<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 JANUARY 31, 1999
Commission file number 0-20609
WHITTAKER CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-4033076
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1955 N. Surveyor Avenue 93063
Simi Valley, California (Zip Code )
(Address of principal executive offices)
(805) 526-5700
(Registrant's telephone number, including area code)
</TABLE>
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 Registrant's classes
of common stock, as of the latest practicable date: 11,438,999 shares, par value
$.01 per share, as of January 31, 1999.
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
($ in 000, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended January 31,
1999 1998
-------------- --------------
<S> <C> <C>
(restated)
Sales............................................................... $ 30,603 $ 28,980
Costs and expenses
Cost of sales...................................................... 15,020 16,911
Selling, general and administrative................................ 6,651 6,033
-------------- --------------
Operating Profit 8,932 6,036
Interest expense................................................... 1,325 4,906
Interest income.................................................... (364) (218)
Other expense...................................................... 608 482
-------------- --------------
Income from continuing operations before provision for taxes........ 7,363 866
Provision for taxes................................................. 329 11
-------------- --------------
Income from continuing operations................................... 7,034 855
Discontinued operations
Loss from discontinued operations.................................. -- (533)
Gain on disposal of discontinued operations........................ -- 10,085
-------------- --------------
Net income.......................................................... $ 7,034 $ 10,407
============== ==============
Average common shares outstanding (000)............................. 11,388 11,205
============== ==============
Basic income (loss) per share
Continuing operations.............................................. $ 0.62 $ 0.08
Discontinued operations
Loss from discontinued operations................................. -- (0.05)
Gain on disposal of discontinued operations....................... -- 0.90
-------------- --------------
Net income per share................................................ $ 0.62 $ 0.93
============== ==============
Diluted income (loss) per share
Continuing operations.............................................. $ 0.57 $ 0.08
Discontinued operations
Loss from discontinued operations................................. -- (0.05)
Gain on disposal of discontinued operations....................... -- 0.88
-------------- --------------
Net income per share................................................ $ 0.57 $ 0.91
============== ==============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
(2)
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
($ in 000)
<TABLE>
<CAPTION>
At January 31, At October 31,
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
- --------------
Cash............................................................ $ 1,067 $ --
Receivables..................................................... 14,497 19,415
Inventories..................................................... 42,923 42,060
Other current assets............................................ 3,118 2,578
Income taxes recoverable........................................ 195 195
Deferred income taxes........................................... 19,645 21,800
--------------- ---------------
Total Current Assets............................................ 81,445 86,048
--------------- ---------------
Property and equipment, at cost................................. 28,711 30,462
Less accumulated depreciation and amortization.................. (19,123) (20,623)
--------------- ---------------
Net Property and Equipment...................................... 9,588 9,839
--------------- ---------------
Other Assets
- ------------
Goodwill, net of amortization................................... 13,588 13,677
Other intangible assets, net of amortization.................... 870 922
Notes and other noncurrent receivables.......................... 8,113 3,152
Other noncurrent assets......................................... 8,495 7,726
Net assets held for sale........................................ -- 15,214
--------------- ---------------
Total Other Assets.............................................. 31,066 40,691
--------------- ---------------
Total Assets $ 122,099 $ 136,578
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Current maturities of long-term debt............................ $ 534 $ 1,043
Accounts payable................................................ 6,326 6,457
Accrued liabilities............................................. 22,683 30,039
--------------- ---------------
Total Current Liabilities....................................... 29,543 37,539
--------------- ---------------
Other Liabilities
- -----------------
Long-term debt.................................................. 47,873 60,368
Other noncurrent liabilities.................................... 13,239 13,933
Deferred income taxes........................................... -- 1,260
--------------- ---------------
Total Other Liabilities......................................... 61,112 75,561
--------------- ---------------
Stockholders' Equity
- --------------------
Capital stock
Preferred stock................................................ 1 1
Common Stock................................................... 114 113
Additional paid-in capital...................................... 78,634 77,703
Retained (deficit).............................................. (47,305) (54,339)
--------------- ---------------
Total Stockholders' Equity...................................... 31,444 23,478
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 122,099 $ 136,578
=============== ===============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
(3)
<PAGE>
WHITTAKER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($ in 000)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
January 31,
---------------------------------
1999 1998
------------- -------------
(restated)
<S> <C> <C>
Operating Activities
Continuing Operations
Income from continuing operations...................................................... $ 7,034 $ 855
Adjustments to reconcile net income to net cash provided (used) by operations:
Depreciation and amortization......................................................... 668 597
