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 1, 1995
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 29, 1995
Common Stock, $1 par value 48,129,000
(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 1, 1995 and October 2, 1994
(Unaudited)
---------
<TABLE>
<CAPTION>
(In Thousands Except Per Share Data)
----------------------------------
Three Months Ended Nine Months Ended
-------------------- ----------------------
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
-------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Sales:
Products $186,197 $188,746 $ 589,877 $ 547,868
Services 175,405 148,114 452,206 444,619
-------- -------- ---------- -----------
Total Sales 361,602 336,860 1,042,083 992,487
-------- -------- ---------- -----------
Costs and Expenses:
Cost of sales:
Products 116,975 124,297 381,567 356,100
Services 156,973 130,425 397,051 389,478
-------- -------- ---------- ----------
Total cost of sales 273,948 254,722 778,618 745,578
Research and development expenses 10,238 9,126 30,599 28,290
Selling, general and
administrative expenses 58,330 57,273 177,672 175,193
Goodwill write-down - 40,300 - 40,300
Restructuring charges - 30,400 - 30,400
-------- -------- ---------- ----------
Total Costs and Expenses 342,516 391,821 986,889 1,019,761
-------- -------- ---------- ----------
Operating Income (Loss) From
Continuing Operations 19,086 (54,961) 55,194 (27,274)
Other Income (Expense), Net (Note 2) 1,218 (3,382) 851 (3,836)
-------- -------- ---------- ----------
Income (Loss) From Continuing
Operations Before Income Taxes 20,304 (58,343) 56,045 (31,110)
Provision (Benefit) for Income Taxes 6,635 (1,403) 20,681 9,040
-------- -------- ---------- ----------
Income (Loss) From Continuing
Operations 13,669 (56,940) 35,364 (40,150)
Income From Discontinued Operations,
Net of Income Taxes (Note 3 2,309 8,646 10,679 22,632
-------- -------- ---------- ----------
Net Income (Loss) $ 15,978 $(48,294) $ 46,043 $ (17,518)
======== ======== ========== ==========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
For the Three and Nine Months Ended October 1, 1995 and October 2, 1994
(Unaudited)
---------
<TABLE>
<CAPTION>
(In Thousands Except Per Share Data)
----------------------------------
Three Months Ended Nine Months Ended
-------------------- ----------------------
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
-------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Earnings (Loss) Per Share:
Continuing Operations $.27 $(1.03) $.67 $(.73)
Discontinued Operations .05 .15 .20 .41
---- ------ ---- -----
Net Income (Loss) $.32 $ (.88) $.87 $(.32)
==== ====== ==== =====
Cash Dividends Per Common Share $.14 $.14 $.42 $.42
==== ==== ==== ====
Weighted Average Shares of
Common Stock Outstanding 50,138 55,121 52,666 55,321
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of October 1, 1995 and January 1, 1995
(Dollars in Thousands Except Per Share Data)
------------------------------------------
<TABLE>
<CAPTION>
Oct. 1, January 1,
1995 1995
--------- ----------
(Unaudited)
---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 64,288 $ 66,424
Accounts receivable (Note 4) 209,350 226,268
Inventories (Note 5) 111,270 123,299
Other (Note 7) 57,612 56,635
Net assets of discontinued operations (Note 3) - 8,852
-------- --------
Total Current Assets 442,520 481,478
-------- --------
Property, Plant and Equipment:
At cost (Note 6) 410,384 364,801
Accumulated depreciation and amortization (264,095) (243,139)
-------- --------
Net Property, Plant and Equipment 146,289 121,662
-------- --------
Investments (Note 7) 12,725 16,515
Intangible Assets (Note 8) 128,338 127,312
Other Assets (Note 8) 56,108 46,162
-------- --------
Total Assets $785,980 $793,129
======== ========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
As of October 1, 1995 and January 1, 1995
(Dollars in Thousands Except Per Share Data)
------------------------------------------
<TABLE>
<CAPTION>
Oct. 1, January 1,
1995 1995
--------- ----------
(Unaudited)
---------
<S> <C> <C>
Current Liabilities:
Short-term debt $117,375 $ 59,988
Accounts payable 76,470 66,132
Accrued restructuring costs (Note 9) 7,931 21,532
Accrued expenses (Note 10) 146,886 134,170
Net liabilities of discontinued operations (Note 3) 6,195 -
-------- --------
Total Current Liabilities 354,857 281,822
-------- --------
Long-Term Liabilities 71,136 65,941
-------- --------
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 482,681 459,738
Cumulative translation adjustments 26,908 10,785
Unrealized gain on marketable investments (Note 7) 1,568 3,337
Cost of shares held in treasury;
12,030,000 shares at October 1, 1995 and
4,978,000 shares at January 1, 1995 (211,272) (88,596)
--------- --------
Total Stockholders' Equity 359,987 445,366
--------- --------
Total Liabilities and Stockholders' Equity $785,980 $793,129
