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Technology Stocks : Watkins-Johnson

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To: geoffrey Wren who wrote (59)1/27/1998 6:15:00 PM
From: David Mckenna  Read Replies (1) of 75
 
It appears that WJ has not paid for the Samsung Microwave acquistion, accrued liabilities increased by $44M. (Cash per share will be reduced to ~$11/share, still well positioned).
With the divesture and acquistion, Mgt was able to use the "big bath" accounting method and has set WJ up for sucess in '98. (Example, accounts receivable were reduced by $23M, inventories were reduced, deferred income taxes increased by $10M).

'the decks are clear'

Below is the press release.

PALO ALTO, Calif.--(BUSINESS WIRE)--Jan. 27, 1998--Watkins-Johnson Company (NYSE:WJ) today reported that unaudited
results for 1997 showed sales of $291,271,000 and net income of $32,925,000, or $3.99 per diluted share. Net income was comprised of a
net loss from continuing operations of $3,962,000, or $0.48 per share, and a gain related to discontinued operations of $36,887,000, or
$4.47 per share.
Comparable results for the year 1996 include sales of $349,119,000 and a net loss from continuing operations of $1,321,000, or $0.16
diluted loss per share.
Sales in the fourth quarter of 1997 amounted to $72,200,000 and a net loss from continuing operations of $6,292,000, or $0.76 diluted
loss per share. Factors affecting the fourth-quarter results are as follows:
The company closed the purchase of Samsung Microwave Semiconductor in December. The acquisition resulted in a $5.0 million pre-tax
charge against operations consisting of in-process R&D and transaction expenses.
Continued overcapacity in the semiconductor-memory market has been compounded by the Asian financial crisis. Accordingly, the
company has acted to minimize the financial exposure of its semiconductor equipment business. WJ is deferring revenue and backlog
recognition for certain Asian customers because of these monetary considerations. Charges were taken for slow-moving and excess inventory,
as well as nonperforming assets, relative to anticipated business volume. The effect of these actions totaled about $17 million against operations
in the fourth quarter. In addition, some costs will be incurred during the first quarter of 1998 for severance expenses.
The sale and exchange of a Palo Alto lease interest was successfully completed at the end of the year. About seven acres at the company's
Palo Alto campus were turned back for consideration, resulting in a $7.6 million pretax gain.
The gain and operating income, net of taxes, for the divestiture of the company's Palo Alto, Calif.-based defense-electronics, microwave
components and subsystems business to Stellex Industries, Inc. are included in discontinued operations. The net effect of the divestiture
resulted in a fourth-quarter pre-tax gain of $3.64 per share. The effect to the company's earnings in 1997 amounted to $4.47 diluted per share,
and $0.53 in 1996.
In 1996, comparable fourth-quarter sales totaled $66,268,000, with a net loss from continuing operations of $7,896,000, or a $0.95
diluted loss per share.
Firm backlog on December 31, 1997 stood at $98,168,000, compared to the restated 1996 year-end backlog for the company's
continuing operations totaling $152,108,000.
"WJ was successful in completing a number of complex transactions during 1997, including a significant divestiture and a strategic acquisition
at year-end," said W. Keith Kennedy, Jr., president and CEO. "Looking ahead, we are now solidly configured as a two-segment growth
company and, with the time-consuming transition of the divested business behind us, we are aggressively working to build our
semiconductor-equipment and wireless-telecommunications businesses.
"However, the uncertainty surrounding current global economic and semiconductor-equipment market conditions prompted the company to
take actions which resulted in a loss in the fourth quarter and below-plan performance for the year."
The company chose the early adoption of a new accounting standard, FAS No. 131, Disclosures About Segments of an Enterprise and
Related Information, and restated its segments accordingly. The company now consists of two segments: semiconductor equipment and
wireless communications. The wireless-communications segment is composed of the Palo Alto, Calif.-based Wireless Products Group (WPG)
and the Gaithersburg, Md. Telecommunications Group (TG), which includes that plant's communications-intelligence business. The company's
1997 and 1996 results from continuing operations reflect the performance of its remaining operating units after the divestiture.