Deferred taxes........................................................................ 895 (1,692)
Changes in operating assets and liabilities:
Accounts receivable.................................................................. 4,921 2,446
Inventories and prepaid expenses..................................................... (1,431) (2,080)
Accounts payable and other liabilities............................................... (7,487) (3,303)
------------- -------------
Total from continuing operations....................................................... 4,600 (3,177)
------------- -------------
Discontinued Operations
Net loss............................................................................... -- (533)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization......................................................... -- 2,651
Deferred taxes........................................................................ -- 1,023
Changes in operating assets and liabilities........................................... -- 1,418
------------- -------------
Total from discontinued operations..................................................... -- 4,559
------------- -------------
Net cash provided by operating activities............................................... 4,600 1,382
------------- -------------
Investing Activities
Continuing Operations
Proceeds on sale of business........................................................... -- 35,000
Purchase of property, plant and equipment.............................................. (326) (307)
(Increase) decrease of notes receivable................................................ (4,964) 235
Disposal of asset held for sale........................................................ 15,000 --
Other items, net....................................................................... (1,305) (3,049)
------------- -------------
Total from continuing operations....................................................... 8,405 31,879
------------- -------------
Discontinued Operations
Net proceeds relating to discontinued operations....................................... -- (642)
------------- -------------
Net cash provided by investing activities............................................... 8,405 31,237
------------- -------------
Financing Activities
Net decrease in debt.................................................................... (13,004) (2,171)
Decrease in deferred debt costs......................................................... 134 736
Tax benefit on stock option exercises................................................... 221 --
Proceeds from shares issued under stock option plans.................................... 711 --
------------- -------------
Net cash used by financing activities................................................... (11,938) (1,435)
------------- -------------
Net increase in cash.................................................................... 1,067 31,184
Cash at beginning of year............................................................... -- 1,566
------------- -------------
Cash at end of period................................................................... $ 1,067 $ 32,750
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................................... $ 936 $ 3,869
============= =============
Income taxes........................................................................... $ 69 $ 72
============= =============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
(4)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
The accompanying consolidated condensed financial statements of Whittaker
Corporation and its subsidiaries ("Whittaker" or the "Company") 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, 1998. 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 preparation of financial
statements in conformity with generally accepted accounting principles may
require management to make certain estimates and assumptions that could affect
the amounts reported in the financial statements and accompanying notes. These
estimates and assumptions include, among other things, future costs to complete
long-term contracts, valuation of slow moving or obsolete inventories and
amounts of estimated liabilities for contingent losses and future costs of
litigation. Actual costs could differ from these estimates. 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, 1998. The results of operations for interim periods are not
necessarily indicative of the results of operations for the full year.
Note 2. Earnings Per Share
The following table sets forth for continuing operations the computation of
basic and diluted earnings per share (in thousands except per share amounts):
<TABLE>
<CAPTION>
For the Three Months Ended
January 31
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Basic Earnings Per Share
- ------------------------
Net income from continuing operations available to common
stockholders $ 7,034 $ 855
============= =============
Weighted average common shares outstanding 11,388 11,205
============= =============
Basic income per share from continuing operations $ 0.62 $ 0.08
============= =============
Diluted Earnings Per Share
- ------------------------------------------------------------------
Net income from basic earnings per share calculation, above $ 7,034 $ 855
Add after-tax interest on convertible debt 173 --
------------- -------------
Net income from continuing operations for diluted earnings per $ 7,207 $ 855
share calculation ============= =============
Weighted average common shares outstanding for basic earnings per 11,388 11,205
share calculation, above
Effect of dilutive securities:
Series D Convertible Preferred Stock 188 188
Employee stock options 142 63
Convertible debt 884 --
------------- -------------
Denominator for diluted earnings per share calculation 12,602 11,456
============= =============
Diluted earnings per share from continuing operations $ 0.57 $ 0.08
============= =============
</TABLE>
Options to purchase 89,467 shares of common stock at prices ranging from
$15.06 to $26.25 per share were not included in the computation of diluted
earnings per share for the first quarter of 1999 because their inclusion would
be antidilutive. Options to purchase 589,437 shares of common stock at prices
ranging from $10.32 to $26.25 per share were not included in the computation of
diluted earnings per share for the first quarter of 1998 because their inclusion
would be antidilutive. Earnings per share calculations for the 1998 first
quarter do not include the effects of the convertible debt as such amounts would
be anti-dilutive.
