SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 2, 1994
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 30, 1994
Common Stock, $1 par value 55,124,000
(Excluding treasury shares)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Nine Months Ended October 2, 1994 and October 3, 1993
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands Except Per Share Data)
----------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales:
Products $188,746 $168,054 $ 547,868 $514,127
Services 148,114 164,200 444,619 465,039
-------- -------- ---------- --------
Total Sales 336,860 332,254 992,487 979,166
-------- -------- ---------- --------
Costs and Expenses:
Cost of sales:
Products 133,434 118,270 384,390 364,386
Services 130,414 139,417 389,478 391,454
------- ------- ------- -------
Total cost of sales 263,848 257,687 773,868 755,840
Selling, general
and administrative expenses 58,287 57,059 177,969 172,057
Goodwill write-down (Note 2) 40,300 - 40,300 -
Restructuring charges (Note 3) 30,400 - 30,400 -
------- ------- --------- -------
Total Costs and Expenses 392,835 314,746 1,022,537 927,897
------- ------- --------- -------
Operating Income (Loss) From
Continuing Operations (55,975) 17,508 (30,050) 51,269
Other income (expense), net (Note 4) (3,382) (1,110) (3,836) (1,432)
------- ------ --------- -------
Income (Loss) From Continuing Operations
Before Income Taxes (59,357) 16,398 (33,886) 49,837
Provision (benefit) for Federal and
non-U.S. income taxes (2,417) 6,132 6,264 16,929
------- ------ --------- -------
Income (Loss) From
Continuing Operations (56,940) 10,266 (40,150) 32,908
Income From Discontinued Operations,
Net of Income Taxes (Note 5) 8,646 4,947 22,632 22,480
------- ------ --------- -------
Income (Loss) Before Cumulative Effect
of Accounting Changes (48,294) 15,213 (17,518) 55,388
Cumulative Effect of Accounting Changes:
Income taxes (Note 6) - - - (7,300)
Postretirement benefits other than
pensions (Note 7) - - - (13,200)
-------- -------- ---------- --------
Net Income (Loss) $(48,294) $ 15,213 $ (17,518) $ 34,888
======== ======== ========== ========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
For the Three and Nine Months Ended October 2, 1994 and October 3, 1993
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Earnings (Loss) Per Share:
Income (Loss) From
Continuing Operations $(1.03) $.18 $(.73) $ .58
Income From Discontinued Operations,
Net of Income Taxes .15 .09 .41 .40
Income (Loss) Before Cumulative Effect of
Accounting Changes (.88) .27 (.32) .98
Cumulative Effect of Accounting Changes:
Income taxes - - - (.13)
Postretirement benefits other than pensions - - - (.23)
------- ----- ----- -----
Net Income (Loss) $ (.88) $.27 $(.32) $ .62
====== ===== ===== =====
Cash Dividends Per Common Share $ .14 $.13 $ .42 $ .39
====== ==== ===== =====
Weighted Average Shares of Common Stock
Outstanding 55,121 56,219 55,321 56,477
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of October 2, 1994 and January 2, 1994
(Dollars in Thousands)
--------------------
<TABLE>
<CAPTION>
October 2, January 2,
1994 1994
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 56,123 $ 72,185
Accounts receivable (Note 8) 223,969 225,643
Inventories (Note 9) 130,449 121,581
Other (Note 11) 47,880 33,760
Net assets of discontinued operations (Note 5) 10,514 7,942
-------- --------
Total Current Assets 468,935 461,111
Property, Plant and Equipment:
At cost (Note 10) 360,328 327,416
Less - Accumulated depreciation and amortization 238,448 221,320
-------- --------
Net Property, Plant and Equipment 121,880 106,096
-------- --------
Investments (Note 11) 21,779 25,920
-------- --------
Intangible and Other Assets (Notes 2, 12 and 14) 172,766 171,760
-------- --------
Total Assets $785,360 $764,887
======== ========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
As of October 2, 1994 and January 2, 1994
(Dollars in Thousands)
--------------------
<TABLE>
<S> <C> <C>
Current Liabilities:
Short-term debt $ 61,979 $ 43,589
Accounts payable 66,044 60,787
Restructuring reserve (Note 3) 24,663
Accrued expenses (Note 13) 125,817 128,800
Total Current Liabilities 278,503 233,176
Long-Term Liabilities 62,327 54,177
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
Capital in excess of par value - -
Retained earnings 455,829 496,063
