<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-K
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
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)
Registrant's telephone number, including area code (781) 237-5100
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE, INC.
- --------------------------------- -----------------------------------------
Securities registered pursuant to Section 12 (g) of the Act: NONE
- --------------------------------------------------------------------------------
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock, $1 par value, held by
nonaffiliates of the registrant on February 20, 1998, was $1,189,213,909.
As of February 20, 1998, there were outstanding, exclusive of treasury shares,
45,328,812 shares of common stock, $1 par value.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF EG&G, INC.'S PROXY STATEMENT FOR THE 1998
ANNUAL MEETING OF STOCKHOLDERS...................PART III (Items 10, 11 and 12)
-1-
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL BUSINESS DESCRIPTION
EG&G, Inc. was incorporated under the laws of the Commonwealth of Massachusetts
in 1947. EG&G, Inc. (hereinafter referred to as "EG&G", the "Company", or the
"Registrant", which includes the Company's subsidiaries) is a diversified
technology company that provides optoelectronic, mechanical and
electromechanical components and instruments to manufacturers and end-user
customers. These customers exist in varied markets that include aerospace,
automotive, transportation, environmental, industrial, medical, photography,
security and other global arenas. The Company's services also extend to
technical and managerial support for governmental and industrial customers. In
1997 the Company had sales of $1.5 billion from continuing operations.
The Company's continuing operations are classified into four industry segments:
Instruments, Mechanical Components, Optoelectronics and Technical Services.
RECENT DEVELOPMENTS
During 1997, the Company purchased 1.3 million shares of its common stock
under a previously announced program at an aggregate cost of $28.1 million. As
of December 28, 1997, the Company had authorization to purchase 2.8 million
additional shares.
In February 1997, EG&G Astrophysics introduced the PakScan(TM) X-ray food
inspection system that detects plastic anD foreign objects in packaged foods and
then removes the contaminated package from production lines.
In April 1997, EG&G acquired exclusive worldwide rights to manufacture, market
and sell a bulk cargo X-ray inspection system.
In June 1997, EG&G's high-performance X-ray screening systems were selected to
provide security at the Hong Kong changeover ceremonies.
In August 1997, EG&G received a $3.2 million order from the U.S. Federal
Aviation Administration for ten advanced explosive detection systems, the
Z-Scan(R). The order includes an option for ten additional systems.
In August 1997, EG&G Amorphous Silicon signed an agreement with GE Medical
Systems to produce a first-of-its-kind multi-purpose digital X-ray detector.
EG&G has exclusive rights to manufacture the detector, which has the potential
to provide quicker and more cost effective X-ray examinations for patients.
In August 1997, NASA's Marshall Space Flight Center in Huntsville, Alabama,
awarded EG&G a support services contract for a period of up to five years. If
all options are exercised, the contract could be worth approximately $77.8
million.
In September 1997, EG&G concluded a joint-venture agreement to manage operation
of the new Daimler-Benz automotive test site, the Papenburg Proving Ground, in
Emsland, Germany. The agreement is with a wholly owned Daimler-Benz subsidiary,
Mercedes-Benz technology (MBtech).
In October 1997, EG&G received a $20 million order from the Dutch Airport
Authority for two large-cargo security inspection systems for Schiphol Airport
in Amsterdam.
In December 1997, EG&G was awarded a one-year contract with an estimated value
of between $18 million and $30 million from the Defense Logistics Agency to
privatize its distribution depot at Kelly Air Force Base, San Antonio.
The contract has three option years.
In December 1997, EG&G entered into an agreement to sell its Sealol Industrial
Seals Division to TI Group, plc for $100 million, while simultaneously
purchasing TI Group's Belfab Division for $45 million.
In December 1997, EDN Magazine selected EG&G Amorphous Silicon as a finalist in
its "Innovation of the Year" competition. The EG&G division was recognized for
development of amorphous silicon detector technology.
-2-
<PAGE> 3
In January 1998, Gregory L. Summe, formerly President of AlliedSignal's
Automotive Products Group, was appointed President and Chief Operating Officer
of EG&G. Mr. Summe was subsequently elected to the Company's Board of Directors.
In January 1998, EG&G completed the sale of Rotron, a manufacturer of fans,
blowers and motors, to AMETEK, Inc., for approximately $103 million.
INDUSTRY SEGMENTS
Set forth below is a brief summary of each of the Company's four industry
segments together with a description of certain of the more significant or
recently introduced products, services or operations.
INSTRUMENTS
The Company develops and manufactures instruments and systems for applications
in: medical and clinical diagnostics; biochemical, medical and life science
research; environmental monitoring; airport and industrial security; and food
inspection. The Company's instruments provide a wide range of measurement
capabilities and options through the use of high-speed signal processing, image
enhancement and a broad utilization of detector technologies, including products
that feature the accurate generation, detection and measurement of various
segments of the electromagnetic spectrum. The Company offers products in this
segment under trade names which include Astrophysics, Berthold, ORTEC and
Wallac. In 1997, this segment represented 21% of the Company's total sales from
continuing operations and 29% of the Company's operating income from continuing
operations before an impairment charge and general corporate expenses.
High-performance bioanalytic and diagnostic instruments manufactured by the
Company are used in hospitals, clinics and pharmaceutical and medical research
facilities. These instruments employ time-resolved fluorescence and
chemiluminescence technologies, as well as radioisotopes, to analyze samples.
The advantage of fluorescence and luminescense is that they do not involve the
use of radioactive material, so that concerns about sample transport and waste
disposal are minimized. Among other things, these instruments are used to screen
blood for thyroid dysfunction, fertility-related disorders, fetal defects and
diseases in newborns, and to detect relapse in patients who have been treated
for cancer. The Company manufactures AutoDelfia(TM), an automated immunoassay
fluorescence diagnostiC system. The Company also sells reagents for use in
connection with certain of these instruments.
Through its Instruments segment, the Company also produces security screening
systems that employ X-ray technology in conjunction with image-enhancing
techniques for non-intrusive inspection of baggage and packages at airport
portals, baggage processing areas, mail rooms, courthouses, schools and
buildings. New security screening products introduced by the Company include the
Z-Scan(R) and a portable, large-cargo X-ray screening system. The Z-Scan, which
can process up to 1,800 bags per hour, uses color images, X-rays and proprietary
software to detect explosives, narcotics or contraband in packages and luggage.
The United Kingdom's Department of Transportation has certified the Z-Scan for
detection of drugs and contraband in checked cargo. The large-cargo X-ray
screening system allows non-intrusive inspection of boxes, crates and
containers. It supports the search for contraband, weapons and explosives at
border crossings, ports of entry, warehouses and airports.
Instruments produced by the Company also include process inspection systems that
combine X-ray technology from the Company's Instruments segment and optical
components from the Company's Optoelectronics segment. As an example, EG&G's
PakScan(TM) is used in food processing and packaging plants to monitor, detect
and remove foreigN objects from raw and processed food at various stages of
production. Such systems are also used to check intravenous-medicine bags and
automobile oil filters for leaks, to measure the fat content of meat and to
detect and separate non-biodegradable PVCs from recyclable plastics.
Based on its expertise in nuclear measurements, the Company produces instruments
to detect, characterize and measure radiation, including a complete line of
radiation-protection measuring systems for laboratories, nuclear facilities and
environmental monitoring stations.
MECHANICAL COMPONENTS
Through its Mechanical Components segment, the Company produces advanced seals
and bellows products, valves, nozzles, metal ducting and precision aerospace
components. The Company offers these products under trade names which include
Pressure Science, Sealol, Wright Components, KT Aerofab and Missouri Metals. In
1997, this segment
-3-
<PAGE> 4
represented 20% of the Company's total sales from continuing operations and 31%
of the Company's operating income from continuing operations before an
impairment charge and general corporate expenses.
The Company also produces as part of its Mechanical Components segment
mechanical sealing components and systems that use welded metal bellows devices
pioneered by the Company for the process industries. Industries served include
pharmaceuticals, food processing, power generation and semi-conductor chip
manufacturing. The Company expects that the market for the Company's advanced
zero-leakage gas seals will grow as a result of environmental legislation, which
requires manufacturers to significantly reduce emissions.
For aerospace applications, the Company produces valves, advanced sealing
components, aircraft exhaust components and ducting.
OPTOELECTRONICS
Through its Optoelectronics segment, the Company offers a broad variety of
components that emit and detect light in the spectrum from ultraviolet through
visible to the far infrared. These components range from simple photocells to
sophisticated imaging systems, light sources that include various types of
flashtubes and laser diodes, and complex devices for weapons' trigger systems.
Applications include light sensors used in automotive and commercial
electronics, sensors used in smoke detectors and medical imaging systems, and
sophisticated arrays for communications and remote sensing of the earth. The
Company expects to make significant research and development and capital
expenditures in this segment over the next several years. This segment offers
products under trade names which include Electro-Optics, Heimann
Optoelectronics, IC Sensors, Reticon, Judson and Vactec. In 1997, this segment
represented 18% of the Company's total sales from continuing operations and 8%
of the Company's operating income from continuing operations before an
impairment charge and general corporate expenses.
Products manufactured by this segment also include detectors of visible and
non-visible light, including high-performance silicon photodiodes that detect
and measure light and other optical radiation for industrial, space, military,
analytical and scientific instrumentation. Light detectors are also manufactured
by the Company for a variety of commercial applications. The Company also makes
a wide variety of flashlamps for use in photocopy and reprographic equipment,
photo-typesetting systems, beacons, indicators and laser systems and
accessories. In addition, the Company manufactures power supplies for military
high-frequency electronic applications that are used primarily for precision
controlled switching of electric current in electronic equipment.
The Company is developing amorphous silicon detectors for imaging systems for
medical and industrial applications. These X-ray systems incorporate amorphous
silicon, which replaces film in X-ray systems and translates the rays into
digital pulses that can then be used to immediately produce the image on a
cathode ray tube. In 1997, G.E. Medical Systems and the Company signed an
agreement which provides the Company with exclusive rights to manufacture this
amorphous silicon detector.
Through this segment, the Company also produces micromachined sensors, which are
small silicon-wafer-based devices that combine a sensing function with
intelligent signal processing. The Company mass produces these micromachined
infrared sensors for consumer, medical and automotive applications and
manufactures high-performance micromachined silicon sensors for missile-guidance
systems. In a joint venture, the Company is developing more advanced
micromachined electronic accelerometers for automotive and industrial
applications.
TECHNICAL SERVICES
Through its Technical Services segment, the Company supplies engineering,
scientific, environmental, management and technical support services to a broad
range of governmental and industrial customers. These services include: analysis
and testing services for the automotive industry; base operations for the
National Aeronautics and Space Administration ("NASA") at the Kennedy Space
Center ("KSC"); chemical weapons disposal and technical and support services for
the U.S. Department of Defense ("DoD"); seized-property administration for the
U.S. Customs Service; technical support in a joint venture for the National
Science Foundation in Antarctica; consulting services in transportation;
physical security services for government agencies; and a support services
contract at NASA's Marshall Space Flight Center. The Company has offered
services in this segment under trade names which include Automotive Research and
Structural Kinematics, as well as Dynatrend and Washington Analytical Services
Center. Many of these services are now provided through EG&G Services. In 1997,
this segment represented 41% of the Company's total sales from continuing
operations and 32% of the Company's operating income from continuing operations
before an impairment charge and general corporate expenses.
-4-
<PAGE> 5
For the automobile, chemical additive and petroleum industries, the Company
provides automobile durability, performance and emissions testing, and tests
fuels, lubricants and chemical additives. The Company performs automobile
durability and performance testing for all major U.S. and a number of foreign
automobile manufacturers. In 1997, EG&G began providing operational services to
the new Daimler-Benz test track in Elmsland, Germany.
As base operations contractor for the KSC, the Company provides institutional,
technical and maintenance support services. In particular, the Company manages
KSC's 600 buildings, structures and facilities; tests new astronaut rescue
procedures and escape systems; fields a force of 200 uniformed security
personnel and a SWAT team; provides fire protection and medical services;
handles all propellant substances; and manages the shuttle landing facility. The
Company has been the base operations contractor at KSC since 1983 and is
currently working pursuant to a contract that will expire on September 30, 1998.
NASA and the Air Force are consolidating and recompeting the base operations
contracts at the KSC, Cape Canaveral Air Station and certain functions at
Patrick Air Force Base in an effort to eliminate duplication and reduce costs.
It is anticipated that the resulting contract would be effective October 1,
1998. The Company is participating in the recompetition for the new contract as
part of a joint venture with Johnson Controls.
The Company's contracts with the DoD fall into two general categories: (i)
traditional defense activities, and (ii) decommissioning. The Company's
traditional defense activities focus on such strategic areas as research and
engineering analyses in support of DoD advanced development programs. An example
of a decommissioning project is the operation of the U.S. Army's facility for
the disposal of lethal chemical agents and munitions in Tooele, Utah.
The Company was recently awarded a contract from the Greater Kelly Development
Corporation to assist in the implementation of a redevelopment plan for Kelly
Air Force Base in San Antonio, Texas. The contract is for three years with two
three-year renewal options at the discretion of the customer for additional
implementation activities.
The Company also provides engineering and management services in a variety of
fields, including transportation, physical security and property management for
several government agencies. Government clients include the U.S. Departments of
Transportation, State and Treasury, the U.S. Customs Service and the
Environmental Protection Agency.
DISCONTINUED OPERATIONS
The Company has provided services under management and operations contracts to
the U.S. Department of Energy ("DOE") and reports its former DOE Support segment
as discontinued operations. Three of these DOE contracts expired in 1995. The
Rocky Flats contract for the management and operation of the Rocky Flats
Environmental Technology Center near Golden, Colorado terminated in June 1995.
The Reynolds Electrical and Engineering Co. contract for support and maintenance
services for the underground nuclear weapons test program and its design
laboratories at the Nevada Test Site expired on December 31, 1995. The Energy
Measurements contract to provide scientific and engineering services also
relating to the Nevada Test Site expired on December 31, 1995.