========= ========
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended October 1, 1995 and October 2, 1994
(Unaudited)
---------
<TABLE>
<CAPTION>
(In Thousands)
------------
Nine Months Ended
----------------------
Oct. 1, Oct. 2,
1995 1994
------- -------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income (loss) $ 46,043 $(17,518)
Deduct net income from discontinued operations (10,679) (22,632)
-------- --------
Income (loss) from continuing operations 35,364 (40,150)
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
Depreciation and amortization 28,097 26,599
Losses (gains) on dispositions and investments (1,711) 2,969
Changes in assets and liabilities, net of effects
from companies purchased:
Decrease in accounts receivable 20,066 8,927
Decrease (increase) in inventories 15,154 (4,651)
Increase in accounts payable 8,721 1,945
Increase (decrease) in accrued restructuring costs (13,601) 24,663
Increase (decrease) in accrued expenses 10,727 (6,238)
Change in prepaid expenses and other (8,366) (12,777)
-------- --------
Net Cash Provided by Continuing Operations 94,451 46,489
Net Cash Provided by Discontinued Operations 25,726 20,060
-------- --------
Net Cash Provided by Operating Activities 120,177 66,549
-------- --------
Cash Flows Used in Investing Activities:
Capital expenditures (42,331) (28,431)
Cost of acquisitions, net of cash and
cash equivalents acquired - (32,794)
Proceeds from sales of investment securities 6,010 3,681
Other 1,404 503
-------- --------
Net Cash Used in Investing Activities (34,917) (57,041)
-------- --------
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
For the Nine Months Ended October 1, 1995 and October 2, 1994
(Unaudited)
---------
<TABLE>
<CAPTION>
(In Thousands)
------------
Nine Months Ended
-------------------
Oct. 1, Oct. 2,
1995 1994
------- -------
<S> <C> <C>
Cash Flows Used in Financing Activities:
Increase in commercial paper 61,276 14,728
Other debt payments (4,247) (1,078)
Purchases of common stock (123,691) (19,139)
Cash dividends (22,550) (23,290)
Other 465 1,407
-------- --------
Net Cash Used in Financing Activities (88,747) (27,372)
-------- --------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 1,351 1,802
-------- --------
Net Decrease in Cash and Cash Equivalents (2,136) (16,062)
Cash and cash equivalents at beginning of period 66,424 72,185
-------- --------
Cash and cash equivalents at end of period $ 64,288 $ 56,123
======== ========
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
<PAGE>
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
January 1, 1995 in this report were extracted from the Company's audited
1994 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 October 1, 1995 and the results of operations
for the three and nine months ended October 1, 1995 and October 2, 1994
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.
The Company changed its method of depreciation for certain classes of
plant and equipment purchased after January 1, 1995 from an accelerated
method to the straight-line method for financial reporting purposes.
The Company believes that the straight-line method more appropriately
reflects the timing of the economic benefits to be received from these
assets, that consist mainly of manufacturing equipment. The Company
also changed its convention for calculating depreciation expense during
the year that an asset is acquired. Previously, the Company used the
half-year convention; starting in 1995, the Company commences
depreciation in the month the asset is placed in service. In the third
quarter of 1995, the effect of applying these new methods was to reduce
depreciation expense by $0.7 million, and to increase income from
continuing operations and net income by $0.5 million and net income per
share by $.01. For nine months, the effect was to reduce depreciation
expense by $3.8 million, and to increase income from continuing
operations and net income by $2.4 million and net income per share by
$.05. The reductions in depreciation expense represent the differences
in current year depreciation expense between the old and new methods.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(2) Other Income (Expense), Net
- --------------------------------
Other income (expense), net, consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
Three Months Ended Nine Months Ended
------------------ -----------------
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest and
dividend income $ 1,167 $ 736 $ 3,302 $ 2,189
Interest expense (1,677) (1,352) (5,237) (3,462)
Gains (losses) on
investments, net 108 (2,112) 853 (2,151)
Other 1,620 (654) 1,933 (412)
------- ------- ------- -------
$ 1,218 $(3,382) $ 851 $(3,836)
======= ======= ======= =======
</TABLE>
(3) 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.
