-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ro5BnQYTgsAOM3Pe0GjUbrgLipMIoeQ1nbYNC6IMEl0H/DlEpXf5BtmlnPA7et3j lWaWOru0bkQb7ONoxAlMYQ== 0000031791-97-000019.txt : 19971114 0000031791-97-000019.hdr.sgml : 19971114 ACCESSION NUMBER: 0000031791-97-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971112 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EG&G INC CENTRAL INDEX KEY: 0000031791 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 042052042 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05075 FILM NUMBER: 97713278 BUSINESS ADDRESS: STREET 1: 45 WILLIAM ST CITY: WELLESLEY STATE: MA ZIP: 02181-4078 BUSINESS PHONE: 6172375100 MAIL ADDRESS: STREET 1: 45 WILLIAM ST CITY: WELLESLEY STATE: MA ZIP: 02181 FORMER COMPANY: FORMER CONFORMED NAME: EDGERTON GERMESHAUSEN & GRIER INC DATE OF NAME CHANGE: 19670626 10-Q 1 3Q97 - 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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 September 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-5075 EG&G, Inc. ---------- (Exact name of registrant as specified in its charter) Massachusetts 04-2052042 ------------- ---------- (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 45 William Street, Wellesley, Massachusetts 02181 ------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 237-5100 -------------- (Registrant's telephone number, including area code) NONE ---- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at October 26, 1997 ----- ------------------------------- Common Stock, $1 par value 45,309,000 (Excluding treasury shares) PART I. FINANCIAL INFORMATION Item 1. Financial Statements -------------------- EG&G, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS For the Three and Nine Months Ended September 28, 1997 and September 29, 1996 (Unaudited) -----------
(In Thousands Except Per Share Data) ------------------------------------ Three Months Ended Nine Months Ended ------------------ ----------------- SEP 28, SEP 29, SEP 28, SEP 29, 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Sales: Products ................................................... $ 207,443 $ 215,328 $ 622,371 $ 639,550 Services ................................................... 150,925 139,419 451,675 417,895 ----------- ----------- ----------- ----------- Total Sales .................................................. 358,368 354,747 1,074,046 1,057,445 ----------- ----------- ----------- ----------- Costs and Expenses: Cost of sales: Products ................................................ 132,473 136,471 402,530 406,108 Services ................................................ 134,253 126,374 402,823 373,198 ----------- ----------- ----------- ----------- Total cost of sales ........................................ 266,726 262,845 805,353 779,306 Research and development expenses ......................... 10,744 8,756 33,817 31,131 Selling, general and administrative expenses .............. 60,569 59,945 180,026 182,468 Asset impairment charge (Note 2) .......................... -- -- 28,200 -- ----------- ----------- ----------- ----------- Total Costs and Expenses ..................................... 338,039 331,546 1,047,396 992,905 ----------- ----------- ----------- ----------- Operating Income From Continuing Operations .................................. 20,329 23,201 26,650 64,540 Other Income (Expense), Net (Note 3) ......................... 701 (2,255) (3,975) (5,209) ----------- ----------- ----------- ----------- Income From Continuing Operations Before Income Taxes ....................................... 21,030 20,946 22,675 59,331 Provision for Income Taxes ................................... 7,151 6,745 12,618 19,105 ----------- ----------- ----------- ----------- Income From Continuing Operations ............................ 13,879 14,201 10,057 40,226 Income From Discontinued Operations, Net of Income Taxes (Note 4) .............................. 711 1,436 2,714 3,832 ----------- ----------- ----------- ----------- Net Income ................................................... $ 14,590 $ 15,637 $ 12,771 $ 44,058 =========== =========== =========== =========== Earnings Per Share: Continuing Operations ........................................ $ .30 $ .30 $ .22 $ .85 Discontinued Operations ...................................... .02 .03 .06 .08 ----------- ----------- ----------- ----------- Net Income ................................................... $ .32 $ .33 $ .28 $ .93 =========== =========== =========== =========== Cash Dividends Per Common Share .............................. $ .14 $ .14 $ .42 $ .42 =========== =========== =========== =========== Weighted Average Shares of Common Stock Outstanding ............................................... 45,602 47,316 45,903 47,457
The accompanying unaudited notes are an integral part of these consolidated financial statements. EG&G, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET As of September 28, 1997 and December 29, 1996 (Dollars in Thousands Except Per Share Data) --------------------------------------------