The 1998 first quarter earnings per share amounts have been restated to
reflect the Company's former Integration Services business as discontinued. The
effect of this restatement was to increase basic and diluted earnings per share
from continuing operations by $0.05.
(5)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3. Inventories
Inventories consisted of the following ($ in thousands):
<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
------------------ ----------------
<S> <C> <C>
Parts and materials $ 21,596 $ 20,999
Work in process 18,766 18,565
Finished goods 2,561 2,496
----------------- ---------------
$ 42,923 $ 42,060
================== ================
</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. The Company currently purchases workers'
compensation insurance and product liability insurance. 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.
As a result of the past 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 occupied by previously owned
or discontinued operating units. There are also various other claims and suits
pending against the Company.
At January 31, 1999, the Company had provided for its estimated aggregate
liability related to various claims, including uninsured risks and 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 made cash expenditures of approximately
$0.5 million for these environmental matters during the three months ended
January 31, 1999. 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 and the filing of future environmental claims which are
unknown to the Company at this time represent 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.
As prescribed by SOP 96-1, the Company has accrued for its estimated costs,
including certain employee compensation costs, for environmental remediation
where the Company is a potentially responsible party under CERCLA and similar
state laws. These accruals are adjusted periodically as further assessment and
remediation efforts progress or as technical and legal information becomes
available. As of January 31, 1999, the Company estimates that the total
remaining unpaid remediation costs for the sites associated with these federal
and state actions is $4.4 million. As of January 31, 1999, all of these
estimated costs have been accrued and are reflected in accrued liabilities and,
in the case of those costs to be incurred beyond one year, "Other Noncurrent
Liabilities" in the Consolidated Balance Sheet of the Company. Costs of future
expenditures for environmental remediation efforts are not discounted to their
present value. Although the Company, at this time, does not anticipate that any
additional significant costs (beyond those already recognized) will be incurred
in the remediation efforts for these sites there can be no assurance that
significant additional costs for remediation of these, or new sites, will not be
incurred in the future.
(6)
<PAGE>
WHITTAKER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 4. Commitments and Contingencies--Continued
In connection with the discontinuance of various businesses, the Company
remains liable for certain retained obligations and for certain future claims,
principally environmental and product liability. The noncurrent portion of such
items is included in "Other Noncurrent Liabilities" in the consolidated balance
sheet.
Note 5. Long-Term Debt
At January 31, 1999, the Company's debt totaled $48.4 million, which
consisted of $10.0 million of loans outstanding under its revolving credit
facility, $23.3 million outstanding under its term loan, $15.0 million of
convertible subordinated debt and $0.1 million of other debt. In addition there
were $1.8 million of letters of credit outstanding under the revolving credit
facility. Funds available to the Company at January 31, 1999 under its bank
credit facility totaled $33.2 million. The weighted average interest rate on
loans outstanding under its bank credit facility at January 31, 1999 was 7.67%.
On January 11, 1999, the Company sold its 996-acre land parcel located in the
City of Santa Clarita, California and certain other additional rights and assets
related to this land for $10.0 million in cash, a $5.0 million promissory note
and a contingent interest in any final profit from the development of this land.
The net cash proceeds from the sale were used to prepay debt outstanding under
the Company's credit facility.