Cumulative translation adjustments 12,396 (8,287)
Unrealized gain on marketable investments (Note 11) 4,853 -
-------- -------
533,180 547,878
Less - Cost of shares held in treasury;
4,981,000 shares at October 2, 1994 and
3,970,000 shares at January 2, 1994 88,650 70,344
-------- -------
Total Stockholders' Equity 444,530 477,534
-------- -------
Total Liabilities and Stockholders' Equity $785,360 $764,887
======== ========
The accompanying unaudited notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended October 2, 1994 and October 3, 1993
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
------------
Nine Months Ended
----------------------
Oct. 2, Oct. 3,
1994 1993
------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(17,518) $ 34,888
Deduct net income from discontinued operations (22,632) (22,480)
Add cumulative effect of accounting changes - 20,500
-------- --------
Income (loss) from continuing operations (40,150) 32,908
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing operations:
Goodwill write-down 40,300 -
Noncash portion of restructuring charges 4,902 -
Restructuring charges to be paid in future periods 24,663 -
Depreciation and amortization 26,599 28,934
Losses on dispositions and investments, net 2,969 741
Changes in assets and other liabilities, net of
effects from companies purchased and divested:
Decrease in accounts receivable 8,927 28,322
Increase in inventories (4,651) (39)
Increase (decrease) in accounts payable
and accrued expenses (4,293) 5,483
Other (12,777) (14,463)
-------- --------
Net Cash Provided by Continuing Operations 46,489 81,886
Net Cash Provided by Discontinued Operations 20,060 26,374
-------- --------
Net Cash Provided by Operating Activities 66,549 108,260
-------- --------
Cash Flows From Investing Activities:
Capital expenditures (28,431) (19,621)
Cost of acquisitions, net of cash
and cash equivalents acquired (32,794) (31,894)
Other 4,184 3,263
-------- --------
Net Cash Used in Investing Activities (57,041) (48,252)
-------- --------
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For the Nine Months Ended October 2, 1994 and October 3, 1993
(Unaudited)
<TABLE>
<S> <C> <C>
Cash Flows From Financing Activities:
Changes in commercial paper 14,728 (7,993)
Other changes in debt (1,078) (8,010)
Proceeds from issuing common stock 1,407 6,675
Purchases of common stock (19,139) (24,956)
Cash dividends (23,290) (22,077)
-------- --------
Net Cash Used in Financing Activities (27,372) (56,361)
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 1,802 (1,045)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (16,062) 2,602
Cash and cash equivalents at beginning of period 72,185 69,752
-------- --------
Cash and cash equivalents at end of period $ 56,123 $ 72,354
======== ========
The accompanying unaudited notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Principles of Consolidation
- - - - --------------------------------
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. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
Company believes, however, that the disclosures are adequate to make the
information presented not misleading. 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
January 2, 1994 in this report were extracted from the Company's audited
1993 financial statements included in the latest annual report on
Form 10-K. Certain prior period amounts have been reclassified to
conform to the current-year presentation for discontinued operations.
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 October 2, 1994 and the results of operations for the
three and nine months ended October 2, 1994 and October 3, 1993 and the
cash flows for the nine months then ended. The results of operations
are not necessarily to be considered indicative of the results for the
entire year.
Effective January 3, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 on accounting for postemployment
benefits. This new standard requires that benefits paid for former or
inactive employees after employment but prior to retirement must be
accrued if certain criteria are met. Adoption of the statement did not
have a material impact on the Company's financial position or results of
operations. Also, the Company adopted SFAS No. 115 on accounting for
certain investments in debt and equity securities (see note 11).