SEP 28, DEC 29, 1997 1996 ---- ---- (Unaudited) ----------- Current Assets: Cash and cash equivalents ............................................. $ 57,155 $ 47,846 Accounts receivable (Note 5) .......................................... 222,561 222,856 Inventories (Note 6) .................................................. 120,339 119,558 Other current assets .................................................. 70,207 64,451 --------- --------- Total Current Assets ..................................................... 470,262 454,711 --------- --------- Property, Plant and Equipment: At cost (Notes 2 and 7) ............................................... 474,052 480,858 Accumulated depreciation and amortization ............................. (292,120) (288,808) --------- --------- Net Property, Plant and Equipment ........................................ 181,932 192,050 --------- --------- Investments (Note 8) ..................................................... 17,767 16,839 Intangible Assets (Notes 2 and 9) ........................................ 83,626 110,368 Other Assets ............................................................. 55,707 48,932 --------- --------- Total Assets ............................................................. $ 809,294 $ 822,900 ========= ========= Current Liabilities: Short-term debt ....................................................... $ 38,436 $ 21,499 Accounts payable ...................................................... 73,329 75,749 Accrued expenses (Note 10) ............................................ 165,370 162,548 --------- --------- Total Current Liabilities ................................................ 277,135 259,796 --------- --------- Long-Term Debt ........................................................... 114,981 115,104 Long-Term Liabilities (Note 11) .......................................... 100,417 82,894 Contingencies Stockholders' Equity: Preferred stock - $1 par value, authorized 1,000,000 shares; none outstanding ................................. -- -- Common stock - $1 par value, authorized 100,000,000 shares; issued 60,102,000 shares ....................... 60,102 60,102 Retained earnings ..................................................... 525,148 532,043 Cumulative translation adjustments .................................... 45 18,228 Net unrealized gain on marketable investments (Note 8) ................ 1,162 1,204 Cost of shares held in treasury; 14,851,000 shares at September 28, 1997 and 13,792,000 shares at December 29, 1996 ............................ (269,696) (246,471) --------- --------- Total Stockholders' Equity ............................................... 316,761 365,106 --------- --------- Total Liabilities and Stockholders' Equity ............................... $ 809,294 $ 822,900 ========= =========
The accompanying unaudited notes are an integral part of these consolidated financial statements. EG&G, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Nine Months Ended September 28, 1997 and September 29, 1996 (Unaudited) -----------
(In Thousands) -------------- Nine Months Ended ----------------- SEP 28, SEP 29, 1997 1996 ---- ---- Cash Flows Provided by Operating Activities: Net income ............................................................................................ $ 12,771 $ 44,058 Deduct net income from discontinued operations ........................................................ (2,714) (3,832) -------- -------- Income from continuing operations ..................................................................... 10,057 40,226 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Asset impairment charge ......................................................................... 28,200 -- Depreciation and amortization ................................................................... 32,910 29,794 Gains on dispositions and investments, net ...................................................... (6,806) (1,309) Changes in assets and liabilities, net of effects from companies purchased and divested: Increase in accounts receivable .......................................................... (6,620) (7,571) Increase in inventories .................................................................. (4,545) (10,110) Increase (decrease) in accounts payable .................................................. (268) 1,295 Increase (decrease) in accrued expenses .................................................. 5,075 (359) Change in prepaid and deferred taxes ..................................................... (3,639) (1,472) Change in prepaid expenses and other ..................................................... (21,474) (4,586) -------- -------- Net Cash Provided by Continuing Operations ............................................................... 32,890 45,908 Net Cash Provided by Discontinued Operations ............................................................. 3,012 5,472 -------- -------- Net Cash Provided by Operating Activities ................................................................ 35,902 51,380 -------- -------- Cash Flows Provided by (Used In) Investing Activities: Capital expenditures .................................................................................. (37,299) (62,787) Reimbursement of invested capital (Note 11) ........................................................... 