current maturities of long-term debt 149,591 6,048
Accounts payable 18,665 14,650
Accrued liabilities 38,202 29,530
-------- --------
Total Current Liabilities 206,458 50,228
Other Liabilities
- -----------------
Long-term debt 15,587 70,694
Other noncurrent liabilities 11,368 11,340
Deferred income taxes 24,876 16,273
-------- --------
Total Other Liabilities 51,831 98,307
Stockholders' Equity
- --------------------
Capital stock
Preferred stock 1 1
Common stock 110 86
Additional paid-in capital 74,818 19,261
Retained earnings 68,886 83,076
-------- --------
Total Stockholders' Equity 143,815 102,424
-------- --------
Total Liabilities and Stockholders' Equity 402,104 250,959
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
(3)
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in 000)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended July 31,
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (8,946) $ 3,628
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 12,014 5,663
Net periodic pension income (154) (2,040)
Acquired in-process research and development 11,700 3,250
Increase in income taxes recoverable (6,253) (1,554)
Change in deferred taxes (4,831) 1,929
Changes in operating assets and liabilities:
Decrease in receivables 8,830 13,938
Increase in inventories and other current assets (6,105) (3,966)
Decrease in accounts payable and other liabilities (7,637) (6,019)
-------- --------
Net cash provided (used) by operating activities (1,382) 14,829
-------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,428) (3,644)
Purchased businesses (69,578) (31,013)
Net decrease in notes receivable 1,122 739
Increase in net assets held for sale (3,254) (1,068)
Other items, net 1,119 (4,095)
-------- --------
Net cash used by investing activities (74,019) (39,081)
-------- --------
FINANCING ACTIVITIES
New convertible subordinated debt - 15,000
Borrowing related to new credit agreement 88,250 67,950
Paydown related to previous credit agreement - (60,250)
Reduction of other debt (207) (167)
Deferred debt costs (3,448) (1,322)
Other items, net 142 209
-------- --------
Net cash provided by financing activities 84,737 21,420
-------- --------
Net increase (decrease) in cash 9,336 (2,832)
Cash at beginning of year 161 3,507
-------- --------
Cash at end of period $ 9,497 $ 675
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 6,687 $ 3,763
======== ========
Income taxes $ 214 $ 1,377
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
(4)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of Whittaker Corporation
("Whittaker" or the "Company") and its subsidiaries have been prepared in
conformity with generally accepted accounting principles, consistent in all
material respects with those applied in the Annual Report on Form 10-K for the
year ended October 31, 1995. The interim financial information is unaudited, but
reflects all adjustments which are of a normal recurring nature and, in the
opinion of management, necessary to provide a fair statement of the results for
the interim periods presented. The interim financial statements should be read
in conjunction with the financial statements and related notes in the Company's
Annual Report on Form 10-K for the year ended October 31, 1995. The results of
operations for interim periods are not necessarily indicative of the results of
operations for the full year.
Primary earnings per share have been computed based on the weighted average
number of common and common equivalent shares outstanding. Common stock
equivalents include Series D Participating Convertible Preferred Stock and
dilutive employee stock options calculated using the treasury stock method.
Fully diluted earnings per share include the additional potential dilutive
effects of employee stock options under the treasury stock method and additional
shares issued assuming conversion of the convertible subordinated debt. Fully
diluted earnings per share are not presented because the calculations result in
dilution of less than 3%. Loss per share calculations exclude common stock
equivalents, which would reduce the loss per share if included.
Certain previously reported amounts have been reclassified to conform to the
current period presentation.
NOTE 2. ACQUISITIONS
On April 10, 1996, the Company acquired all of the capital stock of Xyplex, Inc.
("Xyplex"), a wholly-owned subsidiary of Raytheon Company ("Raytheon"). Xyplex
is a producer of high-speed internetworking equipment, terminal servers and
shared media products for business local area networks. Xyplex also provides
remote access products that interconnect with phone companies' wide area
networks. The purchase price was $67.5 million in cash, subject to certain
adjustments, and $50.0 million in the form of 1,974,333 newly issued shares of
the Company's common stock. Other direct costs associated with the acquisition
were approximately $1.4 million. The cash paid to Raytheon was obtained from an
amendment to the Company's existing credit facility entered into on April 10,
1996.
The Xyplex acquisition was accounted for as a purchase and the balance sheet of
Xyplex was combined with the Company's balance sheet as of April 30, 1996. The
valuation of assets acquired and liabilities assumed is preliminary and subject
to further review and change as the Company's integration plans for Xyplex are
finalized. The transaction resulted in the acquisition
(5)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. ACQUISITIONS - (CONTINUED)
of intangible assets valued at $37.2 million which will be amortized on a
straight-line basis over periods ranging from five to fifteen years, goodwill of
$61.7 million which will be amortized on a straight-line basis over twenty
years, and accrued liabilities assumed of $16.6 million. Acquired in-process
research and development valued at $11.7 million was expensed at the acquisition
date.
On April 24, 1995, the Company acquired all of the capital stock of Hughes LAN
Systems, Inc., a subsidiary of Hughes Electronics Corporation. The subsidiary
was renamed Whittaker Communications, Inc. ("WCI") and is a designer and
manufacturer of high-speed switches and Asynchronous Transfer Mode ("ATM")
compatible local area network communication hubs and network management software
systems. WCI was acquired for a purchase price of $16.0 million in cash, subject
to certain adjustments, and a $15.0 million 7% convertible subordinated note.
The convertible note is due on May 1, 2005, and is convertible to the Company's
common stock at a price of $24.25 per share. The acquisition agreement also
provides for contingent deferred payments, not to exceed $25 million, over the
years 1996 to 1999 based on future sales of WCI's hub products and derivatives.
The WCI acquisition was accounted for as a purchase 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 intangible assets valued at $8.9
million which are being amortized on a straight-line basis over periods ranging
from five to fifteen years, goodwill of $14.2 million which is being amortized
on a straight-line basis over twenty years, and liabilities assumed of $18.1
million. Acquired in-process research and development valued at $3.3 million was
expensed at the acquisition date.
The accompanying consolidated financial statements reflect the operating results
of Xyplex and WCI since the effective dates of the acquisitions. The Company has
not completed all appraisals and evaluations necessary to finalize Xyplex's
purchase price allocations and accordingly, actual adjustments that reflect
appraisals and other evaluations of the purchased assets and assumed liabilities
may differ from the pro forma adjustments presented herein. Such evaluations may
include restructuring or other integration actions involving Xyplex which may
result in adjustments to the purchase price and charges to income. The unaudited
pro forma results of operations which follow are presented for illustrative
purposes only and are not necessarily indicative of the consolidated results of
operations of the Company that would have been reported had the acquisitions
occurred on the dates indicated, nor do they represent a forecast of the
consolidated results of operations of the Company for any future period. The
unaudited pro forma results of operations for the nine months ended July 31,
1996 and 1995, assuming the
(6)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. ACQUISITIONS - (CONTINUED)
consummation of the acquisition and issuance of 7% debt and common stock at the
beginning of each period, are summarized below (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Proforma Proforma
Nine Months Nine Months
Ended July 31, Ended July 31,
1996 1995
-------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $209,179 $203,704
Net loss (7,449) (8,561)
Loss per share (0.64) (0.82)
</TABLE>
NOTE 3. INVENTORIES
Inventories consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
-------- -----------
(Unaudited)
<S> <C> <C>
Raw materials $22,766 $23,518
Work in process 16,675 11,500
Finished goods 11,656 3,332
Costs relating to long term contracts 1,608 1,744
Unliquidated progress billings (620) (1,119)
------- -------
$52,085 $38,975
======= =======
</TABLE>
NOTE 4. COMMITMENTS AND CONTINGENCIES
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. 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. 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.