Under the Company's 7% convertible subordinated notes, the Company may not
pay or declare cash dividends or redeem shares of the Company if the Company's
tangible net worth is less than $15.0 million. As of April 30, 1996, the
Company's tangible net worth was less than $15.0 million and the Company has not
paid or declared dividends (including the quarterly dividend for the Series D
Preferred Stock) or redeemed shares since that date. However, dividends on the
Series D Preferred Stock have been accrued since that date. At January 31,
1999, the Company's tangible net worth was $17.0 million. The accrued and
unpaid dividends on the Series D Preferred Stock at January 31, 1999 were
$1,587.25.
Note 6. Income Taxes
The continuing operations provision for taxes for the first quarter of 1999
was $0.3 million and included, in connection with the sale of the Company's 996-
acre land parcel in the City of Santa Clarita, California, a $2.2 million
federal tax benefit which represented the reversal of a portion of the valuation
allowances against the net capital loss carryforward. Also included in the 1999
first quarter tax provision was a $0.5 million state tax benefit from the
utilization of the state net operating loss carryforward.
(7)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Comparison of Three Months Ended January 31, 1999 and 1998
Sales. The Company's first quarter 1999 sales from continuing operations of
$30.6 million increased by $1.6 million (5.6%) from the sales in the first
quarter of 1998. This increase reflects increased sales of fluid and pneumatic
control devices to original equipment manufacturers in both the commercial and
military markets, increased sales of fire and overheat detectors in the aircraft
market and higher levels of aftermarket business in the commercial market for
fluid and pneumatic control devices. Partially offsetting these increases were
decreases in sales of fluid and pneumatic control devices in the military
aftermarket, cable products and fire and overheat detectors in the industrial
market during the first quarter of 1999 as compared to the first quarter of
1998.
Gross Margin. The Company's gross margin from continuing operations for the
first quarter of 1999 as a percentage of sales was 50.9%, compared with 41.6%
for the first quarter of 1998. For 1999 the gross margin was $15.6 million,
compared to a gross margin of $12.1 million in 1998. The improvement in gross
margin as a percentage of sales in 1999 as compared to 1998 was attributable to
favorable pricing actions, cost reduction programs and the efficiencies
associated with higher overall sales volume.
Selling, General and Administrative. Selling, general and administrative
expenses (SG&A) for continuing operations in the first quarter of 1999 increased
by $0.6 million from the first quarter of 1998. In the first quarter of 1999
SG&A expenses were $6.6 million, compared to $6.0 million in the first quarter
of 1998. This increase was attributable to higher management incentive costs
in 1999 partially offset by lower payroll costs due to a reduction in headcount
in the first quarter of 1999 as compared to the first quarter of 1998.
Interest Expense. Interest expense for the Company's continuing operations
in the first quarter of 1999 decreased by $3.6 million from the first quarter of
1998, from $4.9 million in 1998 to $1.3 million in 1999. This reduction was due
to reduced levels of debt outstanding during the 1999 first quarter as compared
to the 1998 first quarter and lower interest rates on borrowings under the
Company's bank credit facilities. The average amount of debt outstanding during
the first quarter of 1999 was approximately $58.4 million, while in the first
quarter of 1998, the average amount of debt outstanding was approximately $127.4
million. The weighted average interest rate of borrowings under the Company's
bank credit facility during the first quarter of 1999 was approximately 8.0%,
compared to 12.6% on borrowings under its bank credit facility during the first
quarter of 1998.
Interest Income. Interest income for the Company's continuing operations
during the first quarter of 1999 was $0.4 million, compared to $0.2 million
during the first quarter of 1998.
Other Expense. Other expense for the Company's continuing operations, which
consisted primarily of costs associated with the Company's previously owned 996-
acre land parcel located in Santa Clarita, California, were $0.6 million in the
first quarter of 1999, compared to $0.5 million in the first quarter of 1998.
Income Taxes. The continuing operations provision for taxes for the first
quarter of 1999 was $0.3 million and included, in connection with the sale of
the Company's 996-acre land parcel in the City of Santa Clarita, California, a
$2.2 million federal tax benefit which represented the reversal of a portion of
the valuation allowances against the net capital loss carryforward. Also
included in the 1999 first quarter tax provision was a $0.5 million state tax
benefit from the utilization of the state net operating loss carryforward.