(2) Goodwill Write-down
- - - - ------------------------
The continued decline in the financial results of the operating elements
of the Berthold business (acquired in 1989), the resultant strategic and
operational review and the application of the Company's objective
measurement tests resulted in an evaluation of goodwill for possible
impairment. The underlying factors contributing to the decline in
financial results included changes in the marketplace, delays in
customer acceptance of new technologies and worldwide economic
conditions. The Company calculated the present value of expected cash
flows to determine the fair value of the business, using a discount rate
of 12% which represents the Company's weighted average cost of capital.
The evaluation resulted in a $39.2 million write-down of Berthold's
goodwill balance of $76 million. The evaluation also led the Company to
determine that the remaining amortization period for the goodwill should
be reduced from 36 years to 16 years based on the factors identified
above. In the third quarter of 1994, the Company also wrote off
$1.1 million of a small Optoelectronics unit's goodwill.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3) Restructuring Charges
- - - - --------------------------
During the third quarter, management completed its review of various
operating elements and developed a plan to reposition these businesses
to attain the Company's business goals. The plan resulted in pre-tax
restructuring charges of $30.4 million. The principal actions in the
repositioning plan include reduction of manufacturing capacity,
realignment of distribution channels, consolidation and reengineering of
support infrastructure, disposal of under-utilized assets, withdrawal
from certain unprofitable product lines, disposal of excess property and
general cost reductions.
The repositioning plan will result in the termination of approximately
1,000 non-DOE employees; the net workforce reduction will be
approximately 800 non-DOE employees. The major components of the
restructuring charges were $21 million of employee separation costs,
$4.9 million of noncash charges to dispose of certain product lines and
assets through sale or abandonment and $4.5 million of charges to
terminate lease and other contractual obligations no longer required as
a result of the repositioning plan. The charges do not include
additional costs associated with the repositioning plan such as
voluntary early retirement programs, training, consulting, purchases of
equipment and relocation of employees and equipment. These costs will
be charged to operations or capitalized, as appropriate, when incurred.
The implementation of this plan commenced during the third quarter with
a cash outlay of $0.8 million for termination costs; $24.7 million of
cash outlays will occur in the remainder of 1994 and into 1995.
(4) Other Income (Expense), Net
- - - - --------------------------------
Other income (expense), net, consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
Three Months Ended Nine Months Ended
------------------ -----------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest and
dividend income $ 736 $ 1,131 $ 2,189 $ 2,817
Interest expense (1,352) (1,605) (3,462) (4,688)
Losses on
investments, net
(Note 11) (2,112) (84) (2,151) (81)
Other (654) (552) (412) 520
------- ------- ------- -------
$(3,382) $(1,110) $(3,836) $(1,432)
======= ======= ======= =======
</TABLE>
(5) Discontinued Operations
- - - - ----------------------------
During the third quarter of 1994, the Department of Energy (DOE)
announced that Idaho Applied Technologies, a joint venture team in which
the Company holds a majority interest, had not been selected to manage
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(5) Discontinued Operations (Continued)
- - - - ----------------------------------------
the expanded contract at the DOE's Idaho National Engineering
Laboratory. In addition, the Company has decided not to seek renewal of
its four remaining contracts with the DOE although it intends to
continue to meet its obligations under the terms and conditions of the
present contracts. The Company will not compete for management and
operations contracts at other DOE facilities. Accordingly, the Company
is reporting the results of the former DOE Support segment as
discontinued operations for all periods presented in the consolidated
financial statements.
The Company's remaining management and operations contracts with the DOE
expire as follows:
Reynolds Electrical and Engineering Company December 31, 1995
Energy Measurements, Inc. December 31, 1995
EG&G Rocky Flats December 31, 1995
EG&G Mound Applied Technologies September 30, 1996
Summary operating results of the discontinued operations were as
follows:
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended Nine Months Ended
------------------ -------------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $411,180 $413,994 $1,078,036 $1,078,061
Costs and expenses 397,878 406,383 1,043,218 1,043,476
Income from discontinued
operations 13,302 7,611 34,818 34,585
Provision for Federal
income taxes 4,656 2,664 12,186 12,105
-------- ------- --------- ----------
Income from discontinued
operations, net of
income taxes $ 8,646 $ 4,947 $ 22,632 $ 22,480
======== ======== ========== ==========
</TABLE>
Net assets of discontinued operations consisted primarily of accounts
receivable, $18 million at October 2, 1994 and $12 million at January 2,
1994, net of operating liabilities.