(7)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
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 July 31, 1996, 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.
NOTE 5. LONG-TERM DEBT
On April 10, 1996, the Company and its existing agent bank entered into an
amendment to its credit agreement which, among other things, increased the
amount of the credit facility to $170.0 million. The credit agreement was
subsequently syndicated to include ten additional banks. The credit facility
currently consists of an $85.0 million revolving credit facility that expires in
April 2001 and an $83.0 million term loan payable in quarterly installments
until 2001. Interest on loans outstanding under the credit agreement are based,
at the Company's option, on LIBOR or the agent bank's prime rate. The annual
interest rate based on LIBOR may range between LIBOR plus 1.0% and LIBOR plus
2.50%, and the annual interest rate based on the prime rate
(8)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. LONG-TERM DEBT - (CONTINUED)
may range between prime and prime plus 1.0%. The Company is obligated to pay
letter of credit fees which may range between .625% per annum and 2.625% per
annum on the aggregate amount of outstanding letters of credit, and commitment
fees which may range between .25% per annum and .50% per annum on the unused
amount of the revolving credit facility. Additional borrowings under the amended
credit facility were used to fund the acquisition of Xyplex, and will be used
going forward to fund working capital and other corporate requirements. The
Company's obligations under the credit agreement are secured by a pledge of
shares of stock of subsidiaries of the Company, accounts receivable, inventory,
equipment, intellectual property, and other assets of the Company and its
subsidiaries. The agreement includes financial covenants with respect to
financial leverage, cash flow, and net worth. At July 31, 1996, the Company was
not in compliance with one of its financial ratio covenants. On September 9,
1996, the Company obtained a waiver of the default up to, but not including the
end of fiscal 1996. The Company and its bank lending group are currently
discussing an amendment of such financial ratio covenants. However, there can be
no assurance that an amendment will be obtained. In the event that an amendment
is not obtained, the Company may need to undertake alternative measures which
may include refinancing its credit facility, selling assets, or issuing debt or
equity securities. Such alternative measures may be more expensive than the
Company's current bank financing. If such alternative measures are not achieved,
the bank lending group may elect to pursue its remedies, including accelerating
the total bank indebtedness.
At July 31, 1996, the Company's debt totaled $165.2 million, which consisted of
$66.0 million of loans under a revolving bank credit facility, $83.0 million
under a bank term loan, $15.0 million of convertible subordinated debt, and $1.2
million of other debt. In addition, there were $11.1 million of letters of
credit outstanding under the revolving credit facility. Because the Company was
not in compliance with one of its financial ratio covenants at July 31, 1996,
bank debt in the amount of $139.5 million, which otherwise would have been
classified as noncurrent, has been classified as current.
NOTE 6. BUSINESS SEGMENTS
The Company develops specialized aerospace and electronics technologies to
create products and customer solutions for aircraft, defense, communications and
industrial markets. The Company operates in two business segments: Aerospace,
which designs, manufactures, and distributes a wide variety of fluid control
devices and fire detection systems, as well as defense electronics products and
systems, and Communications, which designs, develops, and markets a
comprehensive line of networking products and services. Prior to April 30, 1995,
the Company's communications operations were not material enough to comprise a
separate business segment.
(9)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. BUSINESS SEGMENTS - (CONTINUED)
Operating profit (loss) is total revenue less operating expenses. General
corporate expenses have not been allocated to the business segments and are
shown as a separate expense element of operating profit (loss) to reconcile to
consolidated operating profit (loss). Communications segment operating results
in 1996 and 1995 reflect the write-offs of in-process research and development
costs of $11.7 million and $3.3 million, respectively, which were recorded as
expenses at the acquisition dates of Xyplex and WCI, as well as restructuring
costs of $0.9 million which were incurred in the third quarter of 1996.
Aerospace segment operating results for the nine month period ended July 31,
1996 reflect restructuring costs of $0.5 million incurred during the second
quarter of 1996.
Information about the Company's operations by business segment at July 31, 1996
and 1995 and for the periods then ended follows ($ in thousands):
<TABLE>
<CAPTION>
UNAUDITED
For the Three Months For the Nine Months
Ended July 31, Ended July 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES:
Aerospace $30,550 $31,141 $ 93,056 $ 89,509
Communications 31,612 13,206 61,131 13,206
------- ------- -------- --------
$62,162 $44,347 $154,187 $102,715
======= ======= ======== ========
OPERATING PROFIT (LOSS):
Aerospace $ 4,885 $ 6,980 $ 17,139 $ 19,140
Communications (8,292) (488) (23,093) (3,738)
Corporate and Other (3,025) (1,888) (7,069) (5,499)
------- ------- -------- --------
$(6,432) $ 4,604 $(13,023) $ 9,903
======= ======= ======== ========
</TABLE>
(10)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Comparison of Three Months Ended July 31, 1996 and 1995
- -------------------------------------------------------
Sales. The Company's third quarter 1996 sales of $62.2 million increased by
$17.8 million (40.2%) over third quarter sales in the prior fiscal year. Sales
generated by the Company's Communications segment increased by $18.4 million,
primarily as a result of the acquisition of Xyplex, Inc. ("Xyplex") on April 10,
1996. Communications segment sales were lower than expected in the third quarter
of 1996 as a result of delays in the release of certain new products. The
Company currently intends to release certain upgraded products and product
enhancements through its Communications segment during fiscal 1997. Delays in
the introduction of new or enhanced products or failure to achieve significant
customer acceptance for these new products may have an adverse effect on the
Company's revenues and results of operations for this business segment in future
periods. Although the Company does not currently anticipate any particular
difficulties, there can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of new products and product enhancements or that its
new products and product enhancements will adequately meet the requirements of
the marketplace and achieve market acceptance.
The Company's Aerospace segment sales for the third quarter of fiscal 1996 were
down $0.6 million (1.9%) from the same period in 1995, due to decreased sales of
defense electronics products, which was substantially offset by increased
business in the commercial aircraft aftermarket and industrial product lines.
The outlook for future sales in the Aerospace segment is impacted by the price
and availability of crude oil, the strength of the economy, the degree of
military conflict and the U.S. defense budget. Any negative effect on Aerospace
segment sales related to these factors may be offset in the future by contracts
for new, technologically advanced electronic defense systems, new commercial
products and sales of aerospace and electronics products into industrial
markets. New aircraft production appears to be on the rise and is expected to
contribute to an improved business climate for commercial aircraft product
lines.