27,000 -- Proceeds from dispositions of businesses and sales of property, plant and equipment .................................................................. 14,971 2,221 Cost of acquisitions .................................................................................. (3,611) -- Proceeds from sales of investment securities .......................................................... 2,733 8,784 Other ................................................................................................. (1,156) -- -------- -------- Net Cash Provided by (Used in) Investing Activities ...................................................... 2,638 (51,782) -------- -------- Cash Flows Used in Financing Activities: Increase in commercial paper .......................................................................... 19,955 21,940 Proceeds from issuance of common stock ................................................................ 4,550 4,395 Purchases of common stock ............................................................................. (28,104) (12,032) Cash dividends ........................................................................................ (19,337) (19,952) Other ................................................................................................. (3,129) (535) -------- -------- Net Cash Used in Financing Activities .................................................................... (26,065) (6,184) -------- -------- Effect of Exchange Rate Changes on Cash and Cash Equivalents ...................................................................................... (3,166) (1,366) -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents ..................................................... 9,309 (7,952) Cash and cash equivalents at beginning of period ......................................................... 47,846 76,204 -------- -------- Cash and cash equivalents at end of period ............................................................... $ 57,155 $ 68,252 ======== ========
The accompanying unaudited notes are an integral part of these consolidated financial statements. EG&G, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) ----------- (1) Basis of Presentation - -------------------------- The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The balance sheet amounts as of December 29, 1996 in this report were extracted from the Company's audited 1996 financial statements included in the latest annual report on Form 10-K. In the opinion of management, the unaudited consolidated financial statements included herein contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position as of September 28, 1997 and the results of operations for the three and nine months ended September 28, 1997 and September 29, 1996 and the cash flows for the nine months then ended. The results of operations for the nine months ended September 28, 1997 are not necessarily to be considered indicative of the results for the entire year. In the fourth quarter of 1997, the Company will adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, which is effective for financial statements for periods ending after December 15, 1997. SFAS No. 128 requires replacement of primary earnings per share (EPS) with basic EPS, which is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS, which gives effect to all dilutive potential common shares outstanding, is also required. All prior-period EPS data presented will be restated. The EPS amounts shown on the Company's consolidated statement of operations for the three and nine months ended September 28, 1997 and September 29, 1996 are approximately equivalent to both basic EPS and diluted EPS because the number of shares issuable upon the exercise of stock options is immaterial. The Financial Accounting Standards Board issued two new statements in June 1997. SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public business enterprises report information and operating segments in annual financial statements and requires reporting of selected information in interim financial reports. Both statements are effective for fiscal years beginning after December 15, 1997. The required disclosures for SFAS No. 130 will be included in the Company's quarterly report on Form 10-Q for the first quarter of 1998. The required disclosures for SFAS No. 131 will be included in the Company's 1998 annual report on Form 10-K. (2) Asset Impairment Charge - ---------------------------- As a result of IC Sensors' inability to achieve the improvements specified in its corrective action plan, including new product orders, improved manufacturing yields, cost reductions, and attraction and retention of critical personnel, it continued operating at a loss in the second quarter, which triggered an impairment review of its long-lived assets. A revised operating plan was developed to restructure and stabilize the business . The revised projections by product line provided the basis for measurement of the asset impairment charge. The Company calculated the present value of expected cash flows of IC Sensors' product lines to determine the fair value of the assets. Accordingly, in the second quarter, the Company recorded an impairment charge of $26.7 million in the Optoelectronics segment, for a write-down of goodwill of $13.6 million and fixed assets of $13.1 million. In the second quarter of 1997, the Company also recorded a $1.5 million impairment charge to write off the goodwill of the Environmental Services division in the Technical Services segment. EG&G, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) ----------- (3) Other Income (Expense) - --------------------------- Other income (expense), net, consisted of the following:
(In Thousands) -------------- Three Months Ended Nine Months Ended ------------------ ----------------- SEP 28, SEP 29, SEP 28, SEP 29, 1997 1996 1997 1996 ---- ---- ---- ---- Interest income ......................... $ 174 $ 1,148 $ 1,153 $ 2,923 Interest expense ........................ (3,204) (3,335) (9,200) (9,751) Gains on investments, net ............... 136 392 546 1,309 Other ................................... 3,595 (460) 3,526 310 ------- ------- ------- ------- $ 701 $(2,255) $(3,975) $(5,209) ======= ======= ======= =======
A $3.4 million cost of capital reimbursement relating to a joint development program was included in Other for the three and nine months ended September 28, 1997. (4) Discontinued Operations - ---------------------------- The former Department of Energy (DOE) Support segment, which has provided services under management and operations contracts, is presented as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. The Mound contract, which was the Company's remaining management and operations contract with the DOE, expired on September 30, 1997. Summary operating results of the discontinued operations were as follows:
(In Thousands) -------------- Three Months Ended Nine Months Ended ------------------ ----------------- SEP 28, SEP 29, SEP 28, SEP 29, 1997 1996 1997 1996 ---- ---- ---- ---- Sales ......................................... $29,098 $38,236 $79,795 $99,315 Costs and expenses ............................ 28,005 36,026 75,620 93,419 ------- ------- ------- ------- Income from discontinued operations before income taxes ............. 1,093 2,210 4,175 5,896 Provision for income taxes .................... 382 774 1,461 2,064 ------- ------- ------- ------- Income from discontinued operations, net of income taxes ............................... $ 711 $ 1,436 $ 2,714 $ 3,832 ======= ======= ======= =======
EG&G, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) ----------- (5) Accounts Receivable - ------------------------ Accounts receivable as of September 28, 1997 and December 29, 1996 included unbilled receivables of $46 million and $44 million, respectively, which were due primarily from U.S. government agencies. Accounts receivable were net of reserves for doubtful accounts of $5.1 million and $4.2 million as of September 28, 1997 and December 29, 1996, respectively. (6) Inventories - ---------------- Inventories consisted of the following:
(In Thousands) -------------- SEP 28, DEC 29, 1997 1996 -------- -------- Finished goods ........................................................... $ 31,107 $ 31,436 Work in process .......................................................... 30,539 28,536 Raw materials ............................................................ 58,693 59,586 -------- -------- $120,339 $119,558 ======== ========
(7) Property, Plant and Equipment - --------------------------------- Property, plant and equipment, at cost, consisted of the following:
(In Thousands) -------------- SEP 28, DEC 29, 1997 1996 ---- ---- Land ..................................................................... $ 12,794 $ 12,324 Buildings and leasehold improvements ..................................... 113,685 123,575 Machinery and equipment .................................................. 347,573 344,959 -------- -------- $474,052 $480,858 ======== ========
The decrease in property, plant and equipment resulted primarily from the effect of translating assets denominated in non-U.S. currencies at current exchange rates, the write-down associated with the IC Sensors division and dispositions. These decreases were partially offset by capital expenditures. (8) Investments - --------------- Investments consisted of the following:
(In Thousands) -------------- SEP 28, DEC 29, 1997 1996 ---- ---- Marketable investments ................................................... $ 12,084 $ 12,294 Other investments ........................................................ 593 558 Joint venture investments ................................................ 5,892 4,363 -------- -------- 18,569 17,215 Investments classified as other current assets ........................... (802) (376) -------- -------- $ 17,767 $ 16,839 ======== ========