The EG&G Mound Applied Technologies, Inc. contract, the Company's last DOE
management and operations contract, expired on September 30, 1997. Under this
contract, the Company provided all support services at the DOE's Miamisburg,
Ohio facility and was responsible for the assembly and testing of radioisotopic
thermionic generators for space and special terrestrial power missions. The
Company also was responsible for the transfer to other DOE facilities of
technology relating to the Mound facility's former mission involving the
manufacturing of components for nuclear weapons.
The Company is in the process of negotiating contract closeouts and does not
anticipate incurring any material loss in connection with such contracts in
excess of previously established reserves.
MARKETING
The Company markets its services and products through its own specialized sales
forces as well as independent foreign and domestic manufacturer representatives
and distributors. In certain foreign countries, the Company has entered into
joint venture and license agreements with local firms to manufacture and market
its products.
RAW MATERIALS AND SUPPLIES
Raw materials and supplies used by the Company are generally readily available
in adequate quantities from domestic and foreign sources.
-5-
<PAGE> 6
PATENTS AND TRADEMARKS
While the Company's patents, trademarks and licenses in the aggregate are
important to its business, the Company does not believe that the loss of any one
patent, trademark or license or group of related patents, trademarks or licenses
would have a materially adverse effect on the overall business of the Company or
on any of its industry segments. EG&G(R), as well as certain product names, are
registered trademarks of the Company.
BACKLOG
The approximate dollar value of unfilled orders of continuing operations by
industry segment as of December 28, 1997 and December 29, 1996 is set forth in
the table below.
(In Thousands) DECEMBER 28, 1997 DECEMBER 29, 1996
----------------- -----------------
Instruments $ 57,722 $ 45,883
Mechanical Components 129,078 105,762
Optoelectronics 126,752 112,759
Technical Services 225,243 285,170
-------- --------
CONTINUING OPERATIONS $538,795 $549,574
======== ========
At December 28, 1997, 41% of the backlog represented orders received from U.S.
government agencies, primarily the DoD and NASA. The Company estimates that over
89% of its backlog as of December 28, 1997 will be billed during 1998. The
Mechanical Components segment includes backlog related to the Company's Rotron
division, which was sold in January 1998. Rotron's backlog was approximately $33
million as of December 28, 1997 and $23 million as of December 29, 1996.
The order backlog for each segment relates differently to future sales based on
different business characteristics, primarily order and delivery lead times,
customer demand requirements and government funding. While the Company has not
generally experienced material cancellations of orders, orders may be cancelled
by customers without financial penalty, and backlog does not necessarily
represent actual future shipments.
The Company's last DOE management and operations contract, which is reported as
discontinued operations, expired on September 30, 1997.
GOVERNMENT CONTRACTS
In accordance with government regulations, all of the Company's government
contracts are subject to termination for the convenience of the government.
Costs incurred under cost-reimbursable contracts are subject to audit by the
government. The results of prior audits, which have been completed through 1993,
have not had a material effect on the Company.
CONTINUING OPERATIONS: Sales to U.S. government agencies, which were
predominantly to the DoD and NASA, were $537 million, $527 million and $537
million in 1997, 1996, and 1995, respectively. The Company's base operations
contract with NASA at the KSC contributed sales of $168 million in 1997 and $172
million in 1996 and 1995 and was extended by NASA through September 30, 1998.
NASA and the Air Force are consolidating and recompeting the base operations
contracts at the KSC, Cape Canaveral Air Station and certain functions at
Patrick Air Force Base in an effort to eliminate duplication and reduce costs.
It is anticipated that the resulting contract would be effective October 1,
1998. The Company is participating in the recompetition for the new contract as
part of a joint venture with Johnson Controls.
DISCONTINUED OPERATIONS: The EG&G Rocky Flats, Inc. contract terminated in June
1995. The Reynolds Electrical and Engineering Co., Inc. and the EG&G Energy
Measurements, Inc. contracts expired on December 31, 1995. The EG&G Mound
Applied Technologies, Inc. contract expired on September 30, 1997. The Mound
cost-plus-award-fee contract contributed $80 million of sales to discontinued
operations in 1997. The Company is in the process of negotiating contract
closeouts and does not anticipate incurring any material loss in connection with
such contracts in excess of previously established reserves.
-6-
<PAGE> 7
COMPETITION
Because of the wide range of its products and services, the Company faces many
different types of competition and competitors. Competitors range from large
foreign and domestic organizations that produce a comprehensive array of goods
and services, to small concerns producing a few goods or services for
specialized market segments.
In the Instruments segment, the Company competes with instrument companies, some
large, most small, that serve narrow segments of markets in X-ray and magnetic
security systems, nuclear, industrial, and diagnostic instrumentation. The
Company competes in these markets primarily on the basis of product performance,
product reliability, service and price. Consolidation of competitors through
acquisitions and mergers and the Company's increasing activity in selected
diagnostics and industrial markets are expected to increase the proportion of
large competitors in this segment.
In the Mechanical Components segment, the Company is a leading supplier of
selected precision aircraft exhaust components, and various types of seals for
high-technology applications. Competition in these areas typically is from small
specialized manufacturing companies.
In the Optoelectronics segment, the Company is among the leading suppliers of
specialty flashtubes, silicon photodetectors, avalanche photodiodes, cadmium
sulfide and cadmium selenide detectors, photodiode arrays and switched power
supplies. Typically, competition is from small specialized manufacturing
companies.
The Technical Services segment provides technical services to several agencies
of the federal government, including the DoD and NASA. This business is
typically won through competition with a number of large and small contractors,
many of which are as large or larger than the Company and which, therefore, have
resources and capabilities that are comparable to or greater than those of the
Company. The primary bases for competition in these markets are technical and
management capabilities, current and past performance, and price. Competition is
typically subject to mandated procurement and competitive bidding requirements.
Competition for automotive testing services is primarily from a few specialized
testing companies and from customer-owned testing facilities, and is primarily
based on quality, service, and price.
Within the Mechanical Components, Optoelectronics and Instruments segments,
competition for governmental purchases is subject to mandated procurement
procedures and competitive bidding practices. In these segments, the Company
competes primarily on the basis of product performance, quality, service and
price. In much of the Optoelectronics and Instruments segments and in the
aircraft and marine mechanical seal markets included in the Mechanical
Components segment, advancing technology and research and development are also
important competitive factors.
RESEARCH AND DEVELOPMENT
During 1997, 1996 and 1995, Company-sponsored research and development
expenditures were approximately $44.9 million, $42.8 million and $42.4 million,
respectively.
ENVIRONMENTAL COMPLIANCE
The Company is conducting a number of environmental investigations and remedial
actions at current and former Company locations and, along with other companies,
has been named a potentially responsible party for certain waste disposal sites.
The Company accrues for environmental issues in the accounting period that the
Company's responsibility is established and when the cost can be reasonably
estimated. As of December 28, 1997, the Company had an accrual of $5.7 million
to reflect its estimated liability for environmental remediation. As assessments
and remediation activities progress at each individual site, these liabilities
are reviewed and adjusted to reflect additional information as it becomes
available. There have been no environmental problems to date that have had or
are expected to have a material effect on the Company's financial position or
results of operations. While it is reasonably possible that a material loss
exceeding the amounts recorded may be incurred, the preliminary stages of the
investigations make it impossible for the Company to reasonably estimate the
range of potential exposure.
EMPLOYEES
As of March 1, 1998, the Company employed approximately 14,000 persons. Certain
of the Company's subsidiaries are parties to contracts with labor unions. The
Company considers its relations with employees to be satisfactory.
-7-
<PAGE> 8
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
SALES AND OPERATING INCOME FROM
CONTINUING OPERATIONS BY INDUSTRY SEGMENT
For the Five Years Ended December 28, 1997
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INSTRUMENTS
Sales $ 306,580 $ 321,704 $ 293,575 $ 273,088 $ 237,223
Operating Income (Loss) 34,983 36,400 17,142 (49,580)(2) 10,413
MECHANICAL COMPONENTS
Sales $ 292,727 $ 276,389 $ 249,255 $ 232,500 $ 244,878
Operating Income 36,866 29,203 27,241 18,766 (2) 24,408
OPTOELECTRONICS
Sales $ 261,291 $ 269,530 $ 259,357 $ 213,380 $ 201,274
Operating Income (Loss) (17,169)(1) 12,249 19,328 8,674 (2) 11,474
TECHNICAL SERVICES
Sales $ 600,207 $ 559,629 $ 617,391 $ 613,588 $ 636,041
Operating Income 36,587 (1) 34,169 48,155 46,075 (2) 68,762
GENERAL CORPORATE EXPENSES $ (31,669) $ (24,391) $ (29,193) $ (34,882)(2) $ (27,573)
CONTINUING OPERATIONS
Sales $ 1,460,805 $ 1,427,252 $ 1,419,578 $ 1,332,556 $ 1,319,416
Operating Income (Loss) 59,598 (1) 87,630 82,673 (10,947)(2) 87,484
</TABLE>
1 The operating income from continuing operations for 1997 included a $28.2
million non-cash asset impairment charge. The impact of this charge was $26.7
million on the Optoelectronics segment and $1.5 million on the Technical
Services segment.
2 The operating income (loss) from continuing operations for 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:
Instruments-$55.7 million, Mechanical Components-$2.7 million,
Optoelectronics-$9.7 million, Technical Services-$1.6 million and General
Corporate Expenses-$1 million.
-8-
<PAGE> 9
Additional information relating to the Company's operations in the various
industry segments is as follows:
<TABLE>
<CAPTION>
Depreciation and Capital
Amortization Expense Expenditures
----------------------------------------------------------------------------
(In thousands) 1997 1996 1995 1997 1996 1995
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Instruments $ 9,170 $10,976 $11,887 $ 6,362 $ 4,550 $ 4,639
Mechanical Components 5,781 5,729 5,585 13,842 10,367 6,978
Optoelectronics 19,528 14,880 13,220 21,312 47,327 35,925
Technical Services 9,174 8,193 7,698 5,924 16,714 12,047
Corporate 959 1,158 1,036 1,289 1,532 2,250
------- ------- ------- ------- ------- -------
$44,612 $40,936 $39,426 $48,729 $80,490 $61,839
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets
-------------------
(In thousands) 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C>
Instruments $194,037 $205,506 $215,094
Mechanical Components 121,492 112,034 97,672
Optoelectronics 205,489 229,768 194,015
Technical Services 124,975 118,513 115,623
Corporate and Other 186,110 157,079 181,511
-------- -------- --------
$832,103 $822,900 $803,915
======== ======== ========
</TABLE>
Corporate assets consist primarily of cash and cash equivalents, prepaid pension
and prepaid taxes.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Information relating to geographic areas is as follows:
<TABLE>
<CAPTION>
Operating Income
Sales From Continuing Operations
---------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. $1,106,134 $1,066,561 $1,065,424 $50,144 $68,108 $82,256
Germany 79,202 80,465 87,690 1,438 5,154 4,508
Other Non-U.S 275,469 280,226 266,464 39,685 38,759 25,102
Corporate -- -- -- (31,669) (24,391) (29,193)
---------- ---------- ---------- ------- ------- -------
$1,460,805 $1,427,252 $1,419,578 $59,598 $87,630 $82,673
========== ========== ========== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Identifiable Assets
----------------------------------
(In thousands) 1997 1996 1995
- -----------------------------------------------------
<S> <C> <C> <C>
U.S. $380,447 $385,012 $352,255
Germany 78,187 84,995 87,986
Other Non-U.S 187,359 195,814 182,163
Corporate
and Other 186,110 157,079 181,511
-------- -------- --------
$832,103 $822,900 $803,915
======== ======== ========
</TABLE>
Transfers between geographic areas were not material.
-9-
<PAGE> 10
ITEM 2. PROPERTIES
As of March 1, 1998, the Company occupied approximately 3,789,700 square feet of
building area, of which approximately 1,488,000 square feet is owned. The
balance is leased. The Company's headquarters occupies 53,350 square feet of
leased space in Wellesley, Massachusetts. The Company's other operations are
conducted in manufacturing and assembly plants, research laboratories,
administrative offices and other facilities located in 28 states, Washington,
D.C., Puerto Rico and 26 foreign countries.
Non-U.S. facilities account for approximately 1,170,800 square feet of owned and
leased property, or approximately 31% of the Company's total occupied space.
The Company's leases on property are both short-term and long-term. In
management's opinion, the Company's properties are well-maintained and are
adequate for its present requirements.
Except for operations based on government facilities, substantially all of the
machinery and equipment used by the Company is owned by the Company and the
balance is leased or furnished by contractors or customers.
The following table indicates the approximate square footage of real property
owned and leased attributable to each of the Company's industry segments.
<TABLE>
<CAPTION>
Owned Leased Total
(Sq. Feet) (Sq. Feet) (Sq. Feet)
---------- ---------- ----------
<S> <C> <C> <C>
Instruments 481,200 302,800 784,000
Mechanical Components 502,800 381,000 883,800
Optoelectronics 336,000 582,600 918,600
Technical Services 163,400 975,000 1,138,400
Corporate Offices 4,600 60,300 64,900
--------- --------- ---------
CONTINUING OPERATIONS 1,488,000 2,301,700 3,789,700
========= ========= =========
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities. Each of these matters is subject to various uncertainties,
and it is possible that some of these matters may be resolved unfavorably to the
Company. The Company has established accruals for matters that are probable and
reasonably estimable. Management believes that any liability that may ultimately
result from the resolution of these matters in excess of amounts provided will
not have a material adverse effect on the financial position or results of
operations of the Company.
The Company has received notices from the Internal Revenue Service (IRS)
asserting deficiencies in federal corporate income taxes for the Company's 1985
to 1993 tax years. The total additional tax proposed by the IRS amounts to $66
million plus interest. The Company has filed petitions in the United States Tax
Court to challenge most of the deficiencies asserted by the IRS. The Company
believes that it has meritorious legal defenses to those deficiencies and
believes that the ultimate outcome of the case will not result in a material
impact on the Company's consolidated results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-10-
<PAGE> 11
EXECUTIVE OFFICERS
Listed below are the executive officers of the Company as of March 23, 1998. No
family relationship exists between any of the officers.