Gross Margin. The Company's gross margin for the third quarter of 1996 as a
percentage of sales was 40.8%, compared with 47.9% for the third quarter of
1995. The third quarter 1996 gross margin consists of Communications segment
gross margin of $14.5 million (45.8% of sales), and Aerospace segment gross
margin of $10.8 million (35.5% of sales). Communications segment margin as a
percentage of sales decreased from 47.2% in 1995 to 45.8% in 1996 because lower
margin products (service and support related) comprised a higher proportion of
total communications revenues due to delayed releases of new products in the
third quarter of 1996. Aerospace segment gross margin as a percentage of sales
decreased from 48.2% in 1995 to 35.5% in 1996. Although there were improvements
in margins in the commercial aircraft and industrial product lines, they were
offset by lower margins in defense electronics products
(11)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
primarily due to adjustments of $1.0 million to asset carrying values. Aerospace
segment gross margin for the third quarter of 1995 reflected a credit of
approximately $1.5 million for income from the Company's defined benefit pension
plan and a $0.8 million recovery related to the Company's insurance claim for
damage from the 1994 Northridge, California earthquake. In prior quarters in
1995, the pension income was included in selling, general and administrative
expense. Without these items, Aerospace segment gross margin would have been
40.6% of sales for the third quarter of 1995.
Engineering and Development. Engineering and development expenses for the third
quarter of 1996 increased by $3.5 million from the third quarter of 1995. The
third quarter 1996 engineering and development expenses consist of
Communications segment expenses of $6.5 million (20.4% of sales) and Aerospace
segment expenses of $0.4 million (1.4% of sales). Communications segment
engineering and development expenses increased by $4.1 million from 1995 to 1996
primarily due to the inclusion of Xyplex's engineering and development expenses
since its acquisition on April 10, 1996. To maintain its competitive market
position in the Communications segment, the Company expects to continue to
invest a significant amount of its resources in the development of new
Communications products and product enhancements. Aerospace segment engineering
and development expenses decreased by $0.6 million from 1995 to 1996.
Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) for the third quarter of 1996 increased by $11.1 million from
the third quarter of 1995, from 29.1% of sales in 1995 to 38.6% of sales in
1996. Communications segment SG&A expenses increased by $11.3 million from third
quarter 1995 to third quarter 1996 due primarily to the inclusion of Xyplex SG&A
expenses since its acquisition on April 10, 1996 and due to delays in fully
implementing certain streamlining and integration actions planned for this
segment. Communications segment SG&A expenses for the third quarter of 1996 were
$15.5 million (48.9% of sales), which included amortization expense of $2.6
million related to goodwill and intangible assets, compared with SG&A expenses
of $4.2 million (31.8% of sales), which included amortization expense of $0.4
million related to goodwill and intangible assets, for the third quarter of
1995.
Aerospace segment SG&A expenses increased to $5.5 million (18.2% of sales) for
the third quarter of 1996 compared to $5.2 million (16.7% of sales) for the same
period in 1995 because the defense electronics unit's expenses declined at a
disproportionately lesser rate than the decline in sales for that unit. In the
third quarter of 1995, Aerospace segment SG&A expenses reflected a credit of
approximately $0.5 million for a recovery related to the Company's insurance
claim for earthquake damage from the 1994 Northridge, California earthquake. The
credit was offset by a reclassification from SG&A expense to cost of sales in
(12)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
the third quarter of 1996 of $0.6 million for income from the Company's defined
benefit pension plan.
Restructuring Costs. During the third quarter of 1996, the Communications
segment incurred costs of $0.9 million related to streamlining Xyplex and
integrating with WCI. Additional costs will be incurred in the fourth quarter of
1996. As discussed further in the section on Operating Results below, the
Aerospace segment is expected to incur restructuring expenses in the fourth
quarter of fiscal 1996, and possibly in the first quarter of fiscal 1997 due to
moves taken to further consolidate segment operations.
Interest Expense. Interest expense increased to $3.4 million for the third
quarter of 1996 from $1.7 million in the same period of 1995 primarily as a
result of incremental debt related to the acquisition of Xyplex.
Interest Income. During the third quarter of 1996, the Company recognized $0.3
million of interest income related to an income tax refund received for its 1988
tax year.
Income Taxes. In the third quarter of fiscal 1996, the Company's effective tax
rate was 38.2%, compared to an effective tax rate of 42.1% for the third quarter
of fiscal 1995. The nondeductibility of goodwill (WCI in 1995) increases the
effective tax rate for periods with taxable income by increasing the tax
provision with respect to income before taxes. The nondeductibility of goodwill
(WCI and Xyplex in 1996) in a period with taxable losses decreases the effective
tax rate by decreasing the tax benefit with respect to losses.
Operating Results. As described under Sales above, the Communications segment
experienced lower revenues than expected during the third quarter of fiscal
1996. The Company began taking certain restructuring, streamlining, and
integration actions in connection with the Xyplex acquisition during the third
quarter of 1996 in order to improve the profitability of the Communications
segment. However, implementation of these actions has not occurred as rapidly as
previously expected. Implementation of these actions will continue in the fourth
quarter.
As a consequence of both of these factors -- lower than expected revenues and
delayed implementation of restructuring and cost reduction activities -- the
Communications segment is expected to experience additional operating losses
during the balance of fiscal 1996 and may continue to experience such losses
during the early months of fiscal 1997.
On August 23, 1996, the Company announced that it would move its Aerospace
segment's Safety Systems Division from Concord, California to Simi Valley,
California to take advantage
(13)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
of operating efficiencies and facilitate the sharing of technologies among
Aerospace units as well as to reduce costs. Costs associated with this move are
expected to be incurred in the fourth quarter of 1996 and the first quarter of
1997.
Comparison of Nine Months Ended July 31, 1996 and 1995
- ------------------------------------------------------
Sales. The Company's sales for the nine months ended July 31, 1996 of $154.2
million increased by $51.5 million (50.1%) over sales in the same period of the
prior fiscal year. The increase was due primarily to $47.9 million of sales
generated by the Communications segment, which did not exist prior to April 30,
1995. Aerospace segment sales for the nine months ended July 31, 1996 increased
by $3.5 million (4.0%) over sales in the same period of the prior fiscal year,
due to increased sales in commercial aircraft aftermarket and industrial product
lines.
Gross margin. The Company's gross margin for the nine months ended July 31, 1996
as a percentage of sales was 42.1%, compared to 43.3% for the same period of the
prior fiscal year. The gross margin for the nine months ended July 31, 1996
consists of Communications segment gross margin of $28.3 million (46.3% of
sales), and Aerospace segment gross margin of $36.6 million (39.4% of sales).
Communications segment margin as a percentage of sales decreased from 47.2% in
1995 to 46.3% in 1996 because lower margin products (service and support
related) comprised a higher proportion of total Communications revenues due to
delayed releases of new products during the nine months ended July 31, 1996. The
decrease in Aerospace segment gross margin percentage from 1995 (42.8% of sales)
to 1996 (39.4% of sales) is due to decreased margins on defense electronics
products and the absence in 1996 of several items which contributed $4.4 million
to gross margin in 1995, offset by increased margins and improved manufacturing
yields on commercial aircraft aftermarket and industrial product lines.