At September 28, 1997, marketable investments, all classified as available for sale, had an aggregate market value of $12.1 million and gross unrealized holding gains of $1.8 million. The net unrealized holding gain on marketable investments, net of deferred taxes, reported as a separate component of stockholders' equity, was $1.2 million at September 28, 1997. In the first nine months of 1997, proceeds from sales of available-for-sale securities were $1 million, which approximated average cost. EG&G INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) ----------- (9) Intangible Assets - ---------------------- The $26.7 million decrease in intangible assets resulted primarily from write-downs associated with the IC Sensors and Environmental Services divisions, current year amortization and the effect of translating goodwill denominated in non-U.S. currencies at current exchange rates. (10) Accrued Expenses - ---------------------- Accrued expenses consisted of the following:
(In Thousands) -------------- SEP 28, DEC 29, 1997 1996 ---- ---- Payroll and incentives ................................................... $ 22,832 $ 29,732 Employee benefits ........................................................ 47,681 44,845 Federal, non-U.S. & state income taxes ................................... 27,670 24,186 Other accrued operating expenses ......................................... 67,187 63,785 -------- -------- $165,370 $162,548 ======== ========
(11) Long-Term Liabilities - --------------------------- The $17.5 million increase in long-term liabilities resulted primarily from a $27 million payment received from a development partner as part of the negotiation of a long-term contract in the third quarter of 1997. This payment constitutes reimbursement for invested capital and will be amortized to income over the estimated life of the related assets. This increase was partially offset by the effect of translating liabilities denominated in non-U.S. currencies at current exchange rates and the decrease in deferred income taxes resulting from the tax benefit related to a portion of the asset impairment charge. Item 2. Management's Discussion and Analysis of Results ------------------------------------------------------- of Operations and Financial Condition ------------------------------------- EG&G, INC. AND SUBSIDIARIES Results of Operations --------------------- The following industry segment information is presented as an aid to a better understanding of the Company's operating results:
(In Thousands) -------------- Three Months Ended Nine Months Ended ------------------ ----------------- SEP 28, SEP 29, Increase SEP 28, SEP 29, Increase 1997 1996 (Decrease) 1997 1996 (Decrease) ---- ---- ---------- ---- ---- ---------- Instruments Sales ..................... $ 70,714 $ 78,543 $ (7,829) $ 214,738 $ 230,900 $(16,162) Operating Income .......... 3,976 9,095 (5,119) 15,891 25,360 (9,469) Mechanical Components Sales ..................... $ 70,420 $ 67,122 $ 3,298 $ 216,452 $ 204,903 $ 11,549 Operating Income .......... 11,382 7,940 3,442 26,245 23,297 2,948 Optoelectronics Sales ..................... $ 66,309 $ 69,663 $ (3,354) $ 191,181 $ 203,747 $(12,566) Operating Income (Loss) (1) 2,928 4,924 (1,996) (22,073) 9,903 (31,976) Technical Services Sales ..................... $ 150,925 $ 139,419 $ 11,506 $ 451,675 $ 417,895 $ 33,780 Operating Income (1) ...... 9,198 6,584 2,614 25,853 24,147 1,706 General Corporate Expenses ... $ (7,155) $ (5,342) $ (1,813) $ (19,266) $ (18,167) $ (1,099) Continuing Operations Sales ..................... $ 358,368 $ 354,747 $ 3,621 $1,074,046 $1,057,445 $ 16,601 Operating Income (1) ...... 20,329 23,201 (2,872) 26,650 64,540 (37,890)
(1) The operating income from continuing operations for the nine months ended September 28, 1997 included an asset impairment charge of $28.2 million. The impact of this charge was $26.7 million on the Optoelectronics segment and $1.5 million on the Technical Services segment. The discussion that follows is a summary analysis of the major changes in operating results by industry segment that occurred for the three and nine months ended September 28, 1997 compared to the three and nine months ended September 29, 1996. Overview -------- Sales from continuing operations increased 1% for the third quarter of 1997 compared to 1996. Increases of 8% in Technical Services and 5% in Mechanical Components were partially offset by decreases in Optoelectronics and Instruments. On a year-to-date basis, sales increased 2%, with Technical Services and Mechanical Components up 8% and 6%, respectively, while Instruments and Optoelectronics experienced decreases. For the third quarter, operating income was $20.3 million, a 12% decrease from last year. Operating results for nine months of 1997 included a $28.2 million non-cash asset impairment charge, primarily associated with the IC Sensors business. The after-tax effect of this charge was $23.5 million ($.51 loss per share). Excluding the asset impairment charge, nine months' operating income was $54.9 million, a 15% decrease from last year. EG&G, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) In 1996, the Company announced a realignment of its operating organization to position the Company for growth. The overall goal is to focus on the end-use customer by consolidating and integrating divisions around common technologies, manufacturing processes and markets. This realignment includes the divestiture of businesses deemed not to be strategic. While there is no assurance that these transactions will be consummated, the Company expects to realize material gains on these dispositions. The 1997 third