- --------------------------------------------------------------------------------
Name Position Age
- --------------------------------------------------------------------------------
John M. Kucharski Chairman of the Board 62
and Chief Executive Officer
Gregory L. Summe President and Chief Operating Officer 41
John F. Alexander, II Senior Vice President 41
and Chief Financial Officer
Murray Gross Senior Vice President, 61
General Counsel and Clerk
Angelo D. Castellana Senior Vice President 56
Dr. Amitava Datta Vice President and Chief
Technology Officer 52
Deborah S. Lorenz Vice President 48
Donald H. Peters Vice President 57
Theodore P. Theodores Vice President 62
Daniel T. Heaney Treasurer 44
William J. Ribaudo Controller 38
-11-
<PAGE> 12
Mr. Kucharski joined the Company in 1972. He was elected a Vice President in
1979, a Senior Vice President in 1982 and Executive Vice President in 1985. In
1986 he was elected President and Chief Operating Officer, in 1987 Chief
Executive Officer and was elected Chairman of the Board of Directors in 1988.
Mr. Summe joined the Company in 1998 as President and Chief Operating Officer.
Until late 1997, he was President of AlliedSignal's Automotive Products Group.
Prior to being appointed President of AlliedSignal's Automotive Products Group
in 1997, Mr. Summe served as President of Aerospace Engines from 1995 to 1997
and as President of General Aviation Avionics from 1993 to 1995. He was
previously general manager of commercial motors at General Electric from 1992 to
1993.
Mr. Alexander joined the Company in 1982. He was elected Corporate Controller in
1991, a title he retained when named a Vice President in 1995. He was elected
Chief Financial Officer and Senior Vice President in 1996.
Mr. Gross joined the Company in 1971. He was elected Assistant General Counsel
and Assistant Clerk in 1978, Vice President, General Counsel and Clerk in 1990,
and Senior Vice President in 1996.
Mr. Castellana joined the Company in 1965. He was elected a Vice President in
1991, a Senior Vice President in 1997, and serves as a principal executive in
the Office of the Chief Operating Officer.
Dr. Datta joined the Company in 1985 as Director of R&D for the Mechanical
Components Group and was elected Vice President of EG&G Sealol, Inc. in 1989.
For the last five years he has managed internal development efforts for the
Company. He was elected Vice President and Chief Technology Officer of the
Company in 1997.
Ms. Lorenz joined the Company in 1990. She was elected a Vice President in 1992
and is responsible for Investor Relations and Corporate Communications.
Dr. Peters joined the Company in 1968. He was elected a Vice President in 1987
and is responsible for Planning.
Mr. Theodores joined the Company in 1986. He was Director of Corporate New
Business Development from 1992 until being elected a Vice President in 1996 and
is responsible for Business Development.
Mr. Heaney joined the Company in 1980, serving as Manager of Financial Analysis,
Controller of the Technical Services segment from 1989 to 1994 and Director of
Economic Value Added Implementation in 1994-5. He was elected Treasurer in 1995.
Mr. Ribaudo joined the Company in 1996 as Controller. He had been associated
with Arthur Andersen LLP since 1982, and was elected a partner of that firm in
1994.
-12-
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
<TABLE>
<CAPTION>
1996 Quarters
-------------
First Second Third Fourth
------ ------ ------ ------
<S> <C> <C> <C> <C>
High $25.13 $23.50 $21.38 $21.13
Low 20.38 19.88 16.88 16.25
</TABLE>
<TABLE>
<CAPTION>
1997 Quarters
-------------
First Second Third Fourth
------ ------ ------ ------
<S> <C> <C> <C> <C>
High $24.63 $21.13 $22.63 $23.00
Low 19.63 18.13 18.75 18.00
</TABLE>
DIVIDENDS
<TABLE>
<CAPTION>
1996 Quarters
-------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Cash Dividends
Per Common Share $ .14 $ .14 $ .14 $ .14
</TABLE>
<TABLE>
<CAPTION>
1997 Quarters
-------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Cash Dividends
Per Common Share $ .14 $ .14 $ .14 $ .14
</TABLE>
The Company's common stock is listed and traded on the New York Stock Exchange.
The number of holders of record of the Company's common stock as of February 20,
1998, was approximately 10,300.
In October 1997, the Board of Directors of the Company declared a regular
quarterly cash dividend of fourteen cents per share of common stock. The
quarterly cash dividend was paid on February 6, 1998, to stockholders of record
at the close of business on January 16, 1998.
-13-
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL INFORMATION
For the Five Years Ended December 28, 1997
<TABLE>
<CAPTION>
(In thousands where applicable) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Sales $ 1,460,805 $ 1,427,252 $ 1,419,578 $ 1,332,556 $ 1,319,416
Operating income (loss) from
continuing operations 59,598 (1) 87,630 82,673 (10,947)(3) 87,484
Income (loss) from continuing operations 30,645 (1) 54,480 54,304 (32,107) 54,622
Income from discontinued operations,
net of income taxes 3,047 5,676 13,736 26,452 24,949
Income (loss) before cumulative effect of
accounting changes 33,692 (1) 60,156 68,040 (5,655) 79,571
Net income (loss) 33,692 (1) 60,156 68,040 (5,655) 59,071(5)
Basic and diluted earnings (loss) per share:
Continuing operations .67 (1) 1.15 1.05 (.58) .97
Discontinued operations .07 .12 .27 .48 .44
Income (loss) before cumulative effect of
accounting changes .74 (1) 1.27 1.32 (.10) 1.41
Net income (loss) .74 (1) 1.27 1.32 (.10) 1.05(5)
Return on equity 9.7% (2) 16.4% 16.8% (1.2)% (4) 12.4%(6)
Weighted-average common shares
outstanding:
Basic 45,757 47,298 51,483 55,271 56,504
Diluted 45,898 47,472 51,573 55,324 56,625
FINANCIAL POSITION:
Working capital $ 202,571 $ 194,915 $ 218,235 $ 199,656 $ 227,935
Current ratio 1.71:1 1.75:1 1.87:1 1.71:1 1.98:1
Total assets 832,103 822,900 803,915 793,129 764,887
Short-term debt 46,167 21,499 5,275 59,988 43,589
Long-term debt 114,863 115,104 115,222 812 1,450
Long-term liabilities 103,237 82,894 71,296 65,129 52,727
Stockholders' equity 328,388 365,106 366,946 445,366 477,534
- -Per share 7.24 7.88 7.71 8.08 8.51
Total debt/total capital 33% 27% 25% 12% 9%
Common shares outstanding 45,333 46,309 47,610 55,124 56,131
OTHER DATA:
Cash flows from continuing operations $ 32,142 $ 73,238 $ 123,831 $ 70,341 $ 76,217
Cash flows from discontinued operations 2,696 6,920 26,334 25,542 35,920
Cash flows from operating activities 34,838 80,158 150,165 95,883 112,137
Depreciation and amortization 44,612 40,936 39,426 36,790 37,842
Capital expenditures 48,729 80,490 61,839 37,277 27,860
Reimbursement of invested capital 27,000 -- -- -- --
Proceeds from dispositions 24,287 1,744 15,238 2,872 9,503
Purchases of common stock 28,104 30,670 135,079 19,139 45,019
Cash dividends per common share .56 .56 .56 .56 .52
</TABLE>
(1) Included an asset impairment charge of $28.2 million, $23.5 million
after-tax ($.51 earnings per share).
(2) Return on equity before effect of asset impairment charge was 16.0%.
(3) Included a goodwill write-down of $40.3 million and restructuring charges of
$30.4 million.
(4) Return on equity before effect of goodwill write-down and restructuring
charges was 11.8%.
(5) Included one-time after-tax charges of $20.5 million, or $.36 per share, due
to adoption of SFAS Nos. 106 and 109.
(6) Return on equity before cumulative effect of accounting changes was 16.4%.
-14-
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
In 1997, the transformation of the Company continued. Progress was made in a
number of growth areas and new products were introduced. The Company continued
the 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 divisions around
common technology, manufacturing processes and markets. As part of this program,
since November 1996 all division managers report directly to corporate,
eliminating a management layer. The Company is entering 1998 with fifteen
operating divisions compared to forty operating divisions in 1994. The
realignment includes the divestiture of businesses serving markets that do not
meet our growth criteria or strategic direction. The resulting gains from these
divestitures in 1997 allowed the Company to fund improvements and accelerate
investments in its remaining divisions, which included planned costs in
connection with the consolidation and restructuring initiatives. In 1998, the
Company will use the proceeds from two divestitures to: accelerate some
consolidation programs; invest in acquisitions in strategic growth areas and
replace the revenue lost through divestitures; invest in information technology;
and continue the stock purchase program. The withdrawal from the Department of
Energy (DOE) Support business was finalized during 1997 as the last contract
expired. During 1997, the Company formed an exclusive partnership with GE
Medical Systems to manufacture a first-of-its-kind filmless multipurpose digital
X-ray detector for high-end medical applications. New medical products were
introduced in 1997, and automotive testing services were expanded.
1997 COMPARED TO 1996
Sales from continuing operations increased 2% in 1997 compared to 1996.
Excluding the effects of currency translation and completed 1997 divestitures,
sales increased 5%. Operating income from continuing operations was $59.6
million in 1997 and included a $28.2 million non-cash asset impairment charge,
primarily associated with the IC Sensors business. The after-tax effect of this
charge was $23.5 million ($.51 loss per share). Excluding the asset impairment
charge, operating income in 1997 was $87.8 million, approximately equal to the
prior year. The 1997 operating income included gains of $10.6 million from the
divestitures of businesses in the Instruments and Mechanical Components
segments. These gains were offset by planned costs of $8.2 million incurred in
connection with the consolidation and restructuring initiatives and a charge of
$2.8 million resulting from a cash deficit in an employee benefit plan. The
gains and costs were included in selling, general and administrative expenses.
Research and development expenses were $44.9 million in 1997, an increase of
$2.1 million over the 1996 level.
1996 COMPARED TO 1995
Sales from continuing operations increased 1% in 1996 compared to 1995,
reflecting a growth in product sales of 8% and a decrease in Technical Services
sales. Operating income from continuing operations increased 6% in 1996 compared
to 1995. The improvement reflected the impact of higher sales in the Instruments
and Mechanical Components segments and lower costs resulting from the Company's
1994 restructuring plan. Partially offsetting these increases in operating
income were decreases in Optoelectronics caused by significant operational
problems resulting in a loss in the micromachined sensors business and decreases
in Technical Services caused by lower automotive testing services and the
completion of two contracts in 1995. Cost savings under the 1994 restructuring
plan totaled $26 million in 1996, which represents an $11 million increase over
the savings achieved in 1995. Capital expenditures increased 30% in 1996 to $80
million, and outlays for research and development were $43 million. The
Company's program to reduce working capital and to dispose of nonstrategic
assets continued in 1996 with cumulative reductions of over $85 million since
its inception in 1994. Key measures of effectiveness of working capital
management, Days Sales Outstanding and Inventory Turns, improved by 2% and 9%,
respectively, in 1996.
RESULTS OF OPERATIONS
The discussion that follows is a summary analysis of the major changes by
industry segment.
-15-
<PAGE> 16
INSTRUMENTS
1997 COMPARED TO 1996
Instruments sales decreased $15.1 million. Excluding the effects of the stronger
U.S. dollar on non-U.S. dollar denominated sales ($13.7 million currency
translation) and the divestiture of two businesses ($11.1 million), sales
increased $9.7 million. The increase was mainly due to sales of a new medical
research instrument and consumables related to the placement of an increasing
number of diagnostic instruments. These increases were partially offset by
decreases caused by reduced European government funding in the research area and
delays in product improvements. Operating income decreased $1.4 million. The
Instruments results included gains of $6.3 million on the divestiture of two
businesses and a $3.4 million net reduction in patent infringement costs. These
increases were partially offset by restructuring and integration costs of $2.9
million, the absence of income ($1.1 million) from the expiration of a grant
liability in 1996 and loss of divested businesses' income of $1.8 million.
Excluding these items, Instruments income decreased $5.4 million as a result of
start-up costs and difficulties resulting from geographic expansion of medical
distribution organizations, price reductions due to continued competitive
pressure on conventional explosives-detection systems and lower sales
experienced by some businesses. These decreases were partially offset by the
income earned on the higher sales of medical research instruments and
consumables. The Berthold business, while profitable, performed below
expectations and its progress is being reviewed.
1996 COMPARED TO 1995
The $28.1 million sales increase resulted mainly from higher demand for
explosives-detection systems, primarily from U.S. government facilities, and
from diagnostic and medical research products. These increases were partially
offset by decreases totaling $12 million, which resulted from the effect of
changes in foreign exchange rates and the divestiture of two product lines in
1995. Operating income was 11.3% of sales in 1996 compared to 5.8% in 1995.
Operating income increased $19.3 million, primarily from improved margins on
higher sales. Also contributing, to a lesser extent, were manufacturing and
engineering process improvements, lower costs resulting from the restructuring
plan, lower inventory provisions due to improved inventory management, the
favorable impact of changes in foreign exchange rates, income from the
expiration of a grant liability and a 1995 provision for additional cost
reductions. A $4.2 million provision for a 1996 patent infringement settlement
and increased management incentive accruals partially offset these increases. As
a part of the settlement, the Company entered into a royalty agreement covering
future sales.
MECHANICAL COMPONENTS
1997 COMPARED TO 1996
Sales increased $16.3 million (6%) due to higher demand for aerospace products,
reflecting continued strength in that market, new products and higher demand for
electromechanical products. These increases were partially offset by lower sales
resulting from the divestiture of a business. Income increased $7.7 million as
the result of the gain of $4.3 million on the divestiture, income on higher
sales and improved contract margin. These increases were partially offset by
costs associated with the consolidation and relocation of manufacturing
facilities and warranty costs. The ducting business, while profitable, continued
to perform below expectations.