Aerospace segment gross margin for the nine months ended July 31, 1995 included
a contract claim settlement of $1.1 million, a credit of approximately $1.5
million for income from the Company's defined benefit pension plan and a $1.8
million recovery related to the Company's insurance claim for damage from the
1994 Northridge, California earthquake. Without these items, Aerospace segment
gross margin would have been 37.7% of sales during the first nine months of
1995. Approximately $0.6 million of pension income was reclassified from SG&A
expense to cost of sales in the third quarter of 1995.
Engineering and Development. Engineering and development expenses for the nine
months ended July 31, 1996 increased by $9.4 million from the same period of the
prior fiscal year. Engineering and development expenses for 1996 consist of
Communications segment expenses of $11.9 million (19.5% of sales) and Aerospace
segment expenses of $2.0 million (2.1% of
(14)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
sales). Communications segment engineering and development expenses increased by
$9.6 million from 1995 to 1996 due to the Xyplex acquisition in April 1996 and a
full nine months of expense for WCI in 1996 compared with only three months of
WCI expense in 1995. To maintain its competitive market position in the
Communications segment, the Company expects to continue to invest a significant
amount of its resources in the development of new Communications products and
product enhancements. Aerospace segment engineering and development expenses
decreased by $0.1 million from 1995 to 1996.
Selling, General and Administrative. SG&A expenses for the nine months ended
July 31, 1996 increased by $24.5 million from the same period of the prior
fiscal year, from 25.8% of sales in 1995 to 33.1% of sales in 1996.
Communications segment SG&A expenses for the nine months ended July 31, 1996
were $27.0 million (44.1% of sales), which included amortization expense of $4.2
million related to goodwill and intangible assets. Communications segment SG&A
expenses for the nine months ended July 31, 1995 were $4.2 million (33.1% of
sales), which included amortization expense of $0.4 million related to goodwill
and intangible assets.
Aerospace segment SG&A expenses were $16.5 million (17.8% of sales) for the nine
months ended July 31, 1996 compared with $16.8 million (18.7% of sales) for the
same period in 1995. In the nine months ended July 31, 1996, Aerospace segment
SG&A expenses as a percentage of sales decreased due to streamlining actions in
the defense electronics business unit and sales increases in commercial aircraft
and industrial products which were more than proportional to expense increases.
In the nine months ended July 31, 1995, Aerospace segment SG&A expenses
reflected a credit of approximately $0.5 million for income from the Company's
defined benefit pension plan and a $1.3 million recovery related to the
Company's insurance claim for damage from the 1994 Northridge, California
earthquake. Without these items, Aerospace segment SG&A expenses would have been
20.8% of sales during the first nine months of 1995. Approximately $0.6 million
of pension income was reclassified from SG&A expense to cost of sales in the
third quarter of 1995.
Restructuring costs. During the nine months ended July 31, 1996, the
Communications segment incurred costs of $0.9 million related to streamlining
Xyplex and integrating with WCI. Additional costs will be incurred in the fourth
quarter of 1996. The Aerospace segment incurred costs of $0.5 million during the
nine months of 1996 related to the streamlining of the Company's defense
electronics business unit. The Aerospace segment is expected to incur
restructuring expenses in the fourth quarter of fiscal 1996, and in the first
quarter of fiscal 1997 due to the move of its Safety Systems Division from
Concord, California to Simi Valley, California to further consolidate segment
operations.
(15)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
Interest Expense. Interest expense increased to $7.1 million for the nine months
ended July 31, 1996 from $4.2 million in 1995 primarily as a result of
incremental debt related to the acquisition of WCI and Xyplex.
Income Taxes. The Company's effective tax rate for the nine months ended July
31, 1996 was 37.5%, compared to an effective tax rate of 40.5% for the same
period of the prior fiscal year. The nondeductibility of goodwill (WCI in 1995)
increases the effective tax rate for periods with taxable income by increasing
the tax provision with respect to income before taxes. The nondeductibility of
goodwill (WCI and Xyplex in 1996) in a period with taxable losses decreases the
effective tax rate by decreasing the tax benefit with respect to losses.
ACQUISITION
- -----------
On April 10, 1996, the Company acquired all of the capital stock of Xyplex, a
wholly-owned subsidiary of Raytheon Company ("Raytheon"). Xyplex is a producer
of high-speed internetworking equipment, terminal servers and shared media
products for business local area networks. Xyplex also provides remote access
products that interconnect with phone companies' wide area networks. The
purchase price was $67.5 million in cash, subject to certain adjustments, and
$50.0 million in the form of 1,974,333 newly issued shares of the Company's
common stock. Other direct costs associated with the acquisition were
approximately $1.4 million. The cash paid to Raytheon was obtained under an
amendment to the Company's credit facility entered into on April 10, 1996. The
acquisition was accounted for as a purchase and the balance sheet of Xyplex was
combined with the Company's balance sheet as of April 30, 1996.
The valuation of assets acquired and liabilities assumed is preliminary and
subject to further review and change as the Company's integration plans for
Xyplex are finalized. The transaction resulted in the acquisition of intangible
assets valued at $37.2 million which will be amortized on a straight-line basis
over periods ranging from five to fifteen years, goodwill of $61.7 million which
will be amortized on a straight-line basis over twenty years, and accrued
liabilities assumed of $16.6 million. Acquired in-process research and
development valued at $11.7 million was expensed at the acquisition date.
Sales of Xyplex products and services contributed substantial revenues to the
Company beginning in the third quarter, as well as resulting in increased
operating expenses. A significant portion of the increase in operating expenses
for the nine months ended July 31, 1996 over the nine months ended July 31, 1995
was due to the acquisition of Xyplex and the 1995 acquisition of Hughes LAN
Systems, Inc.
(16)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On April 10, 1996, in conjunction with the purchase of Xyplex, the Company
borrowed an additional $76.5 million under its amended credit facility with its
existing bank. The amended credit agreement consisted of an $85.0 million
revolving credit facility with a five-year term and an $85.0 million term loan
repayable in quarterly installments over five years. The cash payment to Xyplex
on April 10, 1996 was $67.3 million.
At July 31, 1996, the Company's debt totaled $165.2 million, which consisted of
$66.0 million of loans under the revolving credit facility, $83.0 million under
the term loan, $15.0 million of convertible subordinated debt, and $1.2 million
of other debt. In addition, there were $11.1 million of letters of credit
outstanding under the revolving credit facility. The Company was not in
compliance with one of its financial ratio covenants at July 31, 1996. On
September 9, 1996, the Company obtained a waiver of the default up to, but not
including the end of fiscal 1996. Consequently, bank debt in the amount of
$139.5 million, which otherwise would have been classified as noncurrent, has
been classified as current. The Company and its bank lending group are currently
discussing an amendment of such financial ratio covenants. However, there can be
no assurance that an amendment will be obtained. In the event that an amendment
is not obtained, the Company may need to undertake alternative measures which
may include refinancing its credit facility, selling assets, or issuing debt or
equity securities. Such alternative measures may be more expensive than the
Company's current bank financing. If such alternative measures are not achieved,
the bank lending group may elect to pursue its remedies, including accelerating
the total bank indebtedness.