Discontinued Operations. The 1998 first quarter results included the after-
tax gain on disposal of the Company's discontinued communications business of
$10.1 million and the after-tax operating losses of the Company's discontinued
integration services business of $0.5 million.
(8)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Financial Condition and Liquidity
At January 31, 1999, the Company's debt totaled $48.4 million, which
consisted of $10.0 million of loans outstanding under its revolving credit
facility, $23.3 million outstanding under its term loan, $15.0 million of
convertible subordinated debt and $0.1 million of other debt. In addition there
were $1.8 million of letters of credit outstanding under the revolving credit
facility. Funds available to the Company at January 31, 1999 under its bank
credit facility totaled $33.2 million. The weighted average interest rate on
loans outstanding under its bank credit facility at January 31, 1999 was 7.67%.
On January 11, 1999, the Company sold its 996-acre land parcel located in the
City of Santa Clarita, California and certain other additional rights and assets
related to this land for $10.0 million in cash, a $5.0 million promissory note
and a contingent interest in any final profit from the development of this land.
The net cash proceeds from the sale were used to prepay debt outstanding under
the Company's credit facility.
The Company believes that cash from operations and available credit under its
credit facility will be adequate to meet future operating, debt service, and
capital expenditure cash needs.
Debt as a percent of total capitalization (stockholders' equity plus debt)
was 60.6% at January 31, 1999, compared with 72.3% at October 31, 1998. The
current ratio at January 31, 1999 was 2.76:1, compared with 2.29:1 at October
31, 1998, while working capital was $51.9 million at January 31, 1999, compared
with $48.5 million at October 31, 1998.
Cash flow provided by continuing operations for the first quarter of 1999 was
$4.6 million, compared to cash used by continuing operations of $3.2 million in
the first quarter of 1998. The $7.8 million increase from 1998 to 1999 was due
primarily to a net income of $7.0 million in 1999, compared to $0.9 million in
1998, a decrease in deferred taxes of $0.9 million in 1999, compared to an
increase of $1.7 million in 1998, and a decrease in accounts receivable in 1999
of $4.9 million, compared to a $2.4 million decrease in 1998. Partially
offsetting these was a decrease in accounts payable and other liabilities of
$7.5 million in 1999 compared to $3.3 million in 1998.
Under the terms of the Company's 7% convertible subordinated notes, the
Company may not pay or declare cash dividends or redeem shares of the Company if
the Company's tangible net worth is less than $15 million. At April 30, 1996,
the Company's tangible net worth was less than $15 million and the Company has
not paid or declared dividends (including the quarterly dividend for the Series
D Preferred Stock) or redeemed shares since that date. However, dividends on
the Series D Preferred Stock have been accrued since that date. At January 31,
1999, the Company's tangible net worth was $17.0 million. The accrued and
unpaid dividends on the Series D Preferred Stock at January 31, 1999 were
$1,587.25.
Capital expenditures of continuing operations during the first quarter of
1999 and 1998 were $0.3 million. At January 31, 1999, there were approximately
$0.3 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 and advances under the Company's credit agreement. Under the terms
of the Company's credit agreement, capital expenditures may not exceed specified
annual amounts.
Cash expenditures related to the environmental remediation of a 996-acre
parcel of land located in Santa Clarita, California were $0.6 million during the
first quarter of 1999. On January 11, 1999, the Company sold this land parcel
and certain other additional rights and assets related to this land for $10.0
million in cash, a $5.0 million promissory note and a contingent interest in any
final profit from the development of this land. The net cash proceeds from the
sale were used to prepay debt outstanding under the Company's credit facility.
Impact of Year 2000
The Year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in normal business activities.
(9)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Since 1997, the Company has undertaken a number of initiatives to address the
anticipated impact of the Y2K on its business, including information and non-
information systems, customers and suppliers and third party service providers.
These initiatives include assessments of it systems and products, discussions
with its suppliers and customers, and the implementation of remedial action
plans where necessary. Based on these assessments, the Company determined that a
computer system (both hardware and software) used in its fire and overheat
detector business was not Y2K compliant and needed to be replaced with a system
that was fully Y2K compliant. The Company is currently in the process of
replacing this system and estimates that this will be completed by March, 1999.