(6) Income Taxes
- - - - -----------------
Effective January 4, 1993, the Company adopted SFAS No. 109 on
accounting for income taxes. As part of adopting the new standard,
the Company recorded a one-time, non-cash charge against earnings of
$7.3 million ($.13 per share) in the first quarter of 1993.
The 1994 tax provision and effective rate for continuing operations were
significantly impacted by the goodwill write-down and the restructuring
charges. The Company has not recorded any tax benefit from the goodwill
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(6) Income Taxes (Continued)
- - - - ----------------------------
write-down and approximately $11 million of the restructuring charges
because these charges, while tax deductible, will be incurred in tax
jurisdictions where the company has existing operating loss
carryforwards. At the present time the Company believes that it is
more likely than not that these benefits will not be realized.
(7) Postretirement Benefits Other Than Pensions
- - - - ------------------------------------------------
Effective January 4, 1993, the Company adopted SFAS No. 106 on
accounting for postretirement benefits other than pensions for its U.S.
retiree health benefits. As part of adopting the new standard, the
Company recorded a one-time, non-cash charge against earnings of
$20 million before taxes, or $13.2 million after income taxes ($.23
per share), in the first quarter of 1993.
(8) Accounts Receivable
- - - - ------------------------
Accounts receivable as of October 2, 1994 and January 2, 1994 included
unbilled receivables of $66.2 million and $56 million, respectively.
Accounts receivable were net of reserves for doubtful accounts of
$8.3 million and $6.1 million, respectively.
(9) Inventories
- - - - ----------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
October 2, January 2,
1994 1994
---------- ----------
<S> <C> <C>
Finished goods $ 34,261 $ 30,864
Work in process 34,857 30,393
Raw materials 61,331 60,324
-------- --------
$130,449 $121,581
======== ========
</TABLE>
(10) Property, Plant and Equipment, at Cost
- - - - --------------------------------------------
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
October 2, January 2,
1994 1994
---------- ----------
<S> <C> <C>
Land $ 16,427 $ 14,327
Buildings and leasehold improvements 96,971 91,280
Machinery and equipment 246,930 221,809
--------- --------
$360,328 $327,416
======== ========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(11) Investments
- - - - -----------------
Investments consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
October 2, January 2,
1994 1994
---------- ----------
<S> <C> <C>
Marketable investments $17,219 $ 6,838
Other investments 9,339 13,426
Joint venture investments 4,504 5,656
------- -------
31,062 25,920
Less investments classified
as other current assets (9,283) -
------- -------
$21,779 $25,920
======= =======
</TABLE>
Effective January 3, 1994, the Company adopted SFAS No. 115 on accounting
for certain investments in debt and equity securities. This new standard
requires that available-for-sale investments in equity securities that
have readily determinable fair values be measured at fair value in the
balance sheet and that unrealized holding gains and losses for these
investments be reported in a separate component of stockholders' equity
until realized. At October 2, 1994, marketable investments classified as
available-for-sale had an aggregate market value of $17.2 million and
gross unrealized holding gains of $7.5 million. At October 2, 1994,
$4.9 million was reported as a separate component of stockholders'
equity, representing the unrealized holding gains, net of deferred
federal income taxes.
During the third quarter of 1994, the Company wrote down certain
investments by $1.8 million to their realizable value as the result of
the decision to restructure associated operations and to liquidate the
Company's position in investments no longer consistent with its strategic
direction. In conjunction with the decision to liquidate certain
investments, marketable investments of $6 million and other investments
of $3.3 million were classified as other current assets at October 2,
1994.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(12) Intangible and Other Assets
- - - - ---------------------------------
Intangible and other assets consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
October 2, January 2,
1994 1994
---------- ----------
<S> <C> <C>
Intangible assets $131,420 $139,205
Other assets 41,346 32,555
-------- --------
$172,766 $171,760
======== ========
</TABLE>
The $7.8 million net decrease in intangible assets resulted primarily
from the $40.3 million write-down of goodwill and from current year
amortization, partially offset by increases due to the IC Sensors and
NoVOCs acquisitions (see note 14) and by the effect of translating
goodwill denominated in non-U.S. currencies at current exchange rates.