Summary operating results of the discontinued operations were as
follows:
<TABLE>
<CAPTION>
(In Thousands)
------------
Three Months Ended Nine Months Ended
-------------------- --------------------
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $82,968 $411,180 $606,259 $1,078,036
Costs and expenses 79,416 397,878 589,830 1,043,218
------- -------- -------- ----------
Income from discontinued
operations before
income taxes 3,552 13,302 16,429 34,818
Provision for income taxes 1,243 4,656 5,750 12,186
------- -------- ------- ---------
Income from discontinued
operations, net of
income taxes $ 2,309 $ 8,646 $ 10,679 $ 22,632
======= ======== ======== ==========
</TABLE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Net assets (liabilities) of discontinued operations consisted of the
following:
<TABLE>
<CAPTION>
(In Thousands)
------------
Oct. 1, January 1,
1995 1995
-------- ----------
<S> <C> <C>
Accounts receivable,
primarily unbilled $ 4,775 $15,717
Operating current
liabilities (11,079) (6,934)
Other current assets 109 69
------- -------
$(6,195) $ 8,852
======= =======
</TABLE>
(4) Accounts Receivable
- ------------------------
Accounts receivable as of October 1, 1995 and January 1, 1995 included
unbilled receivables of $50 million and $57 million, respectively, due
primarily from U.S. Government agencies. Accounts receivable were net of
reserves for doubtful accounts of $5 million and $5.8 million as of
October 1, 1995 and January 1, 1995, respectively.
(5) Inventories
- ----------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
Oct. 1, January 1,
1995 1995
-------- ----------
<S> <C> <C>
Finished goods $ 27,070 $ 35,304
Work in process 26,110 28,551
Raw materials 58,090 59,444
-------- --------
$111,270 $123,299
======== ========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(6) Property, Plant and Equipment, at Cost
- -------------------------------------------
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
Oct. 1, January 1,
1995 1995
-------- ----------
<S> <C> <C>
Land $ 17,537 $ 15,877
Buildings and leasehold improvements 111,482 95,938
Machinery and equipment 281,365 252,986
-------- --------
$410,384 $364,801
======== ========
</TABLE>
(7) Investments
- ----------------
Investments consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
Oct. 1, January 1,
1995 1995
------- ----------
<S> <C> <C>
Marketable investments $12,271 $14,187
Other investments 3,173 6,330
Joint venture investments 5,013 5,314
------- -------
20,457 25,831
Less investments classified
as other current assets (7,732) (9,316)
------- -------
$12,725 $16,515
======= =======
</TABLE>
At October 1, 1995, marketable investments, all classified as available
for sale, had an aggregate market value of $12.3 million and gross
unrealized holding gains of $2.4 million. Unrealized holding gains, net
of deferred taxes, of $1.6 million and $3.3 million were reported as a
separate component of stockholders' equity at October 1, 1995 and
January 1, 1995, respectively. In the first nine months of 1995,
proceeds and gross realized gains from sales of available-for-sale
securities were $2.9 million and $2.8 million, respectively. Average
cost was the basis for computing the realized gains. Marketable
investments of $4.2 million, other investments of $3.1 million and joint
venture investments of $0.4 million were classified as other current
assets at October 1, 1995.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(8) Intangible and Other Assets
- --------------------------------
Most of the increase in intangible assets resulting from the effect of
translating goodwill denominated in non-U.S. currencies at current
exchange rates was offset by current year amortization.
The majority of the increase in other assets was due to an increase in
prepaid pension expense.
(9) Accrued Restructuring Costs
- --------------------------------
The decrease in accrued restructuring costs resulted from cash outlays of
$13.6 million in the first nine months of 1995, mainly for employee
termination costs.