The estimated cost of replacing this system is $2.0 million and as of January
31, 1999, the Company has spent approximately $1.8 million of this cost.
Customers and suppliers of the Company are in various stages of addressing
any potential Y2K problems. In view of the large number of alternative
suppliers, the Company believes that the failure of a supplier to become Y2K
compliant would not have a material adverse effect on the Company. The Company
has contacted or is in the process of contacting its third party service
providers to determine their ability to become Y2K compliant. To date, all of
the service providers who have been contacted have indicated that they are or
will be fully Y2K compliant.
While the Company believes that it has identified all potential Y2K issues
and has implemented a program to resolve any potential Y2K problems, all
necessary phases of this program have not yet been completed. The failure by
the Company to complete the remaining phases of this program prior to December
31, 1999 or the failure by the Company to have identified all potential Y2K
issues could materially adversely effect the Company. The amount of any
potential liability or lost revenue cannot be reasonably estimated at this time.
The Company currently has no contingency plans in place in the event it does not
complete the remaining phases of its Y2K program in a timely manner or has
failed to identify a potential issue. The Company does intend to develop a
contingency plan prior to December 31, 1999.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
The interest on the Company's bank debt is based on prevailing market
interest rates and interest on the Company's subordinated debt is based on a
fixed interest rate. For market rate based debt, interest rate changes
generally do not affect the market value of the debt but do impact future
earnings and cash flows, assuming other factors are held constant. Conversely
for fixed rate debt, interest rate changes affect the fair market value of the
debt but do not impact earnings or cash flows. A theoretical one percentage
point change in market rates in effect on January 31, 1999 would impact the
after-tax earnings of the Company by approximately $0.2 million per year. The
effect of this change on the market value of the Company's fixed rate debt would
not be material.
Statements made herein that are not based on historical fact are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The risk factors that could cause actual results to differ
from the forward looking statements include delay in developing new programs and
products, inability to qualify for new programs or to develop new products, loss
of existing business and inability to attract new business and customers,
reduced spending by commercial and defense customers, development of competing
products and the cyclical nature of the aerospace industry.
(10)
<PAGE>
EXHIBITS TO PART I
- ------------------
I(a) Calculation of Earnings Per Share.
(11)
<PAGE>
EXHIBIT 1(a)
WHITTAKER CORPORATION
CALCULATION OF EARNINGS (LOSS) PER SHARE
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended January 31,
1999 1998
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<S> <C> <C>
BASIC EARNINGS PER SHARE
Earnings
Net income $ 7,034 $ 10,407
Adjustments: -- --
Net income used in basic earnings per share calculations $ 7,034 $ 10,407
============= ==============
Weighted average number of common shares outstanding 11,388 11,205
============= ==============
Basic Earnings Per Share $ 0.62 $ 0.93
============= ==============
</TABLE>
(12)
<PAGE>
Exhibit I(a)
WHITTAKER CORPORATION
CALCULATION OF EARNINGS PER SHARE - (Continued)
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended January 31,
1999 1998
============= ==============
<S> <C> <C>
DILUTED EARNINGS PER SHARE
Earnings
Net income used in basic earnings per share calculation (above) $ 7,034 $ 10,407
Add interest on convertible debt 173 --
------------- --------------
Net income used in diluted earnings per share calculation $ 7,207 $ 10,407
============= ==============
Denominator used to Calculate Diluted Earnings Per Share
Weighted average common shares outstanding for basic earnings per share 11,388 11,205
calculation (above)
Effect of dilutive securities:
Series D Convertible Preferred Stock 188 188
Employee stock options 142 63
Convertible debt 884 --
------------- --------------
Denominator for diluted earnings per share calculation 12,602 11,456
============= ==============
Diluted Earnings Per Share $ 0.57 $ 0.91
============= ==============
</TABLE>
NOTES
Earnings per share calculation for 1998 does not include the effects of the
convertible debt as such amounts would be antidilutive in the calculation of
earnings per share from continuing operations.
(13)
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters
As a result of the past 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 occupied by previously owned
or discontinued operating units. There are also various other claims and suits
pending against the Company.