quarter results included a $4.2 million gain from asset dispositions and $4.5 million of restructuring and planned integration costs. The 1997 year-to-date operating income included gains of $5.8 million on the divestiture of assets associated with non-core Instruments and Mechanical Components businesses. It also included planned costs of $6.7 million incurred mainly by the three product segments in connection with the consolidation and restructuring initiatives. The Company will continue to incur integration and restructuring costs as it moves forward with the consolidation initiative. Instruments - ----------- Third Quarter - ------------- Instruments sales decreased $7.8 million mainly due to the effects of currency translation, large explosives-detection systems orders in 1996 that did not repeat in 1997, the divestiture of a non-core business in early 1997 and lower worldwide demand for nuclear and research instruments. These decreases were partially offset by the sales of a new medical research instrument. Income decreased $5.1 million mainly from lower sales levels, restructuring and integration costs, price reductions due to competitive pressures on conventional explosives-detection systems and startup costs related to new distribution organizations. Nine Months - ------------ Instruments sales decreased $16.2 million mainly due to the effects of currency translation, lower shipments of nuclear and research instruments caused by reduced government funding and delays in product improvement, price reductions due to continued competitive pressures on conventional explosives-detection systems and the divestiture of a non-core business. These decreases were partially offset by increased sales of medical research and diagnostic instruments, primarily a new medical research instrument, and consumables related to the placement of an increasing number of diagnostic instruments. Income decreased $9.5 million mainly from lower sales, royalty payments associated with a 1996 patent litigation settlement agreement concerning explosives-detection systems, startup costs relating to new distribution organizations and the absence in 1997 of income from the expiration of a grant liability. 1997 results reflect $2.8 million of restructuring and integration costs incurred as part of the Company's consolidation and restructuring initiatives, partially offset by a $1.6 million asset divestiture gain. Mechanical Components - --------------------- Third Quarter - ------------- Sales grew 5% due to higher demand for aerospace products reflecting continuing strength in that market and to new products in the electromechanical business. Income increased $3.4 million due to a $4.2 million gain on the divestiture of Birtcher and income earned on higher sales. These increases were partially offset by costs associated with the consolidation and relocation of manufacturing facilities. Nine Months - ------------ Sales increased 6% primarily due to higher demand for aerospace products. Income increased $2.9 million as the divestiture gain and income earned on the higher sales were partially offset by costs associated with the consolidation and relocation of manufacturing facilities and unplanned warranty costs. As part of its ongoing program to divest businesses deemed not to be strategic, the Company has accepted a purchase offer for its Rotron division. While consummation cannot be assured, the sale is expected to be completed in late 1997 or early 1998. The Company expects to realize a material gain upon disposition. Rotron's 1996 annual sales were approximately $64 million. EG&G, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) Optoelectronics - --------------- Third Quarter - ------------- Sales decreased $3.4 million, reflecting the continuing shift in demand to lower-cost competitors' automotive accelerometers and a custom camera order in 1996 that did not repeat in 1997. These decreases were partially offset by sales of a new thermopile sensor and increased sales of flash products. Operating income decreased $2 million due to restructuring and integration costs and cost overruns in an imaging business. The third quarter 1997 operating results include $2.6 million of development costs for the amorphous silicon project and for the advanced micromachined sensors technology platform. These costs approximated last year's level. Nine Months - ----------- Sales for the nine months decreased $12.6 million due to shifts in demand to lower cost competitors' automotive accelerometers, delays in the introduction of new micromachined sensor products, contamination and start-up production problems in an imaging business, a custom camera order in 1996 that did not repeat in 1997 and the completion of a power supplies contract in 1996. The $32 million decrease in income resulted primarily from the asset impairment charge of $26.7 million. Excluding the impairment charge, operating income decreased $5.3 million as a result of lower sales, higher operating losses at IC Sensors, cost overruns in an imaging business and higher development costs for the advanced micromachined sensors technology platform and other products. IC Sensors Asset Impairment Charge - ----------------------------------- As