If the amendment mentioned above is obtained, the Company believes that its
existing cash and available credit will be adequate to meet future operating
cash needs. It is anticipated that the Company will generate sufficient cash
flow to service debt under an amended credit facility. The cash flow required
to service the Company's debt will reduce its liquidity, which may in turn
reduce its ability to fund internal growth, additional acquisitions, and capital
improvements.
Debt as a percent of total capitalization (stockholders' equity plus debt) was
53.5% at July 31, 1996, compared with 42.8% at October 31, 1995. The increase in
debt was primarily due to the acquisition of Xyplex. The current ratio at July
31, 1996 was 0.80, compared with 2.44 at October 31, 1995, while working capital
was ($41.3) million at July 31, 1996, compared with $72.3 million at October 31,
1995. The decreases in the current ratio and working capital were due to the
classification of bank debt as current debt because of the Company's
noncompliance with one of the financial ratio covenants in its bank credit
agreement at July 31, 1996 and, to a lesser extent, the acquisition of Xyplex.
Excluding the debt reclassification, the current ratio would have been 2.44 and
working capital would have been $98.2 million at July 31, 1996.
(17)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
Cash flow used by operations in the first nine months of 1996 was ($1.4)
million, compared to cash flow provided by operations of $14.8 million in the
first nine months of 1995. The $16.2 million decrease from 1995 to 1996 was due
primarily to a decrease in net income of ($12.6) million, higher collection of
old receivables in 1995, and increases in income taxes recoverable and deferred
income tax assets, offset in part by higher depreciation, amortization and in-
process research and development charges.
Capital expenditures during the first nine months of 1996 were $3.4 million,
compared to $3.6 million for the same period in 1995. At July 31, 1996, there
were approximately $0.9 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 subject to limitations
by covenants contained in the Company's credit agreement. It is anticipated that
the amounts permitted by the covenants will be sufficient to allow the Company
to continue to maintain and upgrade existing facilities.
In April of 1996, the Company received a federal income tax refund related to
1987 and 1988 tax returns of $5.2 million and related interest income of $5.2
million. In July of 1996, the Company recognized a federal income tax refund for
research and development tax credits related to its 1988 tax year of $0.5
million and related interest income of $0.3 million.
The Company's program for divestiture of its discontinued operations was
substantially complete by the end of fiscal 1992. A 996-acre parcel of land,
which was formerly used by a discontinued technology unit, remains. The land is
located in the city of Santa Clarita, California, approximately 35 miles from
downtown Los Angeles. In September of 1995, the City granted entitlements
necessary to develop this property as a mixed-use residential, commercial, and
light industrial development. The initial term of the entitlements was ten
years. In February of 1996, the City approved a development agreement which,
among other things, extended the ten-year term of the entitlements to 20 years.
The Company is evaluating the most advantageous means to realize the value of
this asset. Cash expenditures related to this property were $3.2 million during
the first nine months of fiscal 1996.
(18)
<PAGE>
EXHIBITS TO PART I
- ------------------
I(a) Calculation of Earnings (Loss) Per Share.
(19)
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
CALCULATION OF EARNINGS (LOSS) PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Nine Months Ended
July 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
EARNINGS (LOSS)
Net income(loss) $(8,946) $3,628
Deduct:
Dividends on $5.00 Cumulative
Convertible Preferred Stock - (5)
------- ------
Net income (loss) used in primary earnings
per share calculations $(8,946) $3,623
======= ======
AVERAGE COMMON AND COMMON EQUIVALENT SHARES
Weighted average number of common shares
outstanding 9,704 8,517
Common equivalent shares:
Series D Participating Convertible
Preferred Stock - 292
Stock options included under treasury
stock method - 800
------- ------
TOTAL 9,704 9,609
======= ======
Primary Earnings (Loss) Per Share $ (0.92) $ 0.38
======= ======
</TABLE>
NOTE
Common equivalent shares have been excluded from the 1996 calculations as they
would have reduced the loss per share.
Unaudited
(20)
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
CALCULATION OF EARNINGS (LOSS) PER SHARE (Continued)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Nine Months Ended
July 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
FULLY DILUTED EARNINGS (LOSS) PER SHARE
EARNINGS (LOSS)
Net income (loss) used in primary earnings
per share calculation (above) $(8,946) $3,623
Adjustments: - -
Net income (loss) used in fully diluted earnings
per share calculations
------- ------
$(8,946) $3,623
======= ======
AVERAGE SHARES USED TO CALCULATE FULLY DILUTED
EARNINGS (LOSS) PER SHARE
Average common and common equivalent shares (above) 9,704 9,609
Add:
Additional stock options included under
treasury stock method - 107
Additional shares assuming conversion
of subordinated convertible debt - -
------- ------
TOTAL 9,704 9,716
======= ======
Fully Diluted Earnings (Loss) Per Share $ (0.92) $ 0.37
======= ======
</TABLE>
NOTES
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 Preferred Stock. Common stock equivalents include Series
D Participating Convertible Preferred Stock, and dilutive employee stock options
calculated using the treasury stock method. Fully diluted earnings per share
include the additional potential dilutive effect of employee stock options.
Common equivalent shares have been excluded from 1996 calculations and
additional shares assuming conversion of subordinated convertible debt have been
excluded from 1996 and 1995 calculations as antidilutive.
Unaudited
(21)
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
Environmental Matters
- ---------------------
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. *
10.1 First Amendment and Waiver, dated as of September 9, 1996 among
Registrant, NationsBank of Texas, N.A., as Agent, and the
financial institutions named therein as Lenders.
10.2 Amendment No.1 to Whittaker Corporation Partnership Plan, dated as
of June 21, 1996.
11. Statements re computation of per share earnings for the nine
months ended July 31, 1996 (Exhibit I(a) of Part I to this Form
10-Q).
22. See Part II, Item 4 of this Form 10-Q.
27. Financial Data Schedule.
____________
* Exhibits followed by a parenthetical reference are incorporated by reference
to the documents described therein.
(22)
<PAGE>
(b) Reports on Form 8-K.
A report on Form 8-K/A was filed on June 25, 1996, by which the Company
filed the financial statements required to be filed with respect to its
acquisition of Xyplex, Inc. pursuant to Item 7(a)(4) of Form 8-K.
A report on Form 8-K was filed on August 29, 1996. The form reports, in
Item 5 thereof, the Company's earnings for its third fiscal quarter,
ended July 31, 1996.
(23)
<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 13, 1996 By: /s/ Gerald E. Finnell
-------------------------
Gerald E. Finnell, Vice President &
Chief Financial Officer
(24)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. * DESCRIPTION NUMBERED PAGE
- ----------- ----------- -------------
<C> <S> <C>
10.1 First Amendment and Waiver, dated as of September 9, 1996 among
Registrant, NationsBank of Texas, N.A., as Agent, and the financial
institutions named therein as Lenders.
10.2 Amendment No.1 to Whittaker Corporation Partnership Plan, dated as
of June 21, 1996.
11. Statements re computation of per share earnings for the nine
months ended July 31,1996 (Exhibit I(a) of Part I to this
Form 10-Q).