Item 2. Changes in Securities and Use of Proceeds
On November 12, 1998, the Board of Directors of the Company declared a
dividend of one preferred stock purchase right (a "Right") for each outstanding
share of common stock, par value $.01 per share (the "Common Stock"), of the
Company. The dividend was paid on November 30, 1998 (the "Record Date") to
holders of record as of the close of business on that date. Each outstanding
share of Common Stock on the Record Date has received one Right. Shares of
Common Stock issued after the Record Date and prior to the Distribution Date (as
defined herein) will be issued with a Right attached so that all shares of
Common Stock outstanding prior to the Distribution Date will have Rights
attached. 150,000 shares of Preferred Stock have been reserved for issuance
upon exercise of the Rights. The terms and conditions of the Rights are set
forth in a Rights Agreement dated as of November 12, 1998 between the Company
and Mellon Bank, N.A., as Rights Agent (the "Rights Agreement").
Prior to the Distribution Date, the Rights will be evidenced by the
certificates for and will be transferred with the Common Stock and the
registered holders of the Common Stock will be deemed to be the registered
holders of the Rights. After the Distribution Date, the Rights Agent will mail
separate certificates evidencing the Rights to each record holder of the Common
Stock as of the close of business on the Distribution Date, and thereafter the
Rights will be transferable separately from the Common Stock. The
"Distribution Date" generally means the earlier of (i) the close of business on
the 10th day after the date of the first public announcement that a person
(other than the Company or any of its subsidiaries or any employee benefit plan
of the Company or any such subsidiary) has acquired beneficial ownership of 25%
or more of the outstanding shares of Common Stock (an "Acquiring Person") and
(ii) the close of business on the 10th business day (or such later day as may be
designated before any person has become an Acquiring Person by the Board of
Directors) after the date of the commencement of a tender or exchange offer by
any person which would, if consummated, result in such person becoming an
Acquiring Person.
Prior to the Distribution Date, the Rights will not be exercisable to
purchase Series E Participating Cumulative Preferred Stock, par value $1.00 per
share (the "Preferred Stock"). After the Distribution Date, each Right will be
exercisable to purchase, for $125 (the "Purchase Price"), one one-hundredth of a
share of Preferred Stock.
At any time after any person has become an Acquiring Person (but before the
occurrence of any of the events described in the next paragraph), each Right
(other than Rights beneficially owned by the Acquiring Person and certain
affiliated persons) will entitle the holder to purchase, for the Purchase Price,
a number of shares of Common Stock having a market value of twice the Purchase
Price. At any time after any person has become an Acquiring Person (but before
any person becomes the beneficial owner of 50% or more of the outstanding shares
of Common Stock or the occurrence of any of the events described in the next
paragraph), the Board of Directors may exchange all or part of the Rights (other
than Rights beneficially owned by an Acquiring Person and certain affiliated
persons) for shares of Common Stock at an exchange ratio of one share of Common
Stock per Right.
(14)
<PAGE>
If, after any person has become an Acquiring Person, (i) the Company is
involved in a merger or other business combination in which the Company is not
the surviving corporation or its Common Stock is exchanged for other securities
or assets or (ii) the Company and/or one or more of its subsidiaries sell or
otherwise transfer assets or earning power aggregating more than 50% of the
assets or earning power of the Company and its subsidiaries, taken as a whole,
then each Right (other than Rights beneficially owned by the Acquiring Person
and certain affiliated persons) will entitle the holder to purchase, for the
Purchase Price, a number of shares of common stock of the other party to such
business combination or sale (or in certain circumstances, an affiliate) having
a market value of twice the Purchase Price.
The Board of Directors may redeem all of the Rights at a price of $.01 per
Right at any time before any person has become an Acquiring Person. For so long
as the Rights are redeemable, the Rights Agreement may be amended in any
respect. At any time when the Rights are no longer redeemable, the Rights
Agreement may be amended in any respect that does not adversely affect Rights
holders (other than any Acquiring Person and certain affiliated persons), cause
the Rights Agreement to become amendable other than in accordance with this
sentence or cause the Rights again to become redeemable.
The Rights will expire on November 30, 2008, unless earlier exchanged or
redeemed.