Semiconductor Equipment

Sales of semiconductor equipment in 1997 amounted to $186 million, down 32 percent from the $272 million recorded in 1996.
The worldwide oversupply of memory devices continued throughout 1997, prompting DRAM manufacturers to expedite their transition to
smaller-geometry devices. The overall capital-equipment market remained flat. Because WJ's CVD installed equipment was adaptable to the
production of the newer-generation memory devices, the company did not benefit from the retooling undertaken during the year.
That general market weakness was exacerbated at year-end as the magnitude of the Asian monetary crisis began to unfold. IMF spending
restrictions increased the uncertainty surrounding any near-term business prospects from Asian customers.
The company accomplished a major goal in 1997 when it shipped and installed WJ-2000 high-density plasma (HDP) cluster platforms at
two Asian locations. The ability of this 200-mm HDP system to perform superior intermetal-dielectric deposition and shallow-trench isolation
processes is of keen interest to the customers evaluating the system.

Wireless Communications

Wireless-communications sales in 1997 totaled $105 million, a 36-percent increase over 1996's comparable $77 million for this restated
segment.
WJ's WPG organization achieved exceptional revenue growth during 1997 as its radio-frequency assemblies for cellular and PCS systems
gained widespread acceptance. Lucent Technologies named WPG its "Outstanding Supplier of 1997" for the unit's performance in
manufacturing CDMA products. The year-end acquisition of the Samsung facility and its gallium-arsenide capability enables WPG to expand
its existing capacity to compete on the open market as a supplier of advanced, highly linear devices to the wireless-telecommunications
industry.
The Telecommunications Group's major technical accomplishment of 1997 was the completion of its Base2(TM) cellular base station design
and the system's successful installation in China by Telos Engineering, Ltd. as part of its Sonata Wireless Telecommunications System.
Above-plan performance by TG's communications-intelligence product lines ensured on-plan performance for the group in 1997. WJ
continues to be the vendor of choice for many of its longtime customers in the intelligence field because of its history of technical excellence and
understanding of their unique mission requirements.

Subsequent Event: San Jose Land Sale

In the first quarter of 1998, Watkins-Johnson sold approximately 14 acres of property at its San Jose, Calif., site for a pre-tax gain of about
$15 million. Further information on this transition will be reported when the company releases its first-quarter 1998 results in April.

Forward-looking Statements

This news release, other than the historical financial information, consists of forward-looking statements that involve risks and uncertainties,
including quarterly fluctuations in results, the timely availability of new products, the impact of competitive products and pricing, and the other
risks detailed from time to time in the company's SEC reports, including the report on Form 10-K for the year ended December 31, 1997.
Actual results may vary materially.

Annual Meeting Scheduled

Watkins-Johnson's annual meeting of shareowners is scheduled for 10:00 a.m. Saturday, April 18, 1998, at the offices of the company,
3333 Hillview Avenue, Palo Alto Calif., 94304.

Summary of Results:

Quarter ending December 31:
(Dollars in thousands except per-share amounts)

Revenue $ 72,200
Net loss from continuing operations (6,292)
Net income and gain from
discontinued operations 30,067
Diluted per-share amounts:
Loss from continuing operations (0.76)
Net gain from discontinued
operations 3.64
Net income 2.88
Shares(a) 8,256,000

Year ending December 31:
(Dollars in thousands except per-share amounts)

Revenue $ 291,271
Net loss from continuing operations (3,962)
Net income and gain from
discontinued operations 36,887
Diluted per-share amounts:
Loss from continuing operations (0.48)
Net gain from discontinued operations 4.47
Net income 3.99
Shares(a) 8,258,000

(a) Diluted and basic common shares outstanding for
earnings-per-share computation are the same due to continuing
operations' loss.

WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For the periods ended December 31, 1997 and December 31, 1996
(Dollars in thousands, except per share amounts)

Three Months Ended Twelve Months Ended
1997 1996(a) 1997 1996(a)
Sales:

Semiconductor Equipment $ 43,978 $ 40,980 $186,454 $272,436
Wireless Communications 28,222 25,288 104,817 76,683
-------- -------- -------- --------
72,200 66,268 291,271 349,119

Costs and expenses:

Cost of goods sold 57,012 53,244 196,675 230,556
Selling and
administrative 14,926 13,512 58,696 66,687
Research and
development 17,760 11,014 50,182 53,175
-------- -------- -------- --------
89,698 77,770 305,553 350,418

Loss from operations (17,498) (11,502) (14,282) (1,299)
Interest and
other income
(expense)-net 69 212 1,136 777
Interest expense (377) (405) (1,425) (1,574)
Gain on real property 7,609 7,609

Loss from continuing
operations before
Federal, state and
foreign income taxes (10,197) (11,695) (6,962) (2,096)
Federal, state
and foreign
income taxes 3,905 3,799 3,000 775
Loss from continuing ________ ________ ________ ________
operations (6,292) (7,896) (3,962) (1,321)

Discontinued operations:

Income from discontinued
operations, net of taxes 390 1,306 7,210 4,223
Gain on disposition,
net of taxes 29,677 29,677 132
-------- -------- -------- --------
Net income (loss) $ 23,775 $ (6,590) $ 32,925 $ 3,034

Basic net income (loss) per share:

Loss from continuing
operations $ (0.76) $ (0.95) $ (0.48) $ (0.16)
Discontinued operations 3.64 0.16 4.47 0.53
------- ---- ----- -----
Net income (loss) $ 2.88 $ (0.79) $ 3.99 0.37

Basic average common
shares outstanding 8,256,000 8,328,000 8,258,000 8,265,000

Diluted net income (loss) per share:

Loss from continuing
operations $ (0.76) $ (0.95) $ (0.48) $ (0.16)
Discontinued operations 3.64 0.16 4.47 0.53
-------- -------- -------- --------
Net income (loss) $ 2.88 $ (0.79) $ 3.99 $ 0.37

Diluted average common
shares outstanding 8,256,000 8,328,000 8,258,000 8,265,000

(a) Certain amounts for 1996 have been reclassified to conform to
the 1997 presentation.

WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and December 31, 1996
(Dollars in thousands)

1997 1996(a)

ASSETS

Current assets:

Cash and equivalents $ 134,462 $ 15,702
Receivables 45,690 73,217
Inventories:
Finished goods 9,283 3,105
Work in process 18,519 24,000
Raw materials and parts 18,873 23,153
Deferred income taxes 24,830 14,395
Net assets of discontinued
operations 25,717
Other 6,536 4,925
--------- ---------
Total current assets 258,193 184,214

Property, plant, and equipment 178,795 186,818
Accumulated depreciation and
amortization (82,382) (88,348)
--------- ---------
Property, plant,and equipment-net 96,413 98,470

Other assets:

Net assets of discontinued
operations 4,100
Other 3,606 6,960
--------- ---------
Total other assets 3,606 11,060
--------- ---------

$ 358,212 $ 293,744

LIABILITIES AND SHAREOWNERS' EQUITY

Current liabilities:
Payables $ 16,188 $ 16,560
Accrued liabilities 88,398 44,672
-------- --------
Total current liabilities 104,586 61,232

Long-term obligations 33,234 37,801

Shareowners' equity:
Common stock 40,631 38,998
Retained earnings 179,761 155,713
-------- --------
Total shareowners' equity 220,392 194,711
-------- --------
$358,212 $293,744

(a) Certain amounts for 1996 have been reclassified to conform to
the 1997 presentation.

--30--blm/sf*

CONTACT: Frank E. Emery, 650-813-2752 (financial)
Stephen B. Witmer, 650-813-2417 (media)

KEYWORD: CALIFORNIA
INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS COMED EARNINGS
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