As part of its strategy to focus resources upon larger business units better
positioned to take advantage of growing demand, the Company sold its Rotron
division in January 1998 for $103 million. Rotron's 1997 sales were $70 million
and its operating income was $11.9 million ($.16 earnings per share). In
December of 1997, the Company entered into an agreement to sell its Sealol
Industrial Seals division to TI Group, plc. for $100 million, while
simultaneously purchasing TI Group's Belfab division for $45 million. Belfab's
1997 sales were $30 million. Subject to regulatory and other approvals, these
transactions are expected to close in the first half of 1998. Sealol Industrial
Seals division's 1997 sales were $88 million and its operating income was $11.4
million ($.21 earnings per share). The Company expects to realize after-tax
gains of approximately $90 million from these divestitures.
1996 COMPARED TO 1995
Higher demand for aerospace, electromechanical and industrial process sealing
products resulted in 11% sales growth. The 7% increase in operating income
resulted from the margin on higher sales and lower costs from the restructuring
plan, partially offset by provisions for projected excess contract costs and
warranty repairs.
-16-
<PAGE> 17
OPTOELECTRONICS
1997 COMPARED TO 1996
Sales decreased $8.2 million due to loss of market share to a competitor's lower
cost automotive accelerometers, the effects of currency translation and the
completion of contracts in 1996 in the camera and power supplies businesses.
These decreases were partially offset by the sales resulting from the
introduction of new thermopile products. The $29.4 million decrease in income
resulted primarily from the non-cash asset impairment charge of $26.7 million.
Excluding the impairment charge, operating income decreased $2.7 million as a
result of lower sales, higher operating losses at IC Sensors and higher
development costs for the advanced micromachined sensors technology. Products
incorporating the advanced micromachined sensors technology have been delivered
to key customers for evaluation. Market acceptance and technical feasibility are
expected to be determined in the first quarter of 1998. The 1997 cost of the
development effort for the amorphous silicon project continued at the $4.5
million level, while the development effort for the advanced micromachined
sensor technology cost $5.3 million.
IC SENSORS ASSET IMPAIRMENT CHARGE
As a result of IC Sensors' inability to achieve the improvements specified in
its corrective action plan including new product orders, improved manufacturing
yields, cost reductions and attraction and retention of critical personnel, it
continued operating at a loss in the second quarter of 1997, triggering an
impairment review of its long-lived assets. A revised operating plan was
developed to restructure and stabilize the business. The revised projections by
product line provided the basis for measurement of the asset impairment charge.
Accordingly, the Company recorded an impairment charge of $26.7 million in the
second quarter for a write-down of goodwill of $13.6 million and fixed assets of
$13.1 million. The after-tax effect of this charge was $22 million ($.48 loss
per share). The impairment charge reduces future depreciation and amortization
by approximately $3 million annually. For 1997, IC Sensors lost $7.5 million,
excluding the asset impairment charge. IC Sensors' performance in the second
half of 1997 was consistent with its revised operating plan. The Company
continues to evaluate performance against the revised operating plan and will
continue to monitor the realizability of the remaining assets if the operation
fails to meet this plan.
1996 COMPARED TO 1995
Sales of new imaging products and higher demand for detectors and accelerometers
for the automotive market, partially offset by decreases caused by lower power
supplies sales and the divestiture of a product line in 1995, resulted in an
increase of $10.2 million. Operating income decreased $7.1 million as
significant operational problems resulted in a loss in the micromachined sensors
business, which had sales of $37 million. To a lesser extent, lower sales and
projected excess contract costs in the power supplies business contributed to
the decrease. Partially offsetting these decreases were the margin on the sales
of new imaging products and lower costs resulting from the restructuring plan.
The 1996 impact of the development effort for the amorphous silicon project
continued at the $5 million level.
TECHNICAL SERVICES
1997 COMPARED TO 1996
Sales increased $40.6 million (7%), primarily reflecting final shipments under a
contract for the development and installation of communication systems ($20
million), higher automotive testing sales ($10.9 million) due primarily to the
start-up of the new light-truck structural testing facility, and higher billings
under government contracts. After a goodwill write-down of $1.5 million related
to the environmental services business, operating income increased $2.4 million.
Excluding the goodwill write-down, operating income increased $3.9 million
primarily due to higher sales levels.
Future performance could be affected by the NASA and Air Force decision to
consolidate and recompete the base operations contracts at the Kennedy Space
Center, Cape Canaveral Air Station and certain functions at Patrick Air Force
Base in an effort to eliminate duplication and reduce costs. It is anticipated
that the resultant contract would be effective October 1, 1998. The Company is
participating in the recompetition for the new contract as part of a joint
venture with Johnson Controls. The NASA contract at the Kennedy Space Center
contributed sales of $168 million in 1997.
1996 COMPARED TO 1995
The $57.8 million sales reduction was mainly the result of the absence in 1996
of the billings under two large contracts. Also contributing to the reduction
was a decrease in sales of the automotive operations, primarily due to
continuing lower
-17-
<PAGE> 18
demand for stationary testing services caused by customers' budget constraints
and mature testing specifications, and completion of a lubricant testing
contract at the end of the first quarter of 1996. The $14 million operating
income reduction was the result of the sales reductions, partially offset by the
recognition of a productivity incentive fee on the Kennedy Space Center contract
and the 1995 estimated provision for a legal judgment.
GENERAL CORPORATE EXPENSES
1997 COMPARED TO 1996
The $7.3 million increase was primarily due to a $2.8 million charge resulting
from a cash deficit in an employee benefit plan, $2.6 million in costs
associated with restructuring and realignment, and costs of new program
initiatives.
1996 COMPARED TO 1995
The $4.8 million decrease was primarily due to lower costs resulting from the
restructuring plan and management incentive accruals.
OTHER
1997 COMPARED TO 1996
The $1.7 million net decrease in other expense was mainly due to a $3.4 million
reimbursement relating to a joint development program, which was partially
offset by lower interest income. The 1997 effective tax rate of 43.3% was
significantly affected by the non-deductible goodwill write-down of IC Sensors
and the Environmental Services divisions. Excluding the impairment charge, the
effective tax rate for 1997 was 34.1% compared to 32.2% in 1996. The increase in
the rate was primarily due to changes in the geographical distribution of
income. The 1998 effective tax rate may increase to approximately 36% as a
result of changes in the geographical distribution of income due to
divestitures.
1996 COMPARED TO 1995
The $10.7 million net increase in other expense was due to higher interest
expense reflecting the issuance of $115 million of ten-year notes in October
1995 and lower gains on the disposition of nonstrategic assets. The effective
tax rate of 32.2% for 1996 was lower than the 36.9% rate in 1995 primarily due
to changes in the geographical distribution of income.
DISCONTINUED OPERATIONS
1997 COMPARED TO 1996
The decrease in income from discontinued operations, net of income taxes,
reflected the expiration in September 1997 of the Mound contract, which was the
Company's last management and operations contract with the DOE. The Company is
in the process of negotiating contract closeouts and does not anticipate
incurring a material loss in excess of previously established reserves.
1996 COMPARED TO 1995
The decrease in income from discontinued operations, net of income taxes,
reflected the expiration of the Rocky Flats and Nevada Test Site contracts in
1995.
ENVIRONMENTAL
The Company is conducting a number of environmental investigations and remedial
actions at current and former Company locations and, along with other companies,
has been named a potentially responsible party for certain waste disposal sites.
The Company accrues for environmental issues in the accounting period that the
Company's responsibility is established and when the cost can be reasonably
estimated. As of December 28, 1997, the Company had an accrual of $5.7 million
to reflect its estimated liability for environmental remediation. As assessments
and remediation activities progress at each individual site, these liabilities
are reviewed and adjusted to reflect additional information as it becomes
available. There have been no environmental problems to date that have had or
are expected to have a material effect on the Company's financial position or
results of operations. While it is reasonably possible that a material loss
exceeding the amounts recorded may be incurred, the preliminary stages of the
investigations make it impossible for the
-18-
<PAGE> 19
Company to reasonably estimate the range of potential exposure. During 1997, the
Company adopted the provisions of Statement of Position 96-1, Environmental
Remediation Liabilities. Its adoption did not have a material effect on results
of operations.
FINANCIAL CONDITION
The Company's cash and cash equivalents increased $10.1 million in 1997 while
commercial paper borrowings increased $27.9 million. Net cash provided by
continuing operations was $32.1 million in 1997, $73.2 million in 1996 and
$123.8 million in 1995. The net cash provided by continuing operations was lower
in 1997 compared to 1996 primarily as a result of a greater increase in accounts
receivable and higher funding of the U.S. pension and postretirement medical
benefit plans. The accounts receivable increase was mainly the result of higher
sales across all segments. The net cash provided by continuing operations was
lower in 1996 compared to 1995 primarily as a result of increases in accounts
receivable and inventories in 1996 compared to decreases in 1995. The accounts
receivable increase was mainly caused by higher sales in the product segments.
Inventory levels increased primarily for anticipated sales.
Capital expenditures were $48.7 million in 1997, a decrease of $31.8 million
from the 1996 level, and are expected to increase to $60-70 million in 1998.
These expenditures support new product development initiatives throughout the
Company, including the amorphous silicon and micromachined sensor programs. In
1997, the Company received a $30 million payment related to a joint development
program for the amorphous silicon project, of which $27 million constituted
reimbursement for previously invested capital. During 1997, the Company had
proceeds of $23 million from the sale of three businesses in the Instruments and
Mechanical Components segments. The Company expects to realize gross proceeds of
$203 million in 1998 from the sale of Rotron and the expected sale of the Sealol
Industrial Seals division, of which $45 million will be used to purchase TI
Group's Belfab division. The remaining proceeds will be used to: accelerate some
consolidation programs; invest in acquisitions in strategic growth areas and
replace the revenue lost through divestitures; invest in information technology;
and continue our stock purchase program.
In 1995, the Company issued $115 million of unsecured ten-year notes, of a total
$150 million authorized, at an interest rate of 6.8%. The unissued notes of $35
million are covered by a shelf registration statement. The proceeds were used to
pay off commercial paper borrowings that were used mainly to finance purchases
of the Company's common stock. The Company has two revolving credit agreements
totaling $200 million, which were extended for one year in 1997. These
agreements consist of a $100 million, 364-day facility, which was extended in
March 1998 to March 1999, and a $100 million facility, which expires in March
2002. The Company did not draw down either of these credit facilities during
1997.
During 1997, the Company purchased 1.3 million shares of its common stock
through periodic purchases on the open market at a cost of $28 million. As of
December 28, 1997, the Company had authorization to purchase 2.8 million
additional shares and, subject to market conditions, plans to increase its level
of purchases in 1998.
The Company has limited involvement with derivative financial instruments and
uses forward contracts to mitigate the effect of foreign currency movements on
transactions denominated in foreign currencies. The contracts generally have
maturities that do not exceed one month and have no cash requirements until
maturity. Credit risk and market risk are minimal because the contracts are with
very large banks and gains and losses are offset against foreign exchange gains
and losses on the underlying hedged transactions. The notional amount of
outstanding forward contracts was $75.8 million as of December 28, 1997.
During 1997, the economic and financial crisis in portions of Asia did not have
a material effect on the Company's results of operations or financial position.
Sales into and exported from the region, as well as net assets in the region,
are not material.
Discontinued operations generated cash of $2.7 million in 1997 compared to $6.9
million in 1996, reflecting the expiration of the Mound contract during 1997.
All contracts with the DOE are now completed. The Company is in the process of
negotiating contract closeouts and does not anticipate incurring a material loss
in excess of previously established reserves.
OTHER MATTERS
The Company utilizes software and related technologies throughout its business
that will be affected by the Year 2000 problem, which is common to most
corporations. The problem relates to the inability of microprocessors and data
dependent software to correctly handle the year 2000 and beyond. The Company is
addressing the effect of the Year
-19-
<PAGE> 20
2000 problem on its Enterprise Resource Planning systems as part of its overall
process improvement program and believes it will be able to modify or replace
its affected systems in time to minimize any detrimental effects on operations.
Based on current plans, the Company expects that such costs will not be material
to the Company's results of operations in any year and will not have a material
adverse impact on the liquidity or financial position of the Company.
DIVIDENDS
In January 1998, the Board of Directors declared a regular quarterly cash
dividend of 14 cents per share, resulting in an annual rate of 56 cents per
share for 1998. EG&G has paid cash dividends, without interruption, for 33 years
and continues to retain what management believes to be sufficient earnings to
support the funding requirements of its planned growth.
FORWARD-LOOKING INFORMATION
All statements contained herein that refer to a time after December 28, 1997,
including the words will, will be, estimated to be, could be, expect, believe,
will continue, expected to, and plan, or statements referring to goals, the
future or future actions, continuing actions, trends, strategies, initiatives,
challenges or opportunities, or which otherwise are not purely historical, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve risks and uncertainties. There are a
number of important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements, including the factors
set forth below.
FACTORS AFFECTING FUTURE PERFORMANCE
In the Instruments, Mechanical Components and Optoelectronics industry segments,
future performance will be highly dependent on the technological success, market
acceptance, competitive position of our businesses, product performance and
ability to reach cost targets 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 pressures in many of the Company's product offerings. Other factors that
may impact future earnings performance include the absence of sales and earnings
contributed by divestitures, potential issues related to economic and financial
difficulties arising in Asia and difficulty in attracting and retaining key
personnel in certain areas. The future results of the Optoelectronics segment
are also dependent on management's ability to restore IC Sensors to break-even
in the near term, 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, the Company operates in a highly competitive
procurement environment in the automotive testing and government services
businesses. The automotive testing business is dependent on the success of its
new marketing initiatives. The income generated by many of our government
contracts is dependent on performance criteria. In accordance with government
regulations, all of the Company's government contracts are subject to
termination for the convenience of the government. NASA and the Air Force have
decided to consolidate and recompete the base operations contracts at the
Kennedy Space Center, Cape Canaveral Air Station and certain functions at
Patrick Air Force Base in an effort to eliminate duplication and reduce costs.
It is anticipated that any resultant contract would be effective October 1,
1998. The Company is participating in the recompetition for the new contract as
part of a joint venture with Johnson Controls.
