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 June 29, 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 July 27, 1997
----- -----------------------------
Common Stock, $1 par value 45,745,000
(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 Six Months Ended June 29, 1997 and June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands Except Per Share Data)
------------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
JUN 29, JUN 30, JUN 29, JUN 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
-------- -------- -------- --------
Sales:
Products $212,415 $216,221 $414,928 $424,222
Services 156,257 139,686 300,750 278,476
-------- -------- -------- --------
Total Sales 368,672 355,907 715,678 702,698
-------- -------- -------- --------
Costs and Expenses:
Cost of sales:
Products 138,686 137,712 270,057 269,637
Services 140,302 122,368 268,570 246,824
-------- -------- -------- --------
Total cost of sales 278,988 260,080 538,627 516,461
Research and development expenses 11,919 11,414 23,073 22,375
Selling, general and administrative expenses 59,799 62,999 119,457 122,523
Asset impairment charge (Note 2) 28,200 -- 28,200 --
-------- -------- -------- --------
Total Costs and Expenses 378,906 334,493 709,357 661,359
-------- -------- -------- --------
Operating Income (Loss) From
Continuing Operations (10,234) 21,414 6,321 41,339
Other Income (Expense), Net (Note 3) (2,618) (1,059) (4,676) (2,954)
-------- -------- -------- --------
Income (Loss) From Continuing Operations
Before Income Taxes (12,852) 20,355 1,645 38,385
Provision for Income Taxes 538 6,212 5,467 12,360
-------- -------- -------- --------
Income (Loss) From Continuing Operations (13,390) 14,143 (3,822) 26,025
Income From Discontinued Operations,
Net of Income Taxes (Note 4) 1,545 1,496 2,003 2,396
-------- -------- -------- --------
Net Income (Loss) $(11,845) $ 15,639 $ (1,819) $ 28,421
======== ======== ======== ========
Earnings (Loss) Per Share:
Continuing Operations $ (.29) $ .30 $ (.08) $ .55
Discontinued Operations .03 .03 .04 .05
-------- -------- -------- --------
Net Income (Loss) $ (.26) $ .33 $ (.04) $ .60
======== ======== ======== ========
Cash Dividends Per Common Share $ .14 $ .14 $ .28 .28
======== ======== ======== ========
Weighted Average Shares of Common Stock
Outstanding 45,888 47,424 46,054 47,527
</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 June 29, 1997 and December 29, 1996
(Dollars in Thousands Except Per Share Data)
--------------------------------------------
<TABLE>
<CAPTION>
JUN 29, DEC 29,
1997 1996
-------- --------
(Unaudited)
-----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 63,548 $ 47,846
Accounts receivable (Note 5) 223,229 222,856
Inventories (Note 6) 124,515 119,558
Other current assets 67,115 64,451
-------- --------
Total Current Assets 478,407 454,711
-------- --------
Property, Plant and Equipment:
At cost (Notes 2 and 7) 473,203 480,858
Accumulated depreciation and amortization (291,069) (288,808)
-------- --------
Net Property, Plant and Equipment 182,134 192,050
-------- --------
Investments (Note 8) 17,285 16,839
Intangible Assets (Notes 2 and 9) 87,942 110,368
Other Assets 50,895 48,932
-------- --------
Total Assets $816,663 $822,900
======== ========
Current Liabilities:
Short-term debt $ 69,912 $ 21,499
Accounts payable 73,817 75,749
Accrued expenses (Note 10) 154,048 157,558
Net liabilities of discontinued operations (Note 4) 6,159 4,990
-------- --------
Total Current Liabilities 303,936 259,796
-------- --------
Long-Term Debt 114,993 115,104
Long-Term Liabilities 73,645 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 516,983 532,043
Cumulative translation adjustments 5,301 18,228
Net unrealized gain on marketable investments (Note 8) 1,050 1,204
Cost of shares held in treasury;
14,367,000 shares at June 29, 1997 and
13,792,000 shares at December 29, 1996 (259,347) (246,471)
-------- --------
Total Stockholders' Equity 324,089 365,106
-------- --------
Total Liabilities and Stockholders' Equity $816,663 $822,900
======== ========
</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 Six Months Ended June 29, 1997 and June 30, 1996
(Unaudited)
-----------
<TABLE>
<CAPTION>
(In Thousands)
--------------
Six Months Ended
----------------
JUN 29, JUN 30,
1997 1996
<S> <C> <C>
------- -------
Cash Flows Provided by Operating Activities:
Net income (loss) $(1,819) $28,421
Deduct net income from discontinued operations (2,003) (2,396)
------- -------
Income (loss) from continuing operations (3,822) 26,025