22. See Part II, Item 4 of this Form 10-Q.
27. Financial Data Schedule.
</TABLE>
________
* Exhibits followed by a parenthetical reference are incorporated by reference
to the documents described therein.
(25)
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT AND WAIVER
DATED AS OF SEPTEMBER 9, 1996
This FIRST AMENDMENT AND WAIVER (this "Waiver") is among WHITTAKER
CORPORATION, a Delaware corporation (the "Borrower"), the Financial Institutions
party to the Credit Agreement referred to below (the "Lenders"), and NATIONSBANK
OF TEXAS, N.A., as agent (the "Agent") for the Lenders thereunder.
PRELIMINARY STATEMENTS:
1. The Borrower, the Lenders and the Agent have entered into an
Amended and Restated Credit Agreement dated as of April 10, 1996 (the "Credit
Agreement"; capitalized terms used and not otherwise defined herein have the
meanings assigned to such terms in the Credit Agreement).
2. The Borrower has requested that the Lenders waive, during the
period starting on and including July 28, 1996 to (but not including) November
3, 1996 (the "Waiver Period"), any Default arising as a result of non-compliance
with Section 6.04(c) of the Credit Agreement.
3. The Required Lenders are, on the terms and conditions stated
below, willing to grant the requests of the Borrower.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENT TO CREDIT AGREEMENT. Effective as of the date
-----------------------------
hereof and subject to the satisfaction of the conditions precedent set forth in
Section 3 hereof, the definition of the term "Applicable Margin" appearing in
Section 1.01 of the Credit Agreement is hereby amended by deleting the
percentage "2.250%" appearing opposite the Cash Flow Ratio of 4.00:1.00 or
greater and replacing such percentage with "2.50%".
SECTION 2. WAIVER. Effective as of the date hereof and subject to
------
the satisfaction of the conditions precedent set forth in Section 3 hereof, the
Lenders hereby waive, during the Waiver Period only, any Default arising as a
result of non-compliance with Section 6.04(c) of the Credit Agreement.
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Waiver shall become
---------------------------
effective when (a) the Agent has executed this Amendment and has received
counterparts of this Amendment executed by the Borrower and the Required Lenders
and counterparts of the Consent appended hereto (the "Consent") executed by each
of the Guarantors and Grantors (as defined in the Security Agreement) listed
therein (such Guarantors and Grantors, together with the Borrower, each a "Loan
Party" and, collectively, the "Loan Parties"), (b) the Borrower shall have paid
to the Agent, in accordance with Section 2.09(a) of the Credit Agreement, for
the account of each Lender, a fee equal to 0.15% of the sum of all outstanding
Advances owed to such Lender, the Unused Revolving Commitment of such Lender and
such Lender's Revolving Pro Rata Share of the aggregate outstanding Letter of
Credit Obligations, and (c) the Agent shall have received favorable opinions of
(i) Latham & Watkins, special counsel to the
<PAGE>
Borrower, as to the enforceability of this Waiver and the Loan Documents as
modified hereby and as to such other matters as the Agent or the Required
Lenders may reasonably request, and (ii) the Vice President-General Counsel of
the Borrower, as to the due authorization, execution and delivery of this Waiver
and as to such other matters as the Agent or the Required Lenders may reasonably
request.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents
------------------------------
and warrants as follows:
(a) AUTHORITY. The Borrower and each other Loan Party has the
---------
requisite corporate power and authority to execute and deliver this Waiver
or the Consent, as applicable, and to perform its obligations hereunder and
under the Loan Documents (as modified hereby) to which it is a party. The
execution, delivery and performance by the Borrower of this Waiver and by
each other Loan Party of the Consent, and the performance by each Loan
Party of each Loan Document (as modified hereby) to which it is a part have
been duly approved by all necessary corporate action of such Loan Party and
no other corporate proceedings on the part of such Loan Party are necessary
to consummate such transactions.
(b) ENFORCEABILITY. This Waiver has been duly executed and
--------------
delivered by the Borrower. The Consent has been duly executed and
delivered by each Guarantor. This Waiver and each Loan Document (as
modified hereby) is the legal, valid and binding obligation of each Loan
Party party hereto or thereto, enforceable against such Loan Party in
accordance with its terms, and is in full force and effect.
(c) REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically made
as of a date other than the date hereof) are correct on and as of the date
hereof as though made on and as of the date hereof.
(d) NO DEFAULT. After giving effect to this Waiver, no event has
----------
occurred and is continuing that constitutes a Default.
SECTION 5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon
---------------------------------------------
and after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as modified hereby.
(b) Except as specifically modified above, the Credit Agreement and
all other Loan Documents, are and shall continue to be in full force and effect
and are hereby in all respects ratified and confirmed. Without limiting the
generality of the foregoing, the Collateral Documents and all of the Collateral
described therein do and shall continue to secure the payment of all Secured
Obligations under and as defined therein, in each case as amended hereby.
2
<PAGE>
(c) The execution, delivery and effectiveness of this Waiver shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
SECTION 6. EXECUTION IN COUNTERPARTS. This Waiver may be executed in
-------------------------
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement. Delivery of an executed counterpart of a signature page to this
Waiver or the Consent by telefacsimile shall be effective as delivery of a
manually executed counterpart of this Waiver or such Consent.
SECTION 7. GOVERNING LAW. This Waiver shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
[Signature Pages Follow]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
WHITTAKER CORPORATION,
a Delaware corporation
By: /s/ John K. Otto
----------------------------------
John K. Otto
Treasurer
NATIONSBANK OF TEXAS, N.A.,
as Agent
By: /s/ Andrea C. Defterios
----------------------------------
Andrea C. Defterios
Vice President
S-1
<PAGE>
Lenders:
-------
NATIONSBANK OF TEXAS, N.A.
By: /s/ Andrea C. Defterios
----------------------------------
Andrea C. Defterios
Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /s/ Lori Y. Kannegieter
----------------------------------
Title: Managing Director
CIBC INC.
By: /s/ Robert Wagner
----------------------------------
Title: Agent
CITY NATIONAL BANK, N.A.
By: /s/ R.A. (Sandy) McKerroll
----------------------------------
Title: Vice President
COMERICA BANK-CALIFORNIA
By: /s/ Scott T. Smith
----------------------------------
Title: Assistant Vice President
IMPERIAL BANK
By: /s/ John A. Farrace
----------------------------------
Title: Assistant Vice President
S-2
<PAGE>
KREDIETBANK N.V.
By: /s/ Robert Snauffer
----------------------------------
Title: Vice President
By: /s/ Tod R. Angus
----------------------------------
Title: Vice President
SANWA BANK CALIFORNIA
By: /s/ Joseph C. Arco
----------------------------------
Title: Vice President
SUMITOMO BANK OF CALIFORNIA, N.A.