(10) Accrued Expenses
- ----------------------
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
------------
Oct. 1, January 1,
1995 1995
-------- ----------
<S> <C> <C>
Payroll and incentives $ 21,692 $ 16,842
Employee benefits 44,670 44,482
Federal, non-U.S. and state
income taxes 24,902 17,243
Other 55,622 55,603
-------- -------
$146,886 $134,170
======== ========
</TABLE>
Certain reclassifications have been made to conform prior year's data to
the current format.
(11) Subsequent Event
- ----------------------
On October 23, 1995, the Company issued $115 million of ten-year notes at
an interest rate of 6.8%. Proceeds from the sale are being used to pay
down commercial paper borrowings that were used mainly to finance
repurchases of the Company's common stock.
<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 Company's operating results:
<TABLE>
<CAPTION>
(In Thousands)
------------
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
Oct. 1, Oct. 2, Increase Oct. 1, Oct. 2, Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales:
Technical Services $161,584 $158,331 $ 3,253 $ 452,206 $464,005 $(11,799)
Instruments 70,088 65,921 4,167 211,263 199,850 11,413
Mechanical Components 61,585 58,076 3,509 184,892 172,501 12,391
Optoelectronics 68,345 54,532 13,813 193,722 156,131 37,591
-------- -------- ------- ---------- -------- --------
$361,602 $336,860 $24,742 $1,042,083 $992,487 $ 49,596
======== ======== ======= ========== ======== ========
Operating Income (Loss) From Continuing Operations:
Technical Services $ 9,037 $ 9,186 $ (149) $ 31,573 $ 33,819 $ (2,246)
Instruments 5,000 (53,302) 58,302 11,095 (50,189) 61,284
Mechanical Components 5,961 3,395 2,566 19,098 11,186 7,912
Optoelectronics 5,850 (4,228) 10,078 14,484 3,243 11,241
General Corporate Expenses (6,762) (10,012) 3,250 (21,056) (25,333) 4,277
-------- -------- ------- ---------- -------- --------
$ 19,086 $(54,961) $74,047 $ 55,194 $(27,274) $ 82,468
======== ======== ======= ========== ======== ========
</TABLE>
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 1, 1995 compared to the three and nine months
ended October 2, 1994.
Third Quarter 1995 Compared to Third Quarter 1994
Sales
Sales from continuing operations were $361.6 million in the third quarter
of 1995, a 7% increase over the 1994 level. In Technical Services, a new
communications systems development contract's billings of $18.9 million
were partially offset by the effects of continuing reductions in
government contract funding and the increasingly competitive procurement
environment. In addition, demand for automotive testing services was
lower in 1995. The net result was an increase of $3.3 million for the
segment. Instruments' sales increased $4.2 million primarily as a result
of higher demand for diagnostic products. The $3.5 million increase in
<PAGE>
EG&G, INC. AND SUBSIDIARIES
Management's Discussion and Analysis (Continued)
Mechanical Components resulted mainly from higher demand for industrial
process sealing products. In Optoelectronics, the increase of
$13.8 million, or 25%, was due primarily to $9.1 million of sales of IC
Sensors, acquired at the end of the third quarter of 1994, and continuing
increases in demand for flash products.
Operating Income (Loss) From Continuing Operations
Excluding the 1994 nonrecurring charges, operating income increased
$3.3 million in 1995. The 1994 operating loss from continuing operations
included a goodwill write-down of $40.3 million and restructuring charges
of $30.4 million resulting from management's repositioning plan. 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.
In Technical Services, income decreased $1.7 million, excluding the 1994
restructuring charges. Costs incurred in excess of contract terms and
the effects of lower sales in some operations were partially offset by
unfavorable 1994 contract adjustments. The 1995 improvement of
$2.6 million in Instruments, excluding the 1994 nonrecurring charges,
resulted from cost reductions of $1.8 million from the 1994 repositioning
plan and margin on higher sales. The Instruments' 1994 loss included a
goodwill write-down of $39.2 million related to the Berthold business and
restructuring charges of $16.5 million. Excluding the 1994 restructuring
charges, Mechanical Components' income was essentially the same as last
year. Repositioning cost reductions and margin on higher sales of
industrial sealing products were offset by increased costs at some
operations. The Optoelectronics' net increase of $0.4 million, excluding
the 1994 nonrecurring charges, included margin on higher sales and
$0.8 million of repositioning cost reductions. These increases were
offset by one product line's lower margins due to competitive pricing
pressures and higher production costs, and planned increased research and
development expenses for the amorphous silicon program. The 1994 loss in
Optoelectronics included $8.6 million of restructuring charges and a
$1.1 million write-off of a small unit's goodwill.