The majority of the increase in other assets was due to an increase in
prepaid pension expense.
(13) Accrued Expenses
- - - - ----------------------
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
October 2, January 2,
1994 1994
---------- ----------
<S> <C> <C>
Payroll $ 13,005 $ 13,375
Employee benefits 44,924 46,121
Federal, non-U.S. and state
income taxes 18,885 26,119
Other 49,003 43,185
-------- --------
$125,817 $128,800
======== ========
</TABLE>
(14) Acquisitions
- - - - ------------------
In September 1994, the Company acquired IC Sensors, a leading supplier of
micromachined sensing and control components for the automotive, medical,
industrial and consumer product markets, for cash of $30 million. While
the Company has not yet finalized the purchase price allocation, the
excess of the cost over the fair market value of the net assets acquired
is estimated to be $23 million. In September 1994, the Company also
acquired NoVOCs, Inc. which offers a process for restoring groundwater
contaminated by gasoline and other volatile organic compounds, for cash
of $3.3 million. These acquisitions were accounted for using the
purchase method. Their results of operations, which are included in the
consolidated results of the Company from the date of acquisition, are not
material to the consolidated results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
EG&G, INC. AND SUBSIDIARIES
Results of Operations
The following industry segment information is presented as an aid to a
better understanding of the operating results:
<TABLE>
<CAPTION>
(In Thousands)
------------
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
Oct. 2, Oct. 3, Increase Oct. 2, Oct. 3, Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
------- ------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Sales:
Technical Services $158,331 $164,211 $ (5,880) $464,005 $483,478 $(19,473)
Instruments 65,921 60,966 4,955 199,850 163,637 36,213
Mechanical Components 58,076 57,435 641 172,501 183,720 (11,219)
Optoelectronics 54,532 49,642 4,890 156,131 148,331 7,800
-------- -------- -------- -------- -------- --------
Total $336,860 $332,254 $ 4,606 $992,487 $979,166 $ 13,321
======== ======== ======== ======== ======== ========
Operating Income (Loss) From Continuing Operations:
Technical Services $ 8,695 $ 15,717 $ (7,022) $ 32,334 $ 49,077 $(16,743)
Instruments (53,381) 658 (54,039) (50,444) 2,903 (53,347)
Mechanical Components 3,122 4,905 (1,783) 10,600 14,952 (4,352)
Optoelectronics (4,399) 3,002 (7,401) 2,793 4,762 (1,969)
General Corporate Expenses (10,012) (6,774) (3,238) (25,333) (20,425) (4,908)
-------- -------- -------- -------- -------- --------
Total $(55,975)$ 17,508 $(73,483) $(30,050) $ 51,269 $(81,319)
======== ======== ======== ======== ======== ========
</TABLE>
The operating income (loss) from continuing operations for the three and
nine months ended October 2, 1994 included a goodwill write-down of
$40.3 million and restructuring charges of $30.4 million. The impact of
these nonrecurring charges on each segment was as follows: Technical
Services $1.6 million, Instruments $55.7 million, Mechanical Components
$2.7 million, Optoelectronics $9.7 million and General Corporate Expenses
$1 million.
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 October 2, 1994 compared to the three and nine months
ended October 3, 1993.
Third Quarter 1994 Compared to Third Quarter 1993
During the third quarter of 1994, three significant events occurred that
have a material effect on both the current financial results and the
expected future performance of the Company. First, the Company decided
not to seek renewal of its existing management and operations contracts
with the Department of Energy (DOE). Although it intends to meet its
obligations under the terms and conditions of current contracts, the
Company will not compete for management and operations contracts at other
DOE facilities. Accordingly, the Company is reporting the results of the
former DOE Support segment as discontinued operations for all periods<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
presented in the consolidated financial statements. Second, management
completed its review of the remaining operating segments' performance and
developed a plan to reposition these businesses to attain the Company's
business goals. The plan resulted in restructuring charges of
$30.4 million in the third quarter. Finally, the decline in the
financial results of selected operating elements within the Instruments
segment, together with a strategic and operational review of these
operations, resulted in an evaluation of the related goodwill for
possible impairment. This evaluation resulted in a write-down of
goodwill of $39.2 million. This evaluation also led to a reduction
in the estimated remaining useful life of the unamortized goodwill from
36 to 16 years. The Company also wrote-off $1.1 million of a small
Optoelectronics unit's goodwill. Additional information related to these
events is discussed below and in notes 2, 3, and 5.