Rights holders have no rights as a stockholder of the Company, including the
right to vote and to receive dividends.
The Rights Agreement includes antidilution provisions designed to prevent
efforts to diminish the effectiveness of the Rights.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits. *
<S> <C>
3.2 Restated Bylaws (Exhibit 3.2 to Form 10-K for fiscal year
ended October 31, 1989), as amended on September 30, 1994
(Exhibit 3.2 to Form 10-K for fiscal year ended October 31, 1994),
on December 16, 1996 (Exhibit 3.2 to Form 10-K for fiscal year
ended October 31, 1996), and on October 2, 1998 (Exhibit 3.2 to
Form 10-K for fiscal year ended October 31, 1998).
4.1 Rights Agreement dated as of November 12, 1998 between Registrant
and Mellon Bank, N.A., concerning Series E Participating
Cumulative Preferred Stock Purchase Rights (Exhibit 1 to Form
8-A filed on November 30, 1998).
4.2 Certificate of Designation of Series E Participating Cumulative
Preferred Stock (Exhibit A to Exhibit 1 to Form 8-A filed on
November 30, 1998).
10.1 Restated and Amended Purchase Agreement dated as of November 5,
1998 between Registrant and Santa Clarita, L.L.C. (Exhibit 10.1
to Form 8-K dated January 12, 1999).
11. Statements recomputation of per share earnings for the three
months ended January 31, 1999 (Exhibit I(a) of Part I to this
Form 10-Q).
27. Financial Data Schedule.
</TABLE>
- --------------
* Exhibits followed by a parenthetical reference are incorporated by
reference to the documents described therein.
(b) Reports on Form 8-K.
During the quarter ended January 31, 1999, the following reports were
filed on Form 8-K:
1. A report on Form 8-K was filed on November 9, 1998. The form reports, in
Item 2 thereof, that, on November 5, 1998, the Registrant entered into an
agreement for the sale of its Porta Bella Project to Porta Bella
Acquisition Co., Inc.
2. A report on Form 8-K was filed on November 13, 1998. The form reports,
in Item 5 thereof, the Registrant's adoption on November 12, 1998 of a
Stockholder Rights Plan to replace the existing stockholders rights plan
that will expire by its terms on November 29, 1998.
(15)
<PAGE>
3. A report on Form 8-K was filed on December 14, 1998. The form reports, in
Item 5 thereof, the Registrant's earnings for its fiscal year ended
October 31, 1998 and its fourth quarter of 1998.
4. A report on Form 8-K was filed on December 22, 1998. The form reports, in
Item 5 thereof, that, the Registrant intends to continue to explore all
of its strategic options for maximizing stockholder value.
5. A report on Form 8-K was filed on January 12, 1999. The form reports, in
Item 2 thereof, that, on January 11, 1999, the Registrant completed the
sale of its Porta Bella Project to Santa Clarita, L.L.C.
(16)
<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: March 16, 1999 By: /s/ John K. Otto
-----------------------
John K. Otto
Vice President, Chief
Financial Officer
and Treasurer
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- --------------- ----------- -------------
<S> <C> <S> <C>
11 Statements re computation of per share earnings for the three months ended
January 31, 1999 (Exhibit I(a) of Part I to this Form 10-Q).
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS 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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 1,067
<SECURITIES> 0
<RECEIVABLES> 17,573
<ALLOWANCES> 3,076
<INVENTORY> 42,923
<CURRENT-ASSETS> 81,445
<PP&E> 28,711
<DEPRECIATION> 19,123
<TOTAL-ASSETS> 122,099
<CURRENT-LIABILITIES> 29,543
<BONDS> 47,873
0
1
<COMMON> 114
<OTHER-SE> 31,329
<TOTAL-LIABILITY-AND-EQUITY> 122,099
<SALES> 30,603
<TOTAL-REVENUES> 30,603
<CGS> 15,020
<TOTAL-COSTS> 6,651
<OTHER-EXPENSES> 608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,325
<INCOME-PRETAX> 7,363
<INCOME-TAX> 329
<INCOME-CONTINUING> 7,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,034
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.57
</TABLE>