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 non-U.S. net operating loss
carryforwards, repatriation costs, resolution of outstanding tax audit issues
and changes in the portfolio of businesses.
-20-
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CONSOLIDATED BALANCE SHEET
As of December 28, 1997 and December 29, 1996
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 57,934 $ 47,846
Accounts receivable (Note 2) 243,963 222,856
Inventories (Note 3) 112,875 119,558
Other current assets (Note 11) 73,414 64,451
--------- ---------
TOTAL CURRENT ASSETS 488,186 454,711
--------- ---------
Property, Plant and Equipment:
At cost (Notes 4 and 7) 482,382 480,858
Accumulated depreciation and amortization (301,239) (288,808)
--------- ---------
Net Property, Plant and Equipment 181,143 192,050
--------- ---------
Investments (Note 5) 16,730 16,839
Intangible Assets (Notes 6 and 7) 79,257 110,368
Other Assets (Notes 10 and 11) 66,787 48,932
--------- ---------
TOTAL ASSETS $ 832,103 $ 822,900
========= =========
Current Liabilities:
Short-term debt (Note 8) $ 46,167 $ 21,499
Accounts payable 73,360 75,749
Accrued expenses (Note 9) 166,088 162,548
--------- ---------
TOTAL CURRENT LIABILITIES 285,615 259,796
--------- ---------
Long-Term Debt (Note 8) 114,863 115,104
Long-Term Liabilities (Notes 10, 11 and 12) 103,237 82,894
Contingencies (Note 13)
Stockholders' Equity (Note 15):
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 540,379 532,043
Cumulative translation adjustments (4,380) 18,228
Net unrealized gain on marketable investments (Note 5) 523 1,204
Cost of shares held in treasury; 14,769,000 shares in 1997 and 13,792,000 shares in 1996 (268,236) (246,471)
--------- ---------
Total Stockholders' Equity 328,388 365,106
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 832,103 $ 822,900
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-21-
<PAGE> 22
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Years Ended December 28, 1997
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Products $ 860,598 $ 867,623 $ 802,187
Services 600,207 559,629 617,391
----------- ----------- -----------
TOTAL SALES 1,460,805 1,427,252 1,419,578
----------- ----------- -----------
Costs and Expenses:
Cost of sales:
Products 553,551 547,504 512,970
Services 531,140 501,239 539,076
----------- ----------- -----------
Total cost of sales 1,084,691 1,048,743 1,052,046
Research and development expenses 44,907 42,841 42,379
Selling, general and administrative expenses 243,409 248,038 242,480
Asset impairment charge (Note 7) 28,200 -- --
----------- ----------- -----------
Total Costs and Expenses 1,401,207 1,339,622 1,336,905
----------- ----------- -----------
OPERATING INCOME FROM CONTINUING OPERATIONS 59,598 87,630 82,673
Other Income (Expense), Net (Note 18) (5,572) (7,276) 3,386
----------- ----------- -----------
Income From Continuing Operations
Before Income Taxes 54,026 80,354 86,059
Provision for Income Taxes (Note 11) 23,381 25,874 31,755
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 30,645 54,480 54,304
Income From Discontinued Operations,
Net of Income Taxes (Note 19) 3,047 5,676 13,736
----------- ----------- -----------
NET INCOME $ 33,692 $ 60,156 $ 68,040
=========== =========== ===========
Basic and Diluted Earnings Per Share (Note 20):
CONTINUING OPERATIONS $ .67 $ 1.15 $ 1.05
Discontinued Operations .07 .12 .27
----------- ----------- -----------
NET INCOME $ .74 $ 1.27 $ 1.32
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-22-
<PAGE> 23
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Years Ended December 28, 1997
<TABLE>
<CAPTION>
Net
Unrealized
Cumulative Gain on Cost of Total
(Dollars in thousands Common Retained Translation Marketable Shares Held Stockholders'
except per share data) Stock Earnings Adjustments Investments in Treasury Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 60,102 $ 459,738 $ 10,785 $ 3,337 $ (88,596) $ 445,366
Net income -- 68,040 -- -- -- 68,040
Cash dividends ($.56 per share) -- (29,293) -- -- -- (29,293)
Exercise of employee stock options
and related income tax benefits -- 246 -- -- 3,415 3,661
Translation adjustments -- -- 17,894 -- -- 17,894
Purchase of common stock for treasury -- -- -- -- (135,079) (135,079)
Change in net unrealized gain on
marketable investments -- -- -- (3,093) -- (3,093)
Redemption of shareholder rights -- (550) -- -- -- (550)
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1995 60,102 498,181 28,679 244 (220,260) 366,946
Net income -- 60,156 -- -- -- 60,156
Cash dividends ($.56 per share) -- (26,589) -- -- -- (26,589)
Exercise of employee stock options
and related income tax benefits -- 295 -- -- 4,549 4,844
Translation adjustments -- -- (10,451) -- -- (10,451)
Purchase of common stock for treasury -- -- -- -- (30,760) (30,760)
Change in net unrealized gain on
marketable investments -- -- -- 960 -- 960
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 29, 1996 60,102 532,043 18,228 1,204 (246,471) 365,106
Net income -- 33,692 -- -- -- 33,692
Cash dividends ($.56 per share) -- (25,684) -- -- -- (25,684)
Exercise of employee stock options
and related income tax benefits -- 328 -- -- 6,339 6,667
Translation adjustments -- -- (22,608) -- -- (22,608)
Purchase of common stock for treasury -- -- -- -- (28,104) (28,104)
Change in net unrealized gain on
marketable investments -- -- -- (681) -- (681)
--------- --------- --------- --------- --------- ---------
BALANCE, DECEMBER 28, 1997 $ 60,102 $ 540,379 $ (4,380) $ 523 $(268,236) $ 328,388
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-23-
<PAGE> 24
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Years Ended December 28, 1997
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows Provided by Operating Activities:
Net income $ 33,692 $ 60,156 $ 68,040
Deduct net income from discontinued operations (3,047) (5,676) (13,736)
-------- -------- ---------
Income from continuing operations 30,645 54,480 54,304
Adjustments to reconcile income from continuing operations
to net cash provided by continuing operations:
Asset impairment charge 28,200 -- --
Depreciation and amortization 44,612 40,936 39,426
Gains on dispositions and investments, net (11,713) (1,714) (5,442)
Changes in assets and liabilities, net of effects from
companies purchased and divested:
Decrease (increase) in accounts receivable (35,945) (11,781) 17,535
Decrease (increase) in inventories 725 (6,659) 12,106
Increase in accounts payable 327 3,469 6,087
Decrease in accrued restructuring costs (1,033) (3,455) (17,522)
Increase (decrease) in accrued expenses 8,726 (718) 27,609
Increase in noncurrent prepaid pension (10,040) (2,876) (8,041)
Change in prepaid and deferred taxes (4,315) 8,793 (3,712)
Change in prepaid expenses and other (18,047) (7,237) 1,481
-------- -------- ---------
Net Cash Provided by Continuing Operations 32,142 73,238 123,831
Net Cash Provided by Discontinued Operations 2,696 6,920 26,334
-------- -------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,838 80,158 150,165
-------- -------- ---------
Cash Flows Provided by (Used in) Investing Activities:
Capital expenditures (48,729) (80,490) (61,839)
Reimbursement of invested capital (Note 12) 27,000 -- --
Proceeds from dispositions of businesses and sales
of property, plant and equipment 24,287 1,744 15,238
Cost of acquisitions, net of cash and cash equivalents acquired (3,611) -- --
Proceeds from sales of investment securities 4,129 9,447 10,584
Other (1,156) (2,000) (2,754)
-------- -------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,920 (71,299) (38,771)
-------- -------- ---------
Cash Flows Used in Financing Activities:
Increase (decrease) in commercial paper 27,879 17,965 (49,814)
Other debt payments (3,443) (1,959) (5,607)
Proceeds from issuance of long-term debt -- -- 115,000
Proceeds from issuance of common stock 6,667 4,844 3,661
Purchases of common stock (28,104) (30,760) (135,079)
Cash dividends (25,684) (26,589) (29,293)
Other -- -- (1,763)
-------- -------- ---------
NET CASH USED IN FINANCING ACTIVITIES (22,685) (36,499) (102,895)
-------- -------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (3,985) (718) 1,281
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,088 (28,358) 9,780
Cash and Cash Equivalents at Beginning of Year 47,846 76,204 66,424
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 57,934 $ 47,846 $ 76,204
======== ======== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 12,351 $ 13,526 $ 7,271
Income taxes 26,683 35,678 23,380
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-24-
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: EG&G, Inc. is a global, diversified technology company
that provides optoelectronic, mechanical and electromechanical components and
instruments to manufacturers and end-user customers in aerospace, automotive,
environmental, industrial, medical, photography, security and other markets. The
Company also delivers technical and managerial support services to government
and industrial customers. The Company's industry segments are Instruments,
Mechanical Components, Optoelectronics and Technical Services. Based on sales,
Technical Services is the largest segment, representing approximately 40% of the
Company's sales; each of the other segments accounts for approximately 20% of
sales. The Instruments segment develops and manufactures products for a wide
range of detection and measurement applications worldwide, ranging from medical
diagnostics and food monitoring to airport, cargo and industrial security. The
Mechanical Components segment designs and manufactures highly reliable,
high-performance seals and fluid containment and control products for aerospace,
semiconductor, power generation, chemical and petrochemical markets worldwide.
The Optoelectronics segment designs and manufactures optical and silicon
micromachined sensors, light sources and optoelectronic components for
industrial, consumer and medical applications worldwide and large-scale
amorphous silicon X-ray detectors. The Technical Services segment supplies
management, engineering, scientific, technical and operations support services
primarily to U.S. government agencies. The segment also provides analysis and
testing services to the petroleum and automotive industries worldwide.
Principles of Consolidation: The consolidated financial statements include the
accounts of EG&G, Inc. and its subsidiaries (the Company). All material
intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to conform prior years' data to the
current format.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Sales: Sales under cost-reimbursement contracts are recorded as costs are
incurred and include applicable income in the proportion that costs incurred
bear to total estimated costs. Other product and service sales are recorded at
the time of shipment for products and at the end of a contract phase for service
contracts. If a loss is anticipated on any contract, provision for the entire
loss is made immediately.
Inventories: Inventories, which include material, labor and manufacturing
overhead, are valued at the lower of cost or market. The majority of inventories
is accounted for using the first-in, first-out method; remaining inventories are
accounted for using the last-in, first-out (LIFO) method.
Property, Plant and Equipment: For financial statement purposes, the Company
depreciates plant and equipment using the straight-line method over their
estimated useful lives, which generally fall within the following ranges:
buildings and special-purpose structures -- 10 to 25 years; leasehold
improvements -- estimated useful life or remaining term of lease, whichever is
shorter; machinery and equipment -- 3 to 7 years; special-purpose equipment --
expensed or depreciated over the life of the initial related contract.
Nonrecurring tooling costs are capitalized, while recurring costs are expensed.
For income tax purposes, the Company depreciates plant and equipment over their
estimated useful lives using accelerated methods.
Pension Plans: The Company's funding policy provides that payments to the U.S.
pension trusts shall at least be equal to the minimum funding requirements of
the Employee Retirement Income Security Act of 1974. Non-U.S. plans are accrued
for, but generally not funded, and benefits are paid from operating funds.
Translation of Foreign Currencies: The balance sheet accounts of non-U.S.
operations, exclusive of stockholders' equity, are translated at year-end
exchange rates, and income statement accounts are translated at weighted-average
rates in effect during the year; any translation adjustments are made directly
to a component of stockholders' equity . The net transaction gains (losses) were
not material for the years presented.
Intangible Assets: Intangible assets result mainly from acquisitions accounted
for using the purchase method of accounting and include the excess of cost over
the fair market value of the net assets of the acquired businesses.
Substantially all of these intangible assets are being amortized over periods of
up to 20 years. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, the Company reviews long-lived assets and
the related intangible assets for impairment whenever events
-25-
<PAGE> 26
or changes in circumstances indicate the carrying amount of such assets may not
be recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which the assets
relate, to the carrying amount including associated intangible assets of such
operation. If the operation is determined to be unable to recover the carrying
amount of its assets, then intangible assets are written down first, followed by
the other long-lived assets of the operation, to fair value. Fair value is
determined based on discounted cash flows or appraised values, depending upon
the nature of the assets. (See Note 7 for discussion of the write-down that
occurred in 1997.)
Stock-Based Compensation: Effective January 1, 1996, the Company adopted the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The Company
has elected to continue to account for stock options at intrinsic value with
disclosure of the effects of fair value accounting on net income and earnings
per share on a pro forma basis.
Cash Flows: For purposes of the Consolidated Statement of Cash Flows, the
Company considers all highly liquid instruments with a purchased maturity of
three months or less to be cash equivalents. The carrying amount of cash and
cash equivalents approximates fair value due to the short maturities.
Environmental Matters: The Company accrues for costs associated with the
remediation of environmental pollution when it is probable that a liability has
been incurred and the Company's proportionate share of the amount can be
reasonably estimated. Any recorded liabilities have not been discounted.
Earnings Per Share: In the fourth quarter of 1997, the Company adopted the
provisions of 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.
While all prior-period EPS data presented are required to be restated, there was
no impact on previously reported EPS from adopting SFAS No. 128.
Other Accounting Pronouncements: The Financial Accounting Standards Board issued
two new statements in June 1997. SFAS No. 130, Reporting Comprehensive Income,
establishes standards for reporting and display of comprehensive income and its
components. SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, establishes standards for the way that public business
enterprises report information and operating segments in annual financial
statements and requires reporting of selected information in interim financial
reports. Both statements are effective for fiscal years beginning after December
15, 1997. The required disclosures for SFAS No. 130 will be included in the
Company's quarterly report on Form 10-Q for the first quarter of 1998. The
required disclosures for SFAS No. 131 will be included in the Company's 1998
annual report on Form 10-K.