Sales
Sales of $337 million from continuing operations for the third quarter of
1994 were $5 million above 1993 levels. Lower Technical Services sales
resulted, in part, from a reduction in program expenditures under the new
base operations contract at the Kennedy Space Center. In addition, sales
returned to more normal levels in the automotive testing business
following increases in 1993 caused by the introduction of new industry
testing protocols. The $5 million Instruments increase resulted
primarily from higher security products sales. In Mechanical Components,
higher shipments of aerospace and transportation products were partially
offset by the absence of sales from an operation divested late in 1993.
In Optoelectronics, higher shipments of flash products contributed most
of the increase.
Income (Loss) From Continuing Operations
In the third quarter of 1994, the operating loss from continuing
operations was $56 million compared to income of $17.5 million in 1993.
The loss from continuing operations included the restructuring charges of
$30.4 million resulting from management's repositioning plan and the
$40.3 million write-down of goodwill.
Restructuring Charges
During the third quarter, management completed its review of the
operating segments and developed a plan to reposition these businesses to
attain the Company's business goals. The plan resulted in restructuring
charges of $30.4 million. The principal actions in the repositioning plan
include reduction of manufacturing capacity, realignment of distribution
channels, consolidation and reengineering of support infrastructure,
disposal of under-utilized assets, withdrawal from certain unprofitable
product lines, disposal of excess property and general cost reductions.
The repositioning plan will result in the termination of approximately
1,000 non-DOE employees; the net reduction will be approximately 800 non-
DOE employees. These combined actions are expected to result in pre-tax
savings of approximately $17 million in 1995 and annualized pre-tax cost
reductions of approximately $30 million starting in 1996. The major
components of the restructuring charges were $21 million of employee
separation costs, $4.9 million of noncash charges to dispose of certain
product lines and assets through sale or abandonment and $4.5 million of
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGMENT'S DISCUSSION AND ANALYSIS (Continued)
charges to terminate lease and other contractual obligations no longer
required as a result of the repositioning plan. The charges do not
include additional costs associated with the repositioning plan such as
voluntary early retirement programs, training, consulting, purchases of
equipment and relocation of employees and equipment. These costs will be
charged to operations or capitalized, as appropriate, when incurred by
the end of 1995.
In Technical Services, lower sales in the automotive testing business
caused most of the decline in income. The decrease also reflected
restructuring charges of $1.6 million and prior years contract
settlements of $1.8 million which were recorded in the third quarter of
1994. The repositioning plan is not expected to have a significant,
direct impact on future results in this segment as the cost reductions
primarily relate to operations with cost reimbursable contracts.
However, the Company does expect to be more competitive in future
procurements as a result of the cost reductions.
The Instruments loss of $53.4 million resulted primarily from the
goodwill write-down ($39.2 million of which is in this segment) and
restructuring charges of $16.5 million. The income contributed by the
higher sales of security products and cost reductions in another
operation were partially offset by costs associated with delays in new
diagnostic product introductions. The goodwill write-down relates to the
Berthold businesses acquired in 1989. The repositioning plan is expected
to result in annualized cost reductions of approximately $13 million.
In Mechanical Components, the income resulting from higher sales was
offset by changes in accounts receivable provisions in the industrial
seal business. The 1994 results included $2.7 million of restructuring
charges. The repositioning plan is expected to result in annualized cost
savings of approximately $3 million.