a result of IC Sensors' inability to achieve the improvements specified in its corrective action plan, including new product orders, improved manufacturing yields, cost reductions, and attraction and retention of critical personnel, it continued operating at a loss in the second quarter of 1997, triggering an impairment review of its long-lived assets. A revised operating plan was developed to restructure and stabilize the business. The revised projections by product line provided the basis for measurement of the asset impairment charge. Accordingly, the Company recorded an impairment charge of $26.7 million in the second quarter, for a write-down of goodwill of $13.6 million and fixed assets of $13.1 million. The after-tax effect of this charge was $22 million ($.48 loss per share). The impairment charge reduces future depreciation and amortization by approximately $3 million annually. The Company continues to evaluate performance against the revised operating plan. Technical Services - ------------------ Third Quarter - -------------- Sales increased 8% as a result of final shipments under a contract for the development and installation of communication systems, temporarily higher lubricant testing levels and start-up of the new light-truck structural testing facility. The $2.6 million operating income increase was mainly the result of higher sales. Nine Months - ----------- Sales increased 8% primarily from final shipments under a contract for communication systems, additional billings under a government contract, temporarily higher lubricant testing demand and start-up of the new light-truck testing facility. These increases were partially offset by decreases due to the completion of a lubricant testing contract in 1996 and lower demand for sedan testing. After a goodwill write-down of $1.5 million, operating income increased $1.7 million. Excluding the goodwill write-down, operating income increased $3.2 million primarily due to higher sales levels. Future performance could be impacted by the NASA and Air Force consolidation of the base operations contracts at the Kennedy Space Center, Cape Canaveral Air Station and certain functions at Patrick Air Force Base in an effort to eliminate duplication and reduce costs. It is anticipated that the resultant contract would be effective October 1, 1998. The Company plans to participate in the recompetition for the new contract as part of a team with Johnson Controls, Lockheed Martin and ITT. The NASA contract contributed annual sales of $172 million in 1996. EG&G, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) General Corporate Expenses - -------------------------- Expenses increased $1.8 million for the quarter and $1.1 million for the nine months due to costs associated with the repositioning of the Company. Other - ----- Other income increased $3 million in the third quarter mainly due to a $3.4 million cost of capital reimbursement relating to a joint development program. The nine month decrease in other expense of $1.2 million was mainly due to the reimbursement partially offset by lower interest income. The 1997 tax provision for the nine months was significantly impacted by the non-deductible goodwill write-downs of IC Sensors and the Environmental Services division. Excluding the impairment charge and its related tax benefit, the effective tax rate for the third quarter and nine months was 34% in 1997. Discontinued Operations - ----------------------- The Mound contract, the Company's remaining management and operations contract with the DOE, expired during the third quarter of 1997. The Company is in the process of negotiating contract closeouts and does not anticipate incurring any material loss. Financial Condition ------------------- The Company's cash and cash equivalents increased $9.3 million in the first nine months of 1997 while commercial paper borrowings increased $20 million. Net cash provided by continuing operations was $32.9 million in the first nine months of 1997 compared to $45.9 million in 1996. Capital expenditures were $37.3 million in 1997, a decrease of $25.5 million from the same period in 1996 due to reduced spending in the Optoelectronics segment and the automotive portion of the Technical Services segment. Capital expenditures for 1997 are expected to exceed $60 million to support new product initiatives primarily in the Optoelectronics segment. In the third quarter of 1997, the Company received a $27 million payment from a development partner as part of the negotiation of a long-term contract related to a joint development program for the amorphous silicon project. The payment constitutes reimbursement for invested capital and will be amortized to income over the estimated life of the related assets. This payment was included in long-term liabilities at September 28, 1997. During the first nine months of 1997, the Company purchased 1,332,000 shares of its common stock through periodic purchases on the open market at a cost of $28.1 million under an existing stock repurchase program. As of September 28, 1997, the Company had authorization to purchase 2.8 million additional shares under the program. Subject to operational cash flows, cash utilization