The $2.2 million decrease in general corporate expenses, excluding the
1994 restructuring charges, resulted from cost reductions of $0.6 million
in 1995 and $1 million of costs in 1994 associated with the repositioning
plan. The $4.6 million net increase in other income was due to a
$1.8 million investment write-down in 1994 and gains on the disposition
of operating assets and lower foreign exchange transaction losses in
1995.
The 1995 effective tax rate reflects an adjustment of the year-to-date
effective rate due, in part, to lower than anticipated tax costs of the
capital restructuring of selected non-U.S. subsidiaries. The 1994 tax
provision and effective rate for continuing operations were significantly
impacted by the goodwill write-down and the restructuring charges.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
Management's Discussion and Analysis (Continued)
Nine Months 1995 Compared to Nine Months 1994
Sales
Sales for the first nine months of 1995 were $1,042.1 million, a 5%
increase over the 1994 level. In Technical Services, the $11.8 million
decrease was primarily due to continuing reductions in government
contract funding, including the phase down of the Superconducting Super
Collider Laboratory contract, and the increasingly competitive
procurement environment. In addition, demand for automotive testing
services was lower in 1995. Partially offsetting these decreases were
billings under a new communications systems development contract.
Instruments' sales increased $20.4 million due to the effects of changes
in foreign exchange rates and higher demand for diagnostic and security
products. This increase was partially offset by a $9 million decrease
due to the divestiture of three product lines, resulting in a net
increase of $11.4 million. Higher demand, primarily for industrial
process sealing and aerospace products, resulted in the $12.4 million
increase in Mechanical Components. Optoelectronics' sales increased
$37.6 million, or 24%, over 1994 primarily due to $23.4 million of sales
of IC Sensors and higher shipments of flash products.
Operating Income (Loss) From Continuing Operations
Excluding the 1994 nonrecurring charges, operating income increased
$11.8 million in 1995. The 1994 operating loss included a goodwill
write-down of $40.3 million and restructuring charges of $30.4 million.
The Technical Services' decrease of $3.8 million, excluding the 1994
restructuring charges, resulted from costs incurred in excess of contract
terms, an estimated provision for a legal judgement, start-up costs for
the environmental services and systems business and the effect of lower
sales levels. Partially offsetting these decreases were unfavorable 1994
contract adjustments. Instruments' increase of $5.6 million, excluding
the 1994 nonrecurring charges, resulted from cost reductions of
$5 million from the 1994 repositioning plan and margin on higher sales.
These increases were partially offset by the unfavorable impact on export
shipment margins caused by the strengthening of the Finnish Markka
against other major currencies, and expenses associated with the
expansion of the food monitoring business. Instruments' 1994 loss
included a goodwill write-down of $39.2 million and restructuring charges
of $16.5 million. In Mechanical Components, the $5.2 million increase,
excluding the 1994 restructuring charges, resulted from higher sales,
$0.9 million of cost reductions and, to a lesser extent, lower inventory
adjustments and lower costs associated with new programs. The
$1.6 million increase in Optoelectronics, excluding the 1994 nonrecurring
charges, resulted primarily from higher sales and $1.8 million of cost
reductions. These increases were partially offset by one product line's
lower margins due to competitive pricing pressures and higher production
costs, completion of a government contract in September 1994, decreased
sales of power supplies and planned increased research and development
expenses for the amorphous silicon program.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
Management's Discussion and Analysis (Continued)
The $3.3 million decrease in general corporate expenses, excluding the
1994 restructuring charges, resulted from $1.6 million of cost reductions
in 1995 and $1 million of costs in 1994 associated with the repositioning
plan. The $4.7 million net increase in other income was due to a
$1.8 million investment write-down in 1994 and gains on sales of
investments and operating assets and higher income generated by
investments accounted for using the equity method in 1995.
The 1994 tax provision and effective rate for continuing operations were
significantly impacted by the goodwill write-down and the restructuring
charges.