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by continuing operations:
Asset impairment charge 28,200 --
Depreciation and amortization 21,289 18,270
Changes in assets and liabilities, net of
effects from companies purchased and divested:
Increase in accounts receivable (4,225) (8,654)
Increase in inventories (6,973) (13,234)
Increase (decrease) in accounts payable (660) 6,050
Decrease in accrued expenses (1,013) (11,107)
Change in prepaid and deferred taxes (3,727) (1,477)
Change in prepaid expenses and other (13,288) (9,395)
------- -------
Net Cash Provided by Continuing Operations 15,781 6,478
Net Cash Provided by Discontinued Operations 3,172 5,292
------- -------
Net Cash Provided by Operating Activities 18,953 11,770
------- -------
Cash Flows Used In Investing Activities:
Capital expenditures (26,418) (45,851)
Proceeds from dispositions of businesses and sales
of property, plant and equipment 5,433 2,804
Cost of acquisitions (3,611) --
Proceeds from sales of investment securities 2,182 7,038
Other (1,302) --
------- -------
Net Cash Used in Investing Activities (23,716) (36,009)
------- -------
Cash Flows Provided by Financing Activities:
Increase in commercial paper 49,882 41,000
Proceeds from issuance of common stock 4,252 3,820
Purchases of common stock (17,440) (12,032)
Cash dividends (12,929) (13,330)
Other (1,524) (163)
------- -------
Net Cash Provided by Financing Activities 22,241 19,295
------- -------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (1,776) (1,466)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 15,702 (6,410)
Cash and cash equivalents at beginning of period 47,846 76,204
------- -------
Cash and cash equivalents at end of period $63,548 $69,794
======= =======
</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 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
June 29, 1997 and the results of operations for the three and six months ended
June 29, 1997 and June 30, 1996 and the cash flows for the six months then
ended. The results of operations for the six months ended June 29, 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 six months ended June 29, 1997 and June 30, 1996
are approximately equivalent to 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.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(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.
(3) Other Income (Expense)
- --------------------------
Other income (expense), net, consisted of the following:
<TABLE>
<CAPTION>
In Thousands
------------
Three Months Ended Six Months Ended
------------------ ----------------
<S> <C> <C> <C> <C>
JUN 29, JUN 30, JUN 29, JUN 30,
1997 1996 1997 1996
------- ------- ------- -------
Interest income $ 559 $ 820 $ 979 $ 1,775
Interest expense (3,126) (3,232) (5,996) (6,416)
Gains on investments, net 358 917 410 917
Other (409) 436 (69) 770
------- ------- ------- -------
$(2,618) $(1,059) $(4,676) $(2,954)
======= ======= ======= =======
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(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, the Company's remaining management and operations contract with
the DOE, expires on September 30, 1997.
Summary operating results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
In Thousands
------------
Three Months Ended Six Months Ended
------------------ ----------------
JUN 29, JUN 30, JUN 29, JUN 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $26,057 $28,790 $50,697 $61,079
Costs and expenses 23,679 26,488 47,615 57,393
------- ------- ------- -------
Income from discontinued
operations before income taxes 2,378 2,302 3,082 3,686
Provision for income taxes 833 806 1,079 1,290
------- ------- ------- -------
Income from discontinued operations,
net of income taxes $ 1,545 $ 1,496 $ 2,003 $ 2,396
======= ======= ======= =======
</TABLE>
Net assets (liabilities) of discontinued operations consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 29, DEC 29,
1997 1996
------- -------
<S> <C> <C>
Accounts receivable, primarily unbilled $ 1,586 $ 2,050
Operating current liabilities (7,745) (7,040)
------- -------
$(6,159) $(4,990)
======= =======
</TABLE>
(5) Accounts Receivable
- ------------------------
Accounts receivable as of June 29, 1997 and December 29, 1996 included unbilled
receivables of $47 million and $44 million, respectively, which were due
primarily from U.S. government agencies. Accounts receivable were net of
reserves for doubtful accounts of $4.1 million and $4.2 million as of June 29,
1997 and December 29, 1996, respectively.