alternatives and market conditions, the Company plans to continue to purchase shares under the program. The Company has two revolving credit agreements totaling $200 million. During the first quarter of 1997, the 364-day facility was extended to March 1998, and the five-year facility was extended to March 2002. The Company did not draw down either of these credit facilities during the first nine months of 1997. Other ----- The Company utilizes software and related technologies throughout its business that will be affected by the Year 2000 problem, which is common to most corporations. The problem relates to the inability of systems containing microprocessors which process dates to function properly as the year 2000 approaches. The Company has made an assessment and developed a plan to address the effect on Enterprise Requirements Planning systems and continues to study its effect EG&G, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) on internal needs, products, suppliers and customers. The Company currently believes it will be able to modify or replace its affected systems in time to minimize any detrimental effects on operations. Based on current plans, the Company expects that such costs will not be material to the Company's results of operations in one or more fiscal quarters or years and will not have a material adverse impact on the liquidity or financial position of the Company. Forward-Looking Information --------------------------- All statements contained herein that refer to a time after September 28, 1997, including the words will be, estimated to be, could be, expect, believe, will continue, and plan, or statements referring to goals, the future or future actions, continuing actions, trends, strategies, initiatives, challenges or opportunities, or which otherwise are not purely historical, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements, including the factors set forth below. Factors Affecting Future Performance ------------------------------------ Future performance of the Company's three product segments will be highly dependent on the technological success, market acceptance and competitive position of new program initiatives, including the amorphous silicon project and the advanced micromachined sensors technology platform. Improved operational efficiency will be required to offset increasing price pressure in most of the Company's product offerings. Other factors affecting future performance include lower sales and earnings caused by potential divestitures, lower government spending, warranty costs and the ability to operate with reducing backlogs resulting from shorter customer order cycles, to resolve pricing issues with selected customers and to attract and retain key personnel in a number of areas. The future results of the Optoelectronics segment are dependent on management's ability to restore IC Sensors to profitability, the successful introduction of new products, improvement in manufacturing yields and implementation of cost reductions, including the successful transfer of assembly activities to lower-cost geographic locations. In the Technical Services segment, future performance will continue to be impacted by a highly competitive procurement environment, continuing changes in federal budget priorities and rapidly changing customer requirements. NASA and the Air Force are consolidating the base operations contracts at the Kennedy Space Center, Cape Canaveral Air Station and certain functions at Patrick Air Force Base in an effort to eliminate duplication and reduce costs. It is anticipated that any resultant contract would be effective October 1, 1998, and the Company plans to participate in the recompetition for the new contract as part of a team with Johnson Controls, Lockheed Martin and ITT. Movements in foreign exchange rates could affect operating results. Effective tax rates in the future could be affected by changes in the geographical distribution of income, utilization of net operating loss carry-forwards, repatriation costs, and resolution of outstanding tax audit issues. Exhibits -------- EG&G, INC. AND SUBSIDIARIES Exhibit 27 - Financial data schedule PART II. OTHER INFORMATION EG&G, INC. AND SUBSIDIARIES Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits incorporated by reference from Part I herein Exhibit 27 - Financial data schedule (submitted in electronic format only) (b) Reports on Form 8-K The Company filed a report on Form 8-K on July 25, 1997, which included a copy of a press release containing the Company's financial results for the quarter ended June 29, 1997. EG&G, INC. AND SUBSIDIARIES SIGNATURE 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. EG&G, Inc. By: /s/ John F. Alexander, II --------------------------- John F. Alexander, II Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: November 10, 1997 ----------------- EX-27 2 FDS --
5 0000031791 EG&G, Inc. 1000 US$ 9-MOS DEC-28-1997 DEC-30-1996 SEP-28-1997 1 57,155 0 222,561 5,073 120,339 470,262 474,052 292,120 809,294 277,135 114,981 0 0 60,102 256,659 809,294 1,074,046 1,074,046 402,530 805,353 242,043 0 9,200 22,675 12,618 10,057 2,714 0 0 12,771 .28 .28
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