2. ACCOUNTS RECEIVABLE
Accounts receivable as of December 28, 1997 and December 29, 1996 included
unbilled receivables of $48 million and $44 million, respectively, which were
due primarily from U.S. government agencies. Accounts receivable were net of
reserves for doubtful accounts of $4.8 million and $4.2 million as of December
28, 1997 and December 29, 1996, respectively.
3. INVENTORIES
Inventories as of December 28, 1997 and December 29, 1996 consisted of the
following:
(In thousands) 1997 1996
- ------------------------------------------------------------------
Finished goods $ 31,570 $ 31,436
Work in process 24,810 28,536
Raw materials 56,495 59,586
-------- --------
$112,875 $119,558
======== ========
The portion of inventories accounted for using the LIFO method of determining
inventory costs in 1997 and 1996 approximated 25% and 23%, respectively, of
total inventories. The excess of current cost of inventories over the LIFO value
was approximately $8 million as of December 28, 1997 and December 29, 1996.
-26-
<PAGE> 27
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, as of December 28, 1997 and December 29,
1996 consisted of the following:
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Land $ 12,712 $ 12,324
Buildings and leasehold improvements 114,698 123,575
Machinery and equipment 354,972 344,959
-------- --------
$482,382 $480,858
======== ========
Capital expenditures were $48.7 million in 1997 and were offset by dispositions
($19 million), the effect of translating assets denominated in non-U.S.
currencies at current exchange rates ($16 million) and the write-down associated
with the IC Sensors business ($13 million). (See Note 7 for discussion of the
write-down that occurred in 1997.)
5. INVESTMENTS
Investments as of December 28, 1997 and December 29, 1996 consisted of the
following:
(In thousands) 1997 1996
- -----------------------------------------------------------------------------
Marketable investments $11,197 $12,294
Joint venture investments 5,591 4,363
Other investments 343 558
------- -------
17,131 17,215
Investments classified as other current assets (401) (376)
------- -------
$16,730 $16,839
======= =======
Marketable investments consisted of common stocks and trust assets which were
primarily invested in common stocks and fixed-income securities to meet the
supplemental executive retirement plan obligation. The market values were based
on quoted market prices. As of December 28, 1997, the fixed-income securities,
on average, had maturities of approximately eight years. The net unrealized
holding gain on marketable investments, net of deferred income taxes, reported
as a separate component of stockholders' equity, was $0.5 million at December
28, 1997 and $1.2 million at December 29, 1996. In 1997, proceeds from sales of
available-for-sale securities were $1 million, which approximated average cost.
Marketable investments classified as available for sale as of December 28, 1997
and December 29, 1996 consisted of the following:
Gross Unrealized
Holding
Market --------------------
(In thousands) Value Cost Gains (Losses)
- -----------------------------------------------------------------------------
1997
Common stocks $ 7,521 $ 6,766 $1,017 $(262)
Fixed-income securities 3,543 3,495 48 --
Other 133 132 1 --
------- ------- ------ -----
$11,197 $10,393 $1,066 $(262)
======= ======= ====== =====
1996
Common stocks $ 9,347 $ 7,498 $2,050 $(201)
Fixed-income securities 2,712 2,710 2 --
Other 235 233 2 --
------- ------- ------ -----
$12,294 $10,441 $2,054 $(201)
======= ======= ====== =====
Joint venture investments are accounted for using the equity method.
-27-
<PAGE> 28
6. INTANGIBLE ASSETS
Intangible assets were shown net of accumulated amortization of $48.7 million
and $51.8 million as of December 28, 1997 and December 29, 1996, respectively.
The $31.1 million decrease in intangible assets resulted primarily from
write-downs associated with the IC Sensors and Environmental Services businesses
($15 million), the effect of translating goodwill denominated in non-U.S.
currencies at current exchange rates ($9 million) and current year amortization
($8 million).
7. 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, the
division continued operating at a loss in 1997, 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 of
1997, 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.
The Company also recorded a $1.5 million impairment charge in 1997 to write off
the goodwill of the Environmental Services division in the Technical Services
segment.
8. DEBT
Short-term debt at December 28, 1997 and December 29, 1996, consisted primarily
of commercial paper borrowings of $45.8 million and $18 million, respectively,
that had maturities of 30 days or less. The weighted-average interest rate on
commercial paper borrowings was 6.1% at December 28, 1997 and 6.2% at December
29, 1996. Commercial paper borrowings averaged $47 million during 1997 at an
average interest rate of 5.6%, compared to average borrowings of $28 million
during 1996 at an average interest rate of 5.4%.
During 1997, the Company renewed its credit facilities with the signing of two
revolving credit agreement extensions totaling $200 million. These agreements
consist of a $100 million, 364-day facility, which was extended in March 1998 to
March 1999, and a $100 million facility, which expires in March 2002. These
agreements serve as backup facilities for the commercial paper borrowings.
During 1997, the Company did not draw down either of these credit facilities,
and there are no significant commitment fees.
At December 28, 1997 and December 29, 1996, long-term debt included $115 million
of unsecured ten-year notes issued in October 1995 at an interest rate of 6.8%,
which mature in 2005. The total notes authorized were $150 million, and the
unissued notes of $35 million are covered by a shelf registration statement. The
carrying amount of the Company's long-term debt approximated the estimated fair
value at December 28, 1997 and December 29, 1996 based on a quoted market price.
9. ACCRUED EXPENSES
Accrued expenses as of December 28, 1997 and December 29, 1996 consisted of the
following:
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Payroll and incentives $ 24,473 $ 29,732
Employee benefits 48,936 44,845
Federal, non-U.S. and state income taxes 22,352 24,186
Other accrued operating expenses 70,327 63,785
-------- --------
$166,088 $162,548
======== ========
10. EMPLOYEE BENEFIT PLANS
Savings Plan: The Company has a savings plan for the benefit of qualified U.S.
employees. Under this plan, the Company contributes an amount equal to the
lesser of 55% of the amount of the employee's voluntary contribution or 3.3% of
the employee's annual compensation. Savings plan expense was $6.5 million in
1997, $5.8 million in 1996 and $5.7 million in 1995.
-28-
<PAGE> 29
Pension Plans: The Company has defined benefit pension plans covering
substantially all U.S. employees and non-U.S. pension plans for non-U.S.
employees. The plans provide benefits that are based on an employee's years of
service and compensation near retirement. Assets of the U.S. plan are composed
primarily of equity and debt securities.
Net periodic pension cost included the following components:
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Service cost-
benefits earned
during the period $ 9,081 $ 9,248 $ 9,073
Interest cost on
projected benefit
obligations 18,126 17,335 16,733
Actual return
on plan assets (43,630) (32,287) (42,992)
Net amortization
and deferral 21,599 13,116 24,310
-------- -------- --------
$ 5,176 $ 7,412 $ 7,124
======== ======== ========
The following table sets forth the funded status of the principal U.S. pension
plan and the principal non-U.S. pension plans and the amounts recognized in the
Company's Consolidated Balance Sheet as of December 28, 1997 and December 29,
1996:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------
(In thousands) Non-U.S. U.S. Non-U.S. U.S.
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations $22,748 $205,930 $25,119 $177,714
======= ======== ======= ========
Accumulated benefit obligations $23,706 $212,659 $26,163 $184,765
======= ======== ======= ========
Projected benefit obligations for service provided to date $27,912 $240,176 $31,663 $213,146
Plan assets at fair value -- 294,790 -- 249,431
------- -------- ------- --------
Plan assets less (greater) than projected benefit obligations 27,912 (54,614) 31,663 (36,285)
Unrecognized net transition asset -- 3,005 -- 3,756
Unrecognized prior service costs (1,162) (38) (1,380) 690
Unrecognized net gain 3,758 10,287 2,527 518
------- -------- ------- --------
Accrued pension liability (asset) $30,508 $(41,360) $32,810 $(31,321)
======= ======== ======= ========
Actuarial assumptions as of the year-end measurement date:
Discount rate 6.5% 7.0% 6.5% 7.5%
Rate of compensation increase 4.0% 4.5% 4.0% 5.0%
Long-term rate of return on assets -- 9.0% -- 9.5%
</TABLE>
The non-U.S. accrued pension liability included $30.2 million and $32.3 million
classified as long-term liabilities as of December 28, 1997 and December 29,
1996, respectively. The U.S. pension asset was classified as other noncurrent
assets.
The Company also sponsors a supplemental executive retirement plan to provide
senior management with benefits in excess of normal pension benefits. At
December 28, 1997 and December 29, 1996, the projected benefit obligations were
$11.9 million and $11.2 million, respectively. Assets with a fair value of $10.2
million and $9.1 million, segregated in a trust, were available to meet this
obligation as of December 28, 1997 and December 29, 1996, respectively. Pension
expense for this plan was approximately $1.3 million in 1997, and $1.5 million
in 1996 and 1995.
Postretirement Medical Plans: The Company provides health care benefits for
eligible retired U.S. employees under a comprehensive major medical plan or
under health maintenance organizations where available. The majority of the
Company's U.S. employees become eligible for retiree health benefits if they
retire directly from the Company and have at least ten years of service.
Generally, the major medical plan pays stated percentages of covered expenses
after a deductible is met and takes into consideration payments by other group
coverages and by Medicare. The plan requires retiree contributions under most
circumstances and has provisions for cost-sharing changes. For employees
retiring after 1991, the Company has capped its medical premium contribution
based on employees' years of service. The Company
-29-
<PAGE> 30
funds the amount allowable under a 401(h) provision in the Company's defined
benefit pension plan. Assets of the plan are composed primarily of equity and
debt securities.
Net periodic postretirement medical benefit cost (credit) included the following
components:
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Service cost-
benefits earned
during the period $ 317 $ 349 $ 391
Interest cost on
accumulated
benefit obligations 1,237 1,459 1,697
Actual return on
plan assets (1,592) (1,128) (1,001)
Net amortization
and deferral (360) 296 544
------- ------- -------
$ (398) $ 976 $ 1,631
======= ======= =======
The net credit in 1997 resulted from the amortization of previously unrecognized
gains.
The following table sets forth the plan's funded status and the amounts
recognized in the Company's Consolidated Balance Sheet at December 28, 1997 and
December 29, 1996:
(In thousands) 1997 1996
- -------------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligations:
Current retirees $11,448 $15,699
Active employees eligible to retire 565 563
Other active employees 5,032 4,848
------- -------
17,045 21,110
Plan assets at fair value 13,839 8,470
------- -------
Plan assets less than
accumulated benefit obligations 3,206 12,640
Unrecognized net gain 8,594 4,669
------- -------
Accrued postretirement
medical liability $11,800 $17,309
======= =======
Actuarial assumptions as of the
year-end measurement date:
Discount rate 7.0% 7.5%
Health care cost trend rate:
First year 10.0% 12.0%
Ultimate 5.5% 6.5%
Time to reach ultimate 6 years 7 years
Long-term rate of return on assets 9.0% 9.5%
The accrued postretirement medical liability included $11.3 million and $16.3
million classified as long-term liabilities as of December 28, 1997 and December
29, 1996, respectively.
If the health care cost trend rate was increased 1%, the accumulated
postretirement benefit obligations would have increased by approximately $0.8
million at December 28, 1997. The effect of this increase on the annual cost for
1997 would have been approximately $0.1 million.
Other: The Company has an EVA (R) Incentive Compensation Plan, the purpose of
which is to provide incentive compensation to certain key employees, including
all officers, in a form that relates the financial rewards to an increase in the
value of the Company to its shareholders. Awards under this plan are approved
annually by the Board of Directors. (EVA (R) is a registered trademark of Stern
Stewart & Co.)
-30-
<PAGE> 31
The preceding information does not include amounts related to benefit plans
applicable to employees associated with the NASA contract because the Company is
not responsible for the current or future funded status of the plans.
During 1997, the Company incurred a charge of $2.8 million resulting from a cash
deficit in an employee benefit plan.
11. INCOME TAXES
The components of income from continuing operations before income taxes for
financial reporting purposes were as follows:
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
U.S. $12,079 $36,235 $53,264
Non-U.S 41,947 44,119 32,795
------- ------- -------
$54,026 $80,354 $86,059
======= ======= =======
The components of the provision for income taxes for continuing operations were
as follows:
Deferred
(In thousands) Current (Prepaid) Total
- --------------------------------------------------------------------------------
1997
Federal $16,359 $(5,607) $10,752
State 3,527 (121) 3,406
Non-U.S 7,028 2,195 9,223
------- ------- -------
$26,914 $(3,533) $23,381
======= ======= =======
1996
Federal $ 4,209 $10,473 $14,682
State 3,653 135 3,788
Non-U.S 8,545 (1,141) 7,404
------- ------- -------
$16,407 $ 9,467 $25,874
======= ======= =======
1995
Federal $26,268 $(3,411) $22,857
State 3,572 (264) 3,308
Non-U.S 5,325 265 5,590
------- ------- -------
$35,165 $(3,410) $31,755
======= ======= =======
The total provision for income taxes included in the consolidated financial
statements was as follows:
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Continuing operations $23,381 $25,874 $31,755
Discontinued operations 1,640 3,056 7,397
------- ------- -------
$25,021 $28,930 $39,152
======= ======= =======
The major differences between the Company's effective tax rate for continuing
operations and the federal statutory rate were as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
Non-U.S. rate
differential, net (14.2) (10.1) (2.5)
State income taxes, net 4.1 3.1 2.5
Goodwill amortization 3.3 2.4 2.0
Goodwill write-downs 9.7 -- --
Increase (decrease) in
valuation allowance 5.5 (1.1) (2.3)
Other, net (0.1) 2.9 2.2
----- ----- ----
Effective tax rate 43.3% 32.2% 36.9%
===== ===== ====
-31-
<PAGE> 32
The 1997 tax provision and effective rate for continuing operations were
significantly impacted by the non-deductible goodwill write-downs of IC Sensors
and the Environmental Services division. Excluding the impairment charge, the
effective rate was 34.1% in 1997.