(6) Inventories
- ----------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 29, DEC 29,
1997 1996
-------- --------
<S> <C> <C>
Finished goods $ 31,233 $ 31,436
Work in process 32,783 28,536
Raw materials 60,499 59,586
-------- --------
$124,515 $119,558
======== ========
</TABLE>
<PAGE>
EG&G INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(7) Property, Plant and Equipment
- ----------------------------------
Property, plant and equipment, at cost, consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 29, DEC 29,
1997 1996
-------- --------
<S> <C> <C>
Land $ 12,719 $ 12,324
Buildings and leasehold improvements 115,447 123,575
Machinery and equipment 345,037 344,959
-------- --------
$473,203 $480,858
======== ========
</TABLE>
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 and from the write-down associated with the IC Sensors division. These
decreases were partially offset by capital expenditures.
(8) Investments
- ---------------
Investments consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 29, DEC 29,
1997 1996
-------- --------
<S> <C> <C>
Marketable investments $ 11,478 $ 12,294
Other investments 698 558
Joint venture investments 5,877 4,363
-------- --------
18,053 17,215
Investments classified as other current assets (768) (376)
-------- --------
$ 17,285 $ 16,839
======== ========
</TABLE>
At June 29, 1997, marketable investments, all classified as available for sale,
had an aggregate market value of $11.5 million and gross unrealized holding
gains of $1.6 million. The net unrealized holding gain on marketable
investments, net of deferred taxes, reported as a separate component of
stockholders' equity, was $1.1 million at June 29, 1997. In the first six months
of 1997, proceeds from sales of available-for-sale securities were $1 million,
which approximated average cost.
(9) Intangible Assets
- ----------------------
The decrease in intangible assets resulted primarily from the write-downs
associated with the IC Sensors and Environmental Services divisions, from
current year amortization and from the effect of translating goodwill
denominated in non-U.S. currencies at current exchange rates.
(10) Accrued Expenses
- ----------------------
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 29, DEC 29,
1997 1996
------- -------
<S> <C> <C>
Payroll and incentives $ 20,681 $ 29,732
Employee benefits 51,157 44,845
Federal, non-U.S. & state income taxes 26,655 24,186
Other accrued operating expenses 55,555 58,795
-------- --------
$154,048 $157,558
======== ========
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
(In Thousands)
--------------
Three Months Ended Six Months Ended
------------------ ----------------
JUN 29, JUN 30, Increase JUN 29, JUN 30, Increase
1997 1996 (Decrease) 1997 1996 Decrease)
---- ---- ---------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Instruments
Sales $ 72,350 $ 78,776 $ (6,426) $144,024 $152,357 $ (8,333)
Operating Income 5,780 9,457 (3,677) 11,915 16,265 (4,350)
Mechanical Components
Sales $ 74,298 $ 69,240 $ 5,058 $146,032 $137,781 $ 8,251
Operating Income 7,248 8,130 (882) 14,863 15,357 (494)
Optoelectronics
Sales $ 65,767 $ 68,205 $ (2,438) $124,872 $134,084 $ (9,212)
Operating Income (Loss) (1) (25,292) 864 (26,156) (25,001) 4,979 (29,980)
Technical Services
Sales $156,257 $139,686 $ 16,571 $300,750 $278,476 $ 22,274
Operating Income (1) 8,334 9,113 (779) 16,655 17,563 (908)
General Corporate Expenses $ (6,304) $ (6,150) $ (154) $(12,111) $(12,825) $ 714
Continuing Operations
Sales $368,672 $355,907 $ 12,765 $715,678 $702,698 $ 12,980
Operating Income (Loss) (1) (10,234) 21,414 (31,648) 6,321 41,339 (35,018)
</TABLE>
(1) The operating income (loss) from continuing operations for the three and
six months ended June 29, 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 six months
ended June 29, 1997 compared to the three and six months ended June 30, 1996.