In Optoelectronics, profits resulting from higher shipments and the
continued benefit of cost reductions implemented in 1993 were offset by
$8.6 million of restructuring charges. In addition, the 1994
Optoelectronics results reflected a $1.1 million write-off of a small
unit's goodwill. The repositioning plan is expected to result in
annualized cost savings of approximately $7 million. The Company
anticipates future increases in research and development and capital
expenditures to support product development initiatives in this segment.
The increase in general corporate expenses was due to $1 million of
restructuring charges, $1 million of consulting costs that were
associated with the repositioning plan and general cost increases. The
repositioning plan is expected to result in annualized corporate and
other cost savings of approximately $7 million. The change in other
income (expense) was due to the write-down of certain investments to
their realizable value as the result of the decision to restructure
associated operations and to liquidate the Company's position in
investments no longer consistent with its strategic direction.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The 1994 tax provision and effective rate for continuing operations were
significantly impacted by the goodwill write-down and the restructuring
charges. The Company has not recorded any tax benefit from the goodwill
write-down and approximately $ll million of the restructuring charges
because these charges, while tax deductible, will be incurred in tax
jurisdictions where the Company has existing operating loss
carryforwards. At the present time, the Company believes that it is more
likely than not that these benefits will not be realized.
Discontinued Operations
During the third quarter of 1994, the DOE announced that Idaho Applied
Technologies, a joint venture in which the Company holds a majority
interest, had not been selected to manage the expanded contract at the
DOE's Idaho National Engineering Laboratory. The Company's contract to
manage the facility expired September 30, 1994 and contributed
$240 million of sales and $7.7 million of operating income to
discontinued operations in the first nine months of 1994. The Company
has decided not to seek renewal of its remaining four contracts with the
DOE although it intends to continue to meet its obligations under the
terms and conditions of the present contracts. The Company will not
compete for management and operations contracts at other DOE facilities.
Accordingly, the Company is reporting the former DOE Support segment as
discontinued operations for all periods presented in the consolidated
financial statements.
The Company's remaining management and operations contracts with the DOE
expire as follows:
Reynolds Electrical and Engineering Co., Inc. December 31, 1995
EG&G Energy Measurements, Inc. December 31, 1995
EG&G Rocky Flats, Inc. December 31, 1995
EG&G Mound Applied Technologies, Inc. September 30, 1996
Income from discontinued operations, net of income taxes, for the third
quarter of 1994 was $3.7 million above 1993. Most of the increase was
attributable to the Rocky Flats contract, reflecting a cost reduction
incentive earned in 1994 and an adjustment for lower grades in 1993.
Nine Months 1994 Compared to Nine Months 1993
Sales
Sales for 1994 were $992 million, a $13 million increase over 1993 sales.
Technical Services sales declined $19 million, primarily from the
reduction in program expenditures under the new base operations contract
at the Kennedy Space Center. Instruments sales increased $36 million,
primarily due to the Wallac acquisition late in the second quarter of
1993. The $11 million decrease in Mechanical Components resulted
primarily from the divestiture of an operation late in 1993. Higher
shipments of flash products were partially offset by the absence of sales
from an operation divested late in 1993, resulting in an $8 million
Optoelectronics increase.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Income (Loss) From Continuing Operations
The loss from continuing operations was $30.1 million, resulting
primarily from the goodwill write-down of $40.3 million and the
restructuring charges of $30.4 million.
the $16.7 million decrease in Technical Services resulted primarily from
the impact of lower sales in the automotive testing business and the
reduction in available fee at the Kennedy Space Center. In addition, the
segment had restructuring charges of $1.6 million and unfavorable
contract settlements in 1994 companred to favorable contract settlements
in 1993.
In Instruments, the $53.3 million decrease resulted primarily from the
goodwill write-down of $39.2 million and the restructuring charges of
$16.5 million. Benefits of cost reductions were partially offset by
costs associated with delays in new diagnostic product introductions.
The Mechanical Components decrease resulted from restructuring charges of
$2.7 million and from increased start-up costs for the transportation
element of the electromechanical business and the impact of lower sales
and inventory write-downs in the industrial seal business.
The Optoelectronics decrease was due primarily to the restructuring
charges of $8.6 million, partially offset by the profits from higher
shipments of flash products and the continued benefits of cost reductions
implemented in 1993.