By: /s/ Robert M. Iritan
----------------------------------
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
----------------------------------
Title: Senior Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ William Swiontek
----------------------------------
Title: Vice President
S-3
<PAGE>
CONSENT
DATED AS OF SEPTEMBER 9, 1996
The undersigned, as Guarantors under the "Guaranty" and as Grantors
under the "Security Agreement" (as such terms are defined in and under the
Credit Agreement referred to in the foregoing Waiver), each hereby consents and
agrees to the foregoing First Amendment and Waiver and hereby confirms and
agrees that (i) the Guaranty, the Security Agreement and the Confirmation are,
and shall continue to be, in full force and effect and are hereby ratified and
confirmed in all respects except that, upon the effectiveness of, and on and
after the date of, the said Waiver, each reference in the Guaranty, the Security
Agreement and the Confirmation to the Credit Agreement, "thereunder", "thereof"
or words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended by the said Waiver and (ii) the
Security Agreement and the Confirmation and all of the Collateral described
therein do, and shall continue to, secure the payment of all of the Secured
Obligations as defined in the Security Agreement.
BLUE BELL LEASE, INC., a California corporation, METROPOLITAN
FINANCIAL SERVICES CORPORATION, a Colorado corporation, PARK
CHEMICAL COMPANY, a Michigan corporation, WHITTAKER
COMMUNICATIONS, INC., a California corporation,WHITTAKER
CONTROLS, INC., a California corporation, WHITTAKER CORP., a
Maine corporation, WHITTAKER ORDNANCE, INC., a Delaware
corporation, WHITTAKER PORTA BELLA DEVELOPMENT, INC., a
California corporation, WHITTAKER SERVICES CORPORATION, a
California corporation, WHITTAKER TECHNICAL PRODUCTS, INC., a
Colorado corporation, WHITTAKER DEVELOPMENT CO., a Delaware
corporation and XYPLEX, INC., a Massachusetts corporation
By: /s/ John K. Otto
------------------------------------------
John K. Otto
Treasurer of each of the foregoing Loan Parties
<PAGE>
EXHIBIT 10.2
WHITTAKER CORPORATION PARTNERSHIP PLAN
Plan Amendment I
WHEREAS, Whittaker Corporation (hereafter the "Employer"), a Delaware
Corporation maintains the Whittaker Corporation Partnership Plan as Amended and
Restated Effective November 1, 1994 (hereafter, the "Plan"); and
WHEREAS, pursuant to Article IX, the Employer may amend the Plan from time
to time; and
WHEREAS, the Board of Directors (hereafter the "Board") wishes to clarify
and more appropiately reflect certain administrative operations of the Plan; and
WHEREAS, the Board wishes to provide immediate participation in the Plan
upon the commencement of employment effective July 1, 1996; and
WHEREAS, the Employer intends that amendments relating solely to the
clarification of the Plan administration be deemed effective as of the Plan's
Amended and Restated Date of November 1, 1994; and
WHEREAS, the Employer intends that all other amendments representing
changes to the terms of the Plan be deemed effective as noted herein.
NOW THEREFORE, BE IT RESOLVED, that the Plan be amended effective as of the
original Restated and Amended date of November 1, 1994 or such later date noted
as follows:
1. Section 1.02(g)(iii) shall be amended in its entirety as follows:
A Break in Employment shall not occur solely by reason of a Layoff from the
Employer or an Affiliated Employer, but a Break in Employment shall occur on
the earlier of (1) a refusal by the Employee to return to the employ of the
Employer or Affiliated Employer, or (2) six (6) months following the
commencement of such Layoff.
2. Effective July 1, 1996, Section 1.02(j)(iii) shall be amended in its
entirety as follows:
For all Plan Years beginning prior to January 1, 1996, any compensation paid
or payable by reason of services performed prior to the date the Employee
becomes a Participant.
3. Effective January 1, 1995, Section 1.02(kk) shall be amended in its entirety
as follows:
"Participating Employer" shall mean the Employer and each Affiliated
Employer (on behalf of all Employees or a separate subdivision thereof) and
any such other business entity (on behalf of all Employees or a separate
subdivision thereof) which, by resolution of its board of directors and with
the written aproval of the Employer, elects to participate in this Plan.
<PAGE>
4. Effective July 1, 1996, Section 2.02 shall be amended in its entirety as
follows:
2.02 Period Of Eligibility Service. Through June 30, 1996, a Period of
Eligibility Service shall mean a period of ninety (90) Days of Service
commencing on an Employee's date of employment.
5. Effective July 1, 1996, Section 3.01 shall be amended to add the following
paragraph:
Effective July 1, 1996, any Eligible Employee shall be eligible to
participate in the Plan immediately upon commencement of employment.
6. Effective July 1, 1996, the first sentence of Section 4.01(a) shall be
amended in its entirety as follows:
For the Plan Year ending December 31, 1994, and for each Plan Year
thereafter, the Employer (i) shall contribute a "Matching Contribution" in
an amount equal to the below listed percentage of the Salary Deferral
Contributions percentage elected pursuant to Section 4.03 by each
Participant for each payroll period up to a maximum election of six
percent (6%) per payroll period, and (ii) may, at the discretion of the
Board of Directors, contribute a "Profit Sharing Contribution" that may be
authorized by the Board of Directors, but not to exceed the dollar balance
remaining after subtracting the sum of the total Salary Deferral
Contributions and the Employer contributions made pursuant to subparagraph
(i) above from fifteen percent (15%) of the aggregated annual Compensation
(after any salary reductions for Salary Deferral Contributions) of all
Participants for such Fiscal Year.
7. The fifth paragraph of Section 4.08 shall be amended in its entirety as
follows:
A Participant shall be permitted to change his election of an investment
vehicle and/or the percentage to be allocated to each option out of future
contributions by providing appropriate notice to the Committee in such
form and at such times as the Committee may prescribe. Participants may
change the options in which their prior contributions are invested not
more often than determined by the Committee. If the Committee adopts an
alternate valuation procedure, changes will be accommodated based on the
shorter parameters of such system.
8. The second sentence of Section 5.01 shall be amended as follows:
If any Eligible Employee ceases participation because of a one (1)-year
Period of Separation and receives a distribution and again becomes a
Participant, the Committee shall establish a new Employer Matching
Account, Employer Profit Sharing Account, Salary Deferral Contributions
Account, Permanent Account, and Rollover Account for that Participant.
9. Section 5.03(a) shall be amended as follows:
The Employer's contribution for the period ending on such Valuation Date,
if any, to the extent such contribution has been paid prior to such date;
and
<PAGE>
10. The fourth paragraph Section 5.03 shall be amended in its entirety as
follows:
Notwithstanding anything in the preceding paragraphs, if the Committee
adopts an alternate valuation procedure, allocations will be accommodated
based on the parameters of such system.
11. Effective January 1, 1995, Section 5.04 shall be amended in its entirety as
follows:
5.04 Crediting of Salary Deferral Contributions. Salary Deferral
Contributions and Qualified Nonelective Contributions made by the Employer
on behalf of Participants shall be allocated to their Salary Deferral
Contributions Accounts as of the date such contributions are segregated
pursuant to Section 4.03(a) or as soon as administratively feasible
thereafter.