Overview
- --------
Sales from continuing operations increased 4% for the second quarter of 1997
compared to 1996, while sales for the six months increased 2%. The quarter sales
increase reflects increases of 12% in Technical Services and 7% in Mechanical
Components partially offset by a 6% decrease in the Optoelectronics and
Instruments segments. Operating results for 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 ($0.51 loss per
share). Excluding the asset impairment charge, second quarter and six months
operating income was $18 million and $34.5 million, respectively, a 16% decrease
for both periods from last year.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
In 1996, the Company announced a realignment of its operating organization to
continue to position the Company for sustained long-term growth. The overall
goal of the effort is to provide greater focus on the end-use customer by
consolidating and integrating divisions around common technologies,
manufacturing processes and markets. This realignment also includes the planned
divestiture of businesses deemed not essential to its future, and the Company
expects to realize material gain on the dispositions. The 1997 second quarter
results included $1.2 million of planned integration costs and no gains from
asset dispositions. The 1997 year-to-date income included a planned $1.6 million
gain on the divestiture of assets associated with a non-core Instruments
business, offset by planned integration costs of $2.3 million incurred by the
three products segments in connection with the consolidation initiative. The
Company will continue to incur integration costs as it moves forward with the
consolidation initiative.
Instruments
- -----------
Second Quarter
- --------------
Instruments sales decreased $6.4 million mainly due to the effects of
translation as a result of the strengthening of the U.S. dollar, lower orders in
1997 to equip U.S. government facilities with explosives-detection systems, and
the divestiture of a non-core business in early 1997. These decreases were
partially offset by the sales increase resulting from introduction of a new
medical research instrument and sales of consumables related to the placement of
an increasing number of diagnostic instruments. Income decreased $3.7 million
mainly from lower sales and the absence in 1997 of income from the expiration of
a grant liability.
Six Months
- ----------
Instruments sales decreased $8.3 million mainly
due to the effects of translation as a result of the strengthening of the U.S.
dollar, lower shipments of nuclear and research instruments caused by lower
government funding and delays in product improvement, and the divestiture of a
non-core business. These decreases were partially offset by increases in demand
for medical research and diagnostics instruments mainly caused by the
introduction of a new product and consumables related to the placement of an
increasing number of diagnostic instruments. Income decreased $4.4 million
mainly from lower sales, price reductions due to competitive pressures, royalty
payments and the absence in 1997 of income from the expiration of a grant
liability. 1997 results reflect a $1.6 million asset divestiture gain, partially
offset by $0.7 million of integration costs incurred as part of the Company's
consolidation initiative.
Mechanical Components
- ---------------------
Second Quarter
- --------------
Sales grew 7% due to higher demand for aerospace products as a result of the
continuing strength in that market. Income decreased $0.9 million as the margin
on the increased sales was more than offset by integration costs incurred in the
aerospace business as part of the Company's consolidation initiative, and
unplanned warranty costs related to the sale of components to the ground
transportation industry.
Six Months
- ----------
Sales grew 6% primarily due to higher demand
for aerospace products. Income decreased $0.5 million as the income earned on
the increased sales was more than offset by integration and unplanned warranty
costs. The Company plans to sell its Rotron division as part of its ongoing
program to divest businesses deemed not essential to its future. The divestiture
is expected to occur in late 1997 or early 1998, and the Company expects to
realize a gain on disposition. Rotron's 1996 annual sales were approximately $64
million.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Optoelectronics
- ---------------
Second Quarter
- --------------
Sales decreased $2.4 million, reflecting shifts in demand to lower-cost
competitors' accelerometers in the automotive market and lower sales due to
contamination and start-up production problems at another operation. The 1997
segment operating loss of $25.3 million includes a $26.7 million non-cash asset
impairment charge related to goodwill and fixed assets for IC Sensors. Excluding
the asset impairment charge, operating income improved $0.5 million in 1997. The
1997 operating results include $2.3 million of planned development costs for the
amorphous silicon project and for the advanced micromachined sensors technology
platform.