Depreciation Change: The Company changed its method of depreciation for
certain classes of plant and equipment purchased after January 1, 1995
from an accelerated method to the straight-line method for financial
reporting purposes. The Company believes that the straight line method
more appropriately reflects the timing of the economic benefits to be
received from these assets, that consist mainly of manufacturing
equipment. The Company also changed its convention for calculating
depreciation expense during the year that an asset is acquired.
Previously, the Company used the half-year convention; starting in 1995,
the Company commences depreciation in the month the asset is placed in
service. In the third quarter of 1995, the effect of applying these new
methods was to reduce depreciation expense by $0.7 million, and to
increase income from continuing operations and net income by $0.5 million
and net income per share by $.01. For nine months, the effect was to
reduce depreciation expense by $3.8 million, and to increase income from
continuing operations and net income by $2.4 million and net income per
share by $.05. The reductions in depreciation expense represent the
differences in current year depreciation expense between the old and new
methods. Most of this difference occurred in the Optoelectronics
segment. Depreciation and amortization for the nine months of 1995 was
higher than 1994 because the effect of the changes in methods was
exceeded by the effect of higher capital expenditures and the inclusion
of IC Sensors' depreciation.
Discontinued Operations: Income from discontinued operations, net of
income taxes, was $6.3 million lower for the quarter and $12 million
lower for the nine months. The decrease reflected the expiration of the
Idaho contract in September 1994 and the Rocky Flats contract in June
1995. Future sales and income from discontinued operations will continue
to decrease as the Nevada test site contracts expire on December 31, 1995
and the Mound contract expires on September 30, 1996. Such sales and
income are dependent upon work scopes and fee pools that are negotiated
annually with the DOE.
Liquidity and Capital Resources
-------------------------------
The Company's cash and cash equivalents decreased $2.1 million in the
first nine months of 1995 while commercial paper borrowings increased
<PAGE>
EG&G, INC. AND SUBSIDIARIES
Management's Discussion and Analysis (Continued)
$61.3 million. Net cash provided by continuing operations was
$94.5 million in 1995 compared to $46.5 million in 1994. In 1995,
accounts receivable were reduced by $20.1 million and inventories were
reduced by $15.2 million, reflecting the results of the Company's
aggressive working capital reduction program. These reductions were
partially offset by cash outlays of $13.6 million under the 1994
repositioning plan. In September 1994, the Company acquired IC Sensors
and NoVOCs, Inc. for net cash of $32.8 million.
Discontinued operations generated cash of $25.7 million in 1995. Future
cash flows from discontinued operations will decrease as the remaining
three DOE contracts expire in 1995 and 1996.
Under the 1994 repositioning plan, cash outlays for the first nine months
of 1995 were $13.6 million, mainly for employee termination costs,
bringing the total spent under the plan to $17.6 million. Future cash
outlays of $7.9 million are expected to be incurred mainly in the fourth
quarter of 1995 as the repositioning plan is completed. During the first
nine months of 1995, the net work force reduction was 436, bringing the
total reduction to 632 positions since the inception of the plan. The
repositioning plan calls for a net work force reduction of approximately
800 positions in continuing operations. The actions taken have resulted
in pre-tax savings of $3.6 million for the third quarter and $9.4 million
for the first nine months of 1995.
For the first nine months of 1995, capital expenditures were
$42.3 million, an increase of $13.9 million over the 1994 level.
Capital expenditures in 1995 are expected to approximate $70 million,
more than $30 million higher than the 1994 level. These increases
support new product development initiatives, primarily in the
Optoelectronics segment. Depreciation expense in 1995 under the new
methods is projected to be higher than in 1994 due to the higher level
of capital expenditures and the inclusion of IC Sensors' depreciation.
During the first nine months of 1995, the Company purchased 7.1 million
shares of its common stock at a cost of $123.7 million under a stock
repurchase program. As of October 1, 1995, the Company has
authorization to purchase 6.2 million additional shares under the
program. The Company is financing these activities with a combination
of short-term and long-term debt and cash flows from operations.
On October 23, 1995, the Company issued $115 million of ten-year notes
at an interest rate of 6.8%. The proceeds are being used to pay down
commercial paper borrowings that were used mainly to finance repurchases
of the Company's common stock.
<PAGE>
Exhibits
- --------
EG&G, INC. AND SUBSIDIARIES
Exhibit 27 - Financial data schedule
<PAGE>
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
There were no reports on Form 8-K filed for the three months
ended October 1, 1995.
<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 10, 1995
-----------------
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