12. Effective January 1, 1995, the second paragraph of Section 5.05 shall be
amended as follows:
As of the date of segregation of contributions pursuant to Section 4.03(a)
(or as soon as administratively feasible thereafter), the Employer Matching
Contribution, shall be allocated among and credited to the Employer Matching
Accounts of the persons entitled to share in such amounts in accordance with
the matching provision of Section 4.01(a). The Employer Profit Sharing
Contribution pursuant to Section 4.01(a) for the Plan Year ending on such
Date shall be allocated among the Participating Employers or groups of
Participating Employers based on the annual operating profits of such
Participating Employers or groups of Participating Employers and next
credited to the Employer Profit Sharing Accounts of the persons entitled to
share in such amounts (as provided in the preceding paragraph) in proportion
to each Participant's respective amounts of Compensation for such Plan Year.
13. Effective January 1, 1996, the first sentence of the second paragraph of
Section 6.05 shall be amended as follows:
Provided, however, that if the Participant is reemployed prior to the date
that he incurs a sixty (60)-month Period of Separation following a Break in
Employment, any amounts so forfeited shall be reinstated (unadjusted by any
gains or losses occurring after such forfeitures) to the Participant's
Employer Profit Sharing Account within a reasonable time after repayment by
the Participant of the amount of any distribution received from his Employer
Profit Sharing Account pursuant to Sections 7.02 or 7.03.
14. The first paragraph of Section 6.10 shall be amended in its entirety as
follows:
6.10 Loans to Participants. The Committee, in its sole discretion and upon
written application of such Participant, may make a loan or loans to such
Participant from a Participant's Salary Deferral Contributions Account,
Employer Matching Account, Permanent Account, Rollover Account and Employer
Profit Sharing Account in an amount aggregating under this Plan or any other
Plan (Related Plan) maintained by the Employer not less than one thousand
dollars ($1,000) nor in excess of the lesser of (1) fifty thousand dollars
($50,000) (reduced by the highest outstanding loan balance during the
<PAGE>
one (1)-year period ending on the day before the loan is made over the
outstanding balance of loans from the Plan to the Participant on the date
which such loan is made), or (2) fifty percent (50%) of the sum of the
Participant's vested Salary Deferral Contributions Account, Employer
Matching Account, Permanent Account, Rollover Account and Employer Profit
Sharing Account, provided that such loans:
15. Effective July 1, 1996, the second sentence of Section 6.10(h) shall be
amended as follows:
Such procedures shall include the basis on which loans will be approved or
denied; the limitations, if any, on the types and amounts of loans offered;
the applicable loan fees (if any), and the events constituting a default and
the steps that will be taken to preserve Plan assets in the event of such
default.
16. Section 6.10(i) shall be amended in its entirety as follows:
A Participant may upon written notice delivered to the Committee (on such
form as the Committee may prescribe), request that a loan be made to the
Participant in conformity with the dollar limits set forth above provided no
loan request has been granted within the preceding twelve (12) calendar
months. A Participant shall first borrow the available balance in his Salary
Deferral Contributions Account, shall next borrow the available balance in
his Employer Matching Account, shall next borrow from his Permanent Account,
shall next borrow from his Rollover Account and finally shall borrow any
available balance in his Employer Profit Sharing Account. The Committee may
from time to time establish the order in which such Accounts and/or the
investment funds within each applicable Participant Account will be utilized
for purposes of fulfilling loan requests. A Participant may not have more
than two loans outstanding at any time and may not request a new loan until
the expiration of a thirty day period following the date a prior outstanding
loan has been repaid in full. Each loan shall be made only from an Account
or Accounts of the Participant requesting the loan and shall be treated as
an investment of such Account or Accounts funding the loan. So long as a
loan to a Participant under this Plan is outstanding, the Participant may
not elect to withdraw any portion of his Account or Accounts prior to
termination of employment under the provisions of Article VI.
17. Section 6.11(a) shall be amended in its entirety as follows:
Amounts may be withdrawn at all times from a Participant's After-Tax Account
while the Participant remains in the employ of the Employer provided no
outstanding loan balance exists with respect to such Participant. If a
Participant's After-Tax Account is exhausted, amounts may next be withdrawn
from a Participant's Employer Matching Account, followed by the
Participant's Permanent Account and finally the Participant's Rollover
Account while the Participant remains in the employ of the Employer provided
that (i) withdrawals are limited to contributions made to the stated
Accounts at least twenty-four (24) full calendar months prior to the
beginning of the Plan Year in which the withdrawal request is made, together
with any earnings thereon and, (ii) no outstanding loan balance exists with
respect to
<PAGE>
such Participant. In the case of a Participant whose Period of Service
equals or exceeds five years, all amounts may be withdrawn from such
Participant's Employer Matching Account, next from the Participant's
Permanent Account, and finally from the Participant's Rollover Account while
the Participant remains in the employ of the Employer regardless of the date
of such contributions. No more than two (2) withdrawals in a Plan Year shall
be permitted pursuant to this Section 6.11(a). The Committee may from time
to time establish a minimum amount applicable to any withdrawal request made
pursuant to this Section 6.11(a).
18. Effective January 1, 1996, the third sentence of Section 6.11(b) shall be
amended as follows:
The minimum amount that may be withdrawn at any one time is the lesser of
three hundred dollars ($300.00) or the entire value of the Participant's
Salary Deferral Contribution Account or such other amount as may be
established from time to time by the Committee.
19. Effective July 1, 1996, the first sentence and introductory clause of the
second sentence shall be amended as follows:
The Board of Directors of Whittaker Corporation shall have the right to
amend this Plan from time to time and to amend further or cancel any such
amendment. Such amendments shall be stated in an instrument in writing
executed by Whittaker Corporation, and this Plan shall be deemed to have
been amended in the manner and at the time therein set forth, and all
Employees, former Employees, Participants, former Participants,
Beneficiaries, and the Employer shall be bound thereby; provided, however:
20. Effective January 1, 1995, Section 12.01 shall be amended in its entirety as
follows:
12.01 Adoption by Affiliated Employers. With the consent of the Employer,
any Affiliated Employer (on behalf of all Employees, or a separate
subdivision thereof) may adopt this Plan and all of the provisions hereof,
and participate herein and be known as a Participating Employer, by properly
executing a document evidencing said intent and will of such Participating
Employer.
Executed this 21st day of June, 1996.
WHITTAKER CORPORATION
By: /s/ Thomas A. Brancati
--------------------------------------
President and Chief Executive Officer
By: /s/ J. C. Cannady
--------------------------------------
Vice President
<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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 9,497
<SECURITIES> 0
<RECEIVABLES> 74,966
<ALLOWANCES> 0
<INVENTORY> 52,085
<CURRENT-ASSETS> 165,169
<PP&E> 105,749
<DEPRECIATION> 59,020
<TOTAL-ASSETS> 402,104
<CURRENT-LIABILITIES> 206,458
<BONDS> 15,587
0
1
<COMMON> 110
<OTHER-SE> 143,704
<TOTAL-LIABILITY-AND-EQUITY> 402,104
<SALES> 154,187
<TOTAL-REVENUES> 154,187
<CGS> 89,208
<TOTAL-COSTS> 89,208
<OTHER-EXPENSES> 26,962
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,060
<INCOME-PRETAX> (14,324)
<INCOME-TAX> (5,378)
<INCOME-CONTINUING> (8,946)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,946)
<EPS-PRIMARY> (0.92)
<EPS-DILUTED> 0
</TABLE>