The increase in general corporate expenses was due to $1 million of
restructuring charges, $1 million of consulting costs that were
associated with the repositioning plan, separation costs incurred during
the first six months of the year and general cost increases. The change
in other income (expense) was due to the write-down of certain
investments to their realizable value as the result of the decision to
restructure associated operations and to liquidate the Company's position
in investments no longer consistent with its strategic direction.
The 1994 tax provision and effective rate for continuing operations were
significantly impacted by the goodwill write-down and the restructuring
charges. The Company has not recorded any tax benefit from the goodwill
write-down and approximately $11 million of the restructuring charges
because these charges, while tax deductible, will be incurred in tax
jurisdictions where the Company has existing operating loss
carryforwards. At the present time, the Company believes that it is more
likely than not that these benefits will not be realized.
Discontinued Operations
Income from discontinued operations, net of income taxes, was
approximately the same for both periods as the Rocky Flats cost reduction
incentive earned in 1994 was offset by lower grades earned on the Idaho
contract.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Liquidity and Capital Resources
-------------------------------
The Company's cash and cash equivalents decreased by $16.1 million in the
nine months of 1994 while commercial paper borrowings increased
$14.7 million. Net cash provided by continuing operations was
$46.5 million during the period. The Company acquired IC Sensors and
NoVOCs, Inc. in September 1994 for net cash of $32.8 million. The Company
invested $28.4 million in physical plant and equipment during the nine
months. The $8.8 million increase in capital expenditures over 1993 was
due primarily to a higher level of investment to support new product
development initiatives in the Optoelectronics segment.
The implementation of the repositioning plan commenced during the third
quarter of 1994 with a cash outlay of $0.8 million for termination costs
with additional cash outlays of $24.7 million to occur in the remainder
of 1994 and into 1995. In addition, cash outlays of approximately
$10 million will be required to support the repositioning plan in 1995.
Anticipated proceeds from asset dispositions and the liquidation of
certain investments in 1995 are expected to result in neutral or slightly
positive net cash flows from the repositioning plan by the end of 1995.
The repositioning plan is anticipated to improve cash flow by an
estimated $20 million starting in 1996. The Company has also implemented
an aggressive working capital reduction program.
Discontinued operations generated cash of $20.1 million for the nine
months of 1994. The remaining cash flows from discontinued operations
will decrease as the DOE contracts expire in 1995 and 1996.
In the fourth quarter of 1993, the Board of Directors authorized the
purchase of up to a total of 5.5 million shares of the Company's common
stock through periodic purchases on the open market. The Company has
purchased 2.2 million shares under this program to date, including
1.1 million shares purchased in the first quarter of 1994 at a cost of
$19.1 million. No shares were purchased under the program during the
last six months.
Effective March 21, 1994, the Company concluded the restructuring of its
credit facilities with the signing of two revolving credit agreements
totaling $250 million. These agreements consist of a $175 million,
364-day facility and a $75 million, three-year facility, and serve as
backup facilities for the commercial paper borrowing. No amounts are
currently outstanding under these credit facilities.
<PAGE>
PART II. OTHER INFORMATION
EG&G, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27
(b) Reports on Form 8-K
Report on Form 8-K dated August 15, 1994 was filed with the commission
reporting that on August 3, 1994, the Company was informed by the DOE
that the bid of Idaho Applied Technologies, a joint venture comprised of
EG&G, Inc., BNFL, Inc. and Fluor Daniel Environmental Services, Inc., for
the expanded contract at the Idaho National Engineering Laboratory was
unsuccessful.
Report on Form 8-K dated August 26, 1994 was filed with the commission
reporting that on August 17, 1994, the Company announced its decision not
to seek renewal of its contract with the DOE to continue to manage its
nuclear facility at Rocky Flats in Colorado, and that on August 25, 1994,
the Company announced it will not compete as a prime contractor to manage
the DOE's facility at the Nevada Test Site.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
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/ Thomas J. Sauser
-------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date November 14, 1994
-----------------
17
<PAGE>
18
<PAGE>
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