The tax effects of temporary differences and carryforwards which gave rise to
prepaid (deferred) income taxes as of December 28, 1997 and December 29, 1996
were as follows:
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Deferred tax assets:
Inventory reserves $ 5,569 $ 5,738
Other reserves 10,425 9,628
Reimbursement of invested capital 8,635 --
Vacation pay 6,958 6,200
Depreciation 1,701 3,869
Net operating loss carryforwards 32,113 32,088
Postretirement health benefits 4,373 5,077
Restructuring reserve 343 616
All other, net 26,116 25,230
-------- --------
Total deferred tax assets 96,233 88,446
-------- --------
Deferred tax liabilities:
Award and holdback fees (1,756) (3,814)
Pension contribution (12,837) (9,212)
Amortization (7,310) (8,113)
All other, net (15,514) (14,489)
-------- --------
Total deferred tax liabilities (37,417) (35,628)
-------- --------
Valuation allowance (25,626) (24,407)
-------- --------
Net prepaid taxes $ 33,190 $ 28,411
======== ========
At December 28, 1997, the Company had non-U.S. (primarily from Germany) net
operating loss carryforwards of $69.8 million, $0.9 million of which expire in
the years 1998 through 2001 and $68.9 million of which carry forward
indefinitely. The $25.6 million valuation allowance results primarily from these
carryforwards, for which the Company currently believes it is more likely than
not that they will not be realized.
Current prepaid income taxes of $44.3 million and $38.6 million were included in
other current assets at December 28, 1997 and December 29, 1996, respectively.
Long-term deferred income taxes of $11.1 million and $10.2 million were included
in long-term liabilities at December 28, 1997 and December 29, 1996,
respectively.
In general, it is the practice and intention of the Company to reinvest the
earnings of its non-U.S. subsidiaries in those operations. Repatriation of
retained earnings is done only when it is advantageous. Applicable federal taxes
are provided only on amounts planned to be remitted. Accumulated net earnings of
non-U.S. subsidiaries for which no federal taxes have been provided as of
December 28, 1997 were $90.1 million, which does not include amounts that, if
remitted, would result in little or no additional tax because of the
availability of U.S. tax credits for non-U.S. taxes. Federal taxes that would be
payable upon remittance of these earnings are estimated to be $27.8 million at
December 28, 1997.
12. REIMBURSEMENT OF INVESTED CAPITAL
In the third quarter of 1997, the Company received a $30.4 million payment as
part of the negotiation of a joint development contract. This payment
represented a $27 million reimbursement of previously invested capital, which
will be amortized to income over the estimated life of the related assets, and a
$3.4 million reimbursement of cost of capital, which was included in other
income. The reimbursement, net of accumulated amortization, included in
long-term liabilities was $24.7 million as of December 28, 1997.
13. CONTINGENCIES
The Company is subject to various investigations, claims and legal proceedings
covering a wide range of matters that arise in the ordinary course of its
business activities. Each of these matters is subject to various uncertainties,
and it is possible that some of these matters may be resolved unfavorably to the
Company. The Company has established accruals for matters that are probable and
reasonably estimable. Management believes that any liability that may
-32-
<PAGE> 33
ultimately result from the resolution of these matters in excess of amounts
provided will not have a material adverse effect on the financial position or
results of operations of the Company.
In addition, the Company is conducting a number of environmental investigations
and remedial actions at current and former Company locations and, along with
other companies, has been named a potentially responsible party for certain
waste disposal sites. The Company accrues for environmental issues in the
accounting period that the Company's responsibility is established and when the
cost can be reasonably estimated. The Company has accrued $5.7 million as of
December 28, 1997 to reflect its estimated liability for environmental
remediation. As assessments and remediation activities progress at each
individual site, these liabilities are reviewed and adjusted to reflect
additional information as it becomes available. There have been no environmental
problems to date that have had or are expected to have a material effect on the
Company's financial position or results of operations. While it is reasonably
possible that a material loss exceeding the amounts recorded may have been
incurred, the preliminary stages of the investigations make it impossible for
the Company to reasonably estimate the range of potential exposure.
The Company has received notices from the Internal Revenue Service (IRS)
asserting deficiencies in federal corporate income taxes for the Company's 1985
to 1993 tax years. The total additional tax proposed by the IRS amounts to $66
million plus interest. The Company has filed petitions in the United States Tax
Court to challenge most of the deficiencies asserted by the IRS. The Company
believes that it has meritorious legal defenses to those deficiencies and
believes that the ultimate outcome of the case will not result in a material
impact on the Company's consolidated results of operations or financial
position.
14. RISKS AND UNCERTAINTIES
During 1997, the economic and financial crisis in portions of Asia did not have
a material effect on the Company's results of operations or financial position.
Sales into and exported from the region, as well as net assets in the region,
are not material.
Optoelectronics' future results are dependent on management's ability to restore
IC Sensors to break-even in the near term, successful introduction of new
products, improvements in manufacturing yields and implementation of cost
reductions.
In 1997, 37% of the Company's sales from continuing operations were to U.S.
government agencies, predominantly to the Department of Defense and NASA. In
accordance with government regulations, all of the Company's government
contracts are subject to termination for the convenience of the government. Cost
incurred under cost-reimbursable contracts are subject to audit by the
government. The results of prior audits, complete through 1993, have not had a
material effect on the Company.
Future performance could be impacted by the NASA and Air Force decision to
consolidate and recompete the base operations contracts at the Kennedy Space
Center, Cape Canaveral Air Station and certain functions at Patrick Air Force
Base in an effort to eliminate duplication and reduce costs. It is anticipated
that the resultant contract would be effective October 1, 1998. The Company is
participating in the recompetition for the new contract as part of a joint
venture with Johnson Controls. The NASA contract at the Kennedy Space Center
contributed sales of $168 million in 1997.
The Company's management and operations contracts with the DOE are presented as
discontinued operations. The Company's last DOE management and operations
contract expired on September 30, 1997. The Company is in the process of
negotiating contract closeouts and does not anticipate incurring any material
loss in excess of previously established reserves.
For information concerning various investigations, claims, legal proceedings,
environmental investigations and remedial actions, and notices from the IRS, see
Note 13.
15. STOCKHOLDERS' EQUITY
At December 28, 1997, 6.5 million shares of the Company's common stock were
reserved for employee benefit plans.
The Company has nonqualified and incentive stock option plans for officers and
key employees. Under these plans, options may be granted at prices not less than
100% of the fair market value on the date of grant. All options expire ten years
from the date of grant. Options granted since 1994 become exercisable, in
ratable installments, over a period of five years from the date of grant. In
other years, options became exercisable at the date of grant. The Stock Option
-33-
<PAGE> 34
Committee of the Board of Directors, at its sole discretion, may also include
stock appreciation rights in any option granted. There are no stock appreciation
rights outstanding under these plans.
A summary of certain stock option information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Number Average Number Average Number Average
(Shares in thousands) of Shares Price of Shares Price of Shares Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,161 $19.56 3,276 $18.81 3,611 $18.77
Granted 927 19.19 1,392 20.67 13 16.66
Exercised (363) 16.74 (266) 17.00 (197) 17.52
Lapsed (538) 20.23 (241) 18.57 (151) 19.28
---- ----- -----
Outstanding at end of year 4,187 19.64 4,161 19.56 3,276 18.81
===== ===== =====
Exercisable at end of year 2,195 19.85 2,477 19.67 2,740 19.70
===== ===== =====
Available for grant at end of year 2,290 1,831 2,226
===== ===== =====
</TABLE>
In December 1997, 927,000 options were granted at an exercise price of $19.19
per share. In 1996, the Board of Directors granted 650,000 options in January
and 728,000 options in December at exercise prices of $21.75 and $19.75 per
share, respectively.
The following table summarizes information about stock options outstanding at
December 28, 1997 (shares in thousands):
<TABLE>
<CAPTION>
Weighted-
Average
Remaining Weighted- Weighted-
Range of Number of Years of Average Number of Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$14.01-17.00 638 5.5 $14.82 458 $15.05
17.01-20.00 1,643 9.1 19.23 252 18.41
20.01-23.00 1,906 5.7 21.61 1,485 21.57
----- -----
14.01-23.00 4,187 7.0 19.64 2,195 19.85
===== =====
</TABLE>
During 1996, the Company adopted the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. The Company has elected to continue to account for
stock options at intrinsic value with disclosure of the effects of fair value
accounting on net income and earnings per share on a pro forma basis.
The following table reflects pro forma net income and earnings per share had the
Company elected to adopt the fair value approach of SFAS No. 123:
(Dollars in thousands except per share data) 1997 1996
---------------------------------------------------------------------------
Income from continuing operations:
As reported $30,645 $54,480
Pro forma 29,844 53,986
Earnings per share:
As reported .67 1.15
Pro forma .65 1.14
Consistent with SFAS No. 123, pro forma net income and earnings per share have
not been calculated for options granted prior to January 1, 1995. There are no
pro forma disclosures for 1995 because the options granted were insignificant.
Pro forma compensation cost may not be representative of that to be expected in
future years since the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years.
-34-
<PAGE> 35
The fair value of each option was $6.14 for options granted in 1997, $6.20 for
the options granted in December 1996 and $6.68 for the options granted in
January 1996. The values were estimated on the date of grant using the
Black-Scholes option pricing model. The following weighted-average assumptions
were used in the model:
December December January
1997 1996 1996
-----------------------------------------------------------------------
Risk-free interest rate 5.9% 6.3% 5.5%
Expected dividend yield 2% 2% 2%
Expected lives 7 years 7 years 7 years
Expected stock volatility 26% 24% 25%
On January 25, 1995, the Board of Directors adopted a new Shareholder Rights
Plan. Under the plan, preferred stock purchase rights were distributed on
February 8, 1995 as a dividend at the rate of one right for each share of common
stock outstanding. Each right, when exercisable, entitles a stockholder to
purchase one one-thousandth of a share of a new series of junior participating
preferred stock at a price of $60. The rights become exercisable only if a
person or group acquires 20% or more or announces a tender or exchange offer for
30% or more of the Company's common stock. This preferred stock is nonredeemable
and will have 1,000 votes per share. The rights are nonvoting, expire in 2005
and may be redeemed prior to becoming exercisable. The Company has reserved
70,000 shares of preferred stock, designated as Series C Junior Participating
Preferred Stock, for issuance upon exercise of such rights. If a person (an
"Acquiring Person") acquires or obtains the right to acquire 20% or more of the
Company's outstanding common stock (other than pursuant to certain approved
offers), each right (other than rights held by the Acquiring Person) will
entitle the holder to purchase shares of common stock of the Company at one-half
of the current market price at the date of occurrence of the event. In addition,
in the event that the Company is involved in a merger or other business
combination in which it is not the surviving corporation or in connection with
which the Company's common stock is changed or converted, or it sells or
transfers 50% or more of its assets or earning power to another person, each
right that has not previously been exercised will entitle its holder to purchase
shares of common stock of such other person at one-half of the current market
price of such common stock at the date of the occurrence of the event. In
connection with the adoption of the plan, the Company redeemed the rights issued
pursuant to the Company's January 28, 1987 Rights Agreement at a redemption
price of $.01 per right to shareholders of record as of February 8, 1995.
16. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and accounts
receivable. The Company had no significant concentrations of credit risk as of
December 28, 1997.
The Company has limited involvement with derivative financial instruments. In
the ordinary course of business, the Company enters into foreign exchange
forward contracts for periods consistent with its committed exposures to
mitigate the effect of foreign currency movements on transactions denominated in
foreign currencies. Transactions covered by hedge contracts include intercompany
and third-party receivables and payables. The contracts are primarily in
European currencies, generally have maturities that do not exceed one month and
have no cash requirements until maturity. Credit risk and market risk are
minimal because the forward contracts are with very large banks and gains and
losses are offset against foreign exchange gains and losses on the underlying
hedged transactions. The notional amount of outstanding forward contracts was
$75.8 million as of December 28, 1997 and $62.4 million as of December 29, 1996.
The carrying value as of December 28, 1997 and December 29, 1996, which
approximated fair value, was not significant.
See Notes 1, 5 and 8 for disclosures about fair values, including methods and
assumptions, of other financial instruments.
17. LEASES
The Company leases certain property and equipment under operating leases. Rental
expense charged to earnings for 1997, 1996 and 1995 amounted to $15.6 million,
$17.2 million and $18.7 million, respectively. Minimum rental commitments under
noncancelable operating leases are as follows: $13 million in 1998, $8.4 million
in 1999, $5.8 million in 2000, $4.1 million in 2001, $2.7 million in 2002 and
$6.8 million after 2002. The above information does not include amounts related
to leases covered by certain government contracts because costs, including
future commitments, are reimbursable under the terms of the contracts, even if
the contracts are terminated.
-35-
<PAGE> 36
18. OTHER INCOME (EXPENSE)
Other income (expense), net, consisted of the following:
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Interest income $ 1,969 $ 3,879 $ 4,930
Interest expense (12,482) (13,427) (8,514)
Gains on investments, net 711 1,714 2,047
Other 4,230 558 4,923
-------- -------- -------
$ (5,572) $ (7,276) $ 3,386
======== ======== =======
Gains on investments, net, included a $2.5 million charge in 1995 to write down
certain investments to their estimated realizable value. Other consists mainly
of income from joint ventures, foreign exchange losses and, in 1997, a $3.4
million cost of capital reimbursement relating to a joint development program.
(See Note 12.)
19. DISCONTINUED OPERATIONS
The former 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 EG&G Rocky Flats, Inc. contract terminated in June 1995. The Reynolds
Electrical and Engineering Co., Inc. and the EG&G Energy Measurements, Inc.
contracts expired on December 31, 1995. The EG&G Mound Applied Technologies,
Inc. contract, the Company's last DOE management and operations contract,
expired on September 30, 1997.
Summary operating results of the discontinued operations were as follows:
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Sales $79,795 $141,181 $659,852
Costs and expenses 75,108 132,449 638,719
------- -------- --------
Income from discontinued
operations before
income taxes 4,687 8,732 21,133
Provision for income taxes 1,640 3,056 7,397
------- -------- --------
Income from discontinued
operations, net of
income taxes $ 3,047 $ 5,676 $ 13,736
======= ======== ========
The Company is in the process of negotiating contract closeouts and does not
anticipate incurring any material loss in excess of previously established
reserves.