Six Months
- ----------
Sales for the six months decreased $9.2 million due to
shifts in demand to lower cost competitors' accelerometers in the automotive
market, lower sales due to contamination and start-up production problems and
the completion a power supplies contract in 1996. The $30 million decrease in
income resulted from the asset impairment charge of $26.7 million. Excluding the
impairment charge, operating income decreased $3.3 million as a result of lower
sales, higher operating losses at IC Sensors and higher development costs for
the advanced micromachined sensors technology platform and other operations.
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, 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.
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.
Technical Services
- ------------------
Second Quarter
- --------------
Sales increased 12% as a result of follow-on shipments under a contract for the
development and installation of communication systems, additional billings under
a government contract, higher lubricant testing levels and the start-up of a
light-truck structural testing facility, which is booked at full capacity
through the first quarter of 1998. The $0.8 million operating income decrease
was mainly the result of the $1.5 million write-off of goodwill related to the
environmental operation as a result of its continuing losses. Excluding the
write-off, operating income increased $0.7 million primarily as a result of
increased sales.
Six Months
- ----------
Sales increased 8% primarily from shipments under a
contract for communication systems, additional billings under a government
contract, increased lubricant testing demand and the start-up of the 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. The operating income reduction resulted mainly from the goodwill
write-down of $1.5 million. Excluding the impairment charge, operating income
increased $0.6 million primarily due to higher sales levels. Future performance
could be impacted by the recent announcement that NASA and the Air Force are
seeking approval from their respective headquarters to consolidate and recompete
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. If approved, it is anticipated that any
resultant contract would be effective October 1, 1998, and the Company plans to
participate in the recompetition. The NASA contract contributed annual sales of
$172 million in 1996.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
General Corporate Expenses
- --------------------------
Expenses were flat for the quarter and decreased $0.7 million for the six months
due to lower management incentive accruals.
Other
- -----
Other expense increased a net $1.6 million for the second quarter mainly due to
lower investment gains and equity income. The six month increase in other
expense of $1.7 million was mainly due to lower interest income, lower
investment gains and lower equity income partially offset by lower interest
expense. The 1997 tax provision for the second quarter was significantly
impacted by the non-deductible goodwill write-downs of IC Sensors and the
Environmental Services division. The six month tax provision was also impacted
by the goodwill write-downs. Excluding the impairment charge and its related tax
benefit, the effective tax rate for the second quarter and year-to-date was 34%
as planned.
Discontinued Operations
- -----------------------
The Mound contract, the Company's remaining management and operations contract
with the DOE, expires on September 30, 1997.
Financial Condition
-------------------
The Company's cash and cash equivalents increased $15.7 million in the first six
months of 1997 while commercial paper borrowings increased $49.9 million, mainly
due to capital expenditures, stock purchases and cash dividends partially offset
by cash flow from continuing operations. Net cash provided from operations was
$15.8 million in the first six months of 1997 compared to $6.5 million in 1996.
Capital expenditures were $26.4 million in 1997, a decrease of $19.4 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 and support new product
initiatives primarily in the Optoelectronics segment.
During the first six months of 1997, the Company purchased 832,000 shares of its
common stock through periodic purchases on the open market at a cost of $17.4
million under an existing stock repurchase program. As of June 29, 1997, the
Company had authorization to purchase 3.3 million additional shares under the
program and, subject to operational cash flows, cash utilization alternatives
and market conditions, plans to maintain the 1996 level of 1.6 million shares to
be purchased annually.
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 six months of 1997.
Forward-Looking Information
---------------------------
All statements contained herein that refer to a time after June 29, 1997,
including the words 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.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
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 future divestitures, 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 seeking approval from their respective headquarters to
consolidate and recompete 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. If approved, it is anticipated
that any resultant contract would be effective October 1, 1998, and the Company
plans to participate in the recompetition.
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.
<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 during the quarter ended
June 29, 1997.
<PAGE>
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: August 11, 1997
---------------
<PAGE>
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