20. EARNINGS PER SHARE
Basic earnings per share was computed by dividing net income by the
weighted-average number of common shares outstanding. The weighted-average
shares used in the basic earnings per share computations were 45,757,000 for
1997, 47,298,000 for 1996 and 51,483,000 for 1995. Diluted earnings per share
was computed by giving effect to all dilutive potential common shares
outstanding. The weighted-average shares used in the diluted earnings per share
computations were 45,898,000 for 1997, 47,472,000 for 1996 and 51,573,000 for
1995. These shares include shares issuable upon the exercise of stock options
using the treasury stock method. Basic EPS equals diluted EPS for all periods
presented due to the immaterial effect of stock options.
21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company's continuing operations are classified into four industry segments:
Instruments, Mechanical Components, Optoelectronics and Technical Services. The
products and services of these segments are described in Note 1 and elsewhere in
the Annual Report. Sales and operating income from continuing operations by
industry segment are shown in the Sales and Operating Income by Industry Segment
section of this report; such information with respect to 1997, 1996 and 1995 is
considered an integral part of this note.
-36-
<PAGE> 37
Sales to U.S. government agencies, which were predominantly to the Department of
Defense and NASA, were $537 million, $527 million and $537 million in 1997, 1996
and 1995, respectively. NASA and the Air Force have decided to consolidate and
recompete the base operations contracts at the Kennedy Space Center, Cape
Canaveral Air Station and certain functions at Patrick Air Force Base in an
effort to eliminate duplication and reduce costs. It is anticipated that the
resultant contract would be effective October 1, 1998. The Company is
participating in the recompetition for the new contract as part of a joint
venture with Johnson Controls. The NASA contract at the Kennedy Space Center
contributed sales of $168 million in 1997 and $172 million in 1996 and 1995.
Additional information relating to the Company's operations in the various
industry segments is as follows:
<TABLE>
<CAPTION>
Depreciation and
Amortization Expense Capital Expenditures
--------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Instruments $ 9,170 $10,976 $11,887 $ 6,362 $ 4,550 $ 4,639
Mechanical Components 5,781 5,729 5,585 13,842 10,367 6,978
Optoelectronics 19,528 14,880 13,220 21,312 47,327 35,925
Technical Services 9,174 8,193 7,698 5,924 16,714 12,047
Corporate 959 1,158 1,036 1,289 1,532 2,250
------- ------- ------- ------- ------- -------
$44,612 $40,936 $39,426 $48,729 $80,490 $61,839
======= ======= ======= ======= ======= =======
<CAPTION>
Identifiable Assets
------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Instruments $194,037 $205,506 $215,094
Mechanical Components 121,492 112,034 97,672
Optoelectronics 205,489 229,768 194,015
Technical Services 124,975 118,513 115,623
Corporate and Other 186,110 157,079 181,511
-------- -------- --------
$832,103 $822,900 $803,915
======== ======== ========
</TABLE>
Corporate assets consist primarily of cash and cash equivalents, prepaid pension
and prepaid taxes.
Information relating to geographic areas is as follows:
<TABLE>
<CAPTION>
Operating Income
Sales From Continuing Operations
---------------------------------------------------------------------------------------------------
(In thousands) 1997 1996 1995 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. $1,106,134 $1,066,561 $1,065,424 $ 50,144 $ 68,108 $ 82,256
Germany 79,202 80,465 87,690 1,438 5,154 4,508
Other Non-U.S. 275,469 280,226 266,464 39,685 38,759 25,102
Corporate -- -- -- (31,669) (24,391) (29,193)
---------- ---------- ---------- -------- -------- --------
$1,460,805 $1,427,252 $1,419,578 $ 59,598 $ 87,630 $ 82,673
========== ========== ========== ======== ======== ========
<CAPTION>
Identifiable Assets
--------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $380,447 $385,012 $352,255
Germany 78,187 84,995 87,986
Other Non-U.S. 187,359 195,814 182,163
Corporate and Other 186,110 157,079 181,511
-------- -------- --------
$832,103 $822,900 $803,915
======== ======== ========
</TABLE>
Transfers between geographic areas were not material.
-37-
<PAGE> 38
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly financial information follows:
<TABLE>
<CAPTION>
Quarters
----------------------------------------------------------
(In thousands except per share data) First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Sales $347,006 $368,672 $358,368 $386,759 $1,460,805
Operating income (loss) from continuing
operations 16,555 (10,234)(1) 20,329 32,948 59,598
Income (loss) from continuing operations
before income taxes 14,497 (12,852)(1) 21,030 31,351 54,026
Income (loss) from continuing operations 9,568 (13,390)(1) 13,879 20,588 30,645
Net income (loss) 10,026 (11,845)(1) 14,590 20,921 33,692
Basic and diluted earnings (loss) per share:
Continuing operations .21 (.29)(1) .30 .45 .67
Net income (loss) .22 (.26)(1) .32 .46 .74
Cash dividends per common share .14 .14 .14 .14 .56
Market price of common stock:
High 24.63 21.13 22.63 23.00
Low 19.63 18.13 18.75 18.00
Close 21.38 20.81 20.81 20.06
1996
Sales $346,791 $355,907 $354,747 $369,807 $1,427,252
Operating income from continuing operations 19,925 21,414 23,201 23,090 87,630
Income from continuing operations before
income taxes 18,030 20,355 20,946 21,023 80,354
Income from continuing operations 11,882 14,143 14,201 14,254 54,480
Net income 12,782 15,639 15,637 16,098 60,156
Basic and diluted earnings per share:
Continuing operations .25 .30 .30 .30 1.15
Net income .27 .33 .33 .34 1.27
Cash dividends per common share .14 .14 .14 .14 .56
Market price of common stock:
High 25.13 23.50 21.38 21.13
Low 20.38 19.88 16.88 16.25
Close 22.38 21.38 17.88 20.88
</TABLE>
(1) Included an asset impairment charge of $28.2 million, $23.5 million
after-tax ($.51 earnings per share).
23. DIVESTITURES, RESTRUCTURING AND INTEGRATION/REALIGNMENT COSTS
During 1997, the Company sold its Chandler, Flow and Birtcher divisions for
gains of $10.6 million. The proceeds from the divestitures were $23 million. As
part of a plan to reposition its operations, the Company recorded restructuring
charges of $4.9 million, which were mainly related to employee separation costs.
The Company also incurred integration costs of $3.3 million as part of its
consolidation effort. These gains and costs were included in selling, general
and administrative expenses in 1997.
24. SUBSEQUENT EVENTS
In early January 1998, the Company sold its Rotron division, which manufactures
fans, blowers and motors, to Ametek, Inc. for approximately $103 million. In
1997, Rotron's sales were $70 million, and its operating income was $11.9
million ($.16 earnings per share).
In December 1997, the Company signed an agreement to sell its Sealol Industrial
Seals division to TI Group, plc., for $100 million and to simultaneously
purchase TI Group's Belfab division for $45 million. Belfab's 1997 sales were
$30 million. These transactions are subject to regulatory and other approvals
and are expected to close in the first half of 1998. Sealol Industrial Seals'
1997 sales were $88 million, and its operating income was $11.4 million ($.21
earnings per share).
The after-tax gain on the divestitures is expected to be approximately $90
million.
-38-
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF EG&G, INC.:
We have audited the accompanying consolidated balance sheets of EG&G, Inc. (a
Massachusetts corporation) and subsidiaries as of December 28, 1997 and December
29, 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 28, 1997, December 29, 1996
and December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EG&G, Inc. and
subsidiaries as of December 28, 1997 and December 29, 1996, and the results of
their operations and their cash flows for the years ended December 28, 1997,
December 29, 1996 and December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ARTHUR ANDERSEN LLP
- ----------------------
ARTHUR ANDERSEN LLP
BOSTON, MASSACHUSETTS
JANUARY 20, 1998
-39-
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a) DIRECTORS
The information required by this Item with respect to Directors is contained on
Pages 2 through 8 of the Company's 1998 Proxy Statement under the captions
"Election of Directors" and "Information Relative to the Board of Directors and
Certain of its Committees" and is herein incorporated by reference.
b) EXECUTIVE OFFICERS
The information required by this item with respect to Executive Officers is
contained in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be disclosed by this Item is contained in Pages 15 -
21 of the Company's 1998 Proxy Statement from under the caption "Summary
Compensation Table" up to and including "Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Value Option Table" and Notes thereto, and is
herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained on Pages 9 - 10 of the
Company's 1998 Proxy Statement under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management" and is herein
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
-40-
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Included in Part II, Item 8:
Consolidated Balance Sheet as of December 28, 1997 and
December 29, 1996
Consolidated Statement of Operations for the Three Years Ended
December 28, 1997
Consolidated Statement of Stockholders' Equity for the Three
Years Ended December 28, 1997
Consolidated Statement of Cash Flows for the Three Years Ended
December 28, 1997
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Financial Statement
Schedules
Schedule II - Valuation and Qualifying Accounts
Financial statement schedules, other than those above, are omitted
because of the absence of conditions under which they are required or
because the required information is given in the financial statements
or notes thereto.
Separate financial statements of the Registrant are omitted since it is
primarily an operating company, and since all subsidiaries included in
the consolidated financial statements being filed, in the aggregate, do
not have minority equity interests and/or indebtedness to any person
other than the Registrant or its consolidated subsidiaries in amounts
which together exceed five percent of total consolidated assets.
3. EXHIBITS
3.1 The Company's Restated Articles of Organization, as filed with the
Massachusetts Secretary of the Commonwealth on July 31, 1995, were
filed with the Commission on September 21, 1995 as Exhibit 4(i) to the
Company's Registration Statement on Form S-8 and are herein
incorporated by reference.
3.2 The Company's By-Laws as amended and restated by the Board of
Directors on December 17,1997.
4.1 The form of certificate used to evidence ownership of EG&G Common
Stock, $1 par value, was filed as Exhibit 4(a) to EG&G's Registration
Statement on Form S-3, File No. 2-69642 and is herein incorporated by
reference.
4.2 Form of Indenture dated June 28, 1995 between the Company and the
First National Bank of Boston, as Trustee, was filed with the
Commission as Exhibit 4.1 to EG&G's Registration Statement on Form S-3,
File No. 33-59675 and is herein incorporated by reference.
-41-
<PAGE> 42
*10.1 EG&G, Inc. Supplemental Executive Retirement Plan revised as of
April 19, 1995 was filed as Exhibit 10.1 to EG&G's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, and is herein
incorporated by reference.
*10.2 EG&G, Inc. Economic Value Added Plan as amended and restated by
the EG&G, Inc. Board of Directors on December 17, 1997.
10.3 3-Year Competitive Advance and Revolving Credit Facility Agreement
("3-Year Agreement") dated as of March 21, 1994 among EG&G, Inc., the
Lenders Named Herein and Chemical Bank as Administrative Agent;
Amendment No. 1 to 3-Year Agreement dated as of March 15, 1995; and
Amendment No. 2 to 3-Year Agreement dated as of March 14, 1996 were
filed as Exhibit 10.3 to EG&G's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, and are herein incorporated by
reference. Amendment No. 3 to 3-Year Agreement dated as of March 7,
1997 was filed as Exhibit 10.3 to EG&G's Annual Report on Form 10-K for
the fiscal year ended December 29, 1996 and is herein incorporated by
reference.
10.4 Termination, Replacement and Restatement Agreement dated as of
March 6, 1998 among EG&G, Inc., the Lenders Named Herein and The Chase
Manhattan Bank (as successor to Chemical Bank) as Administrative Agent
is attached hereto as Exhibit 10.4. The 364-Day Competitive Advance and
Revolving Credit Facility Agreement ("364-Day Agreement") dated as of
March 21, 1994 among EG&G, Inc., the Lenders Named Herein and Chemical
Bank as Administrative Agent; Amendment No. 1 to 364-Day Agreement
dated as of March 15, 1995 and Amendment No. 2 to 364-Day Agreement
dated as of March 14, 1996 were filed as Exhibit 10.4 to EG&G's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, and
are herein incorporated by reference. Amendment No. 3 to 364-Day
Agreement dated as of March 7, 1997 was filed as Exhibit 10.4 to EG&G's
Annual Report on Form 10-K for the fiscal year ended December 29, 1996
and is herein incorporated by reference.
*10.5 Employment Contracts:
(1) Employment contract between John M. Kucharski and EG&G dated
November 1, 1993.
(2) Employment contract between Murray Gross and EG&G dated
November 1, 1993.
(3) Employment contract between John F. Alexander, II and EG&G dated
November 1, 1993.
(4) Employment contract between Angelo Castellana and EG&G dated
November 1, 1993.
(5) Employment contract between Dr. Amitava Datta and EG&G dated
April 22, 1997.
(6) Employment contract between Daniel T. Heaney and EG&G dated
June 1, 1995.
(7) Employment contract between Deborah S. Lorenz and EG&G dated
November 1, 1993.
(8) Employment contract between Donald H. Peters and EG&G dated
November 1, 1993.
(9) Employment contract between William J. Ribaudo and EG&G dated
March 29, 1996.
(10) Employment contract between Theodore P. Theodores and EG&G dated
April 23, 1996.
Except for the name of the officer in the employment contracts identified by
numbers 3 through and including 10, the form of said employment contracts is
identical in all respects. The employment contracts identified by numbers 1 and
2 are identical to each other and are virtually identical to the contracts
identified by numbers 3 through 10 except that they
-42-
<PAGE> 43
provide for a longer contract term, three years as opposed to one year. The
employment contract between John F. Alexander, II and EG&G is representative of
the employment contracts of the executive officers and is attached hereto as
Exhibit 10.5.
*10.6 The EG&G, INC. 1982 INCENTIVE STOCK OPTION PLAN was filed as
Exhibit 4(v) to EG&G's Registration Statement on Form S-8, File No.
33-36082 and is herein incorporated by reference.
*10.7 The EG&G, Inc. 1992 STOCK OPTION PLAN was filed as Exhibit 4(vi)
to EG&G's Registration Statement on Form S-8, File No. 333-32059 and is
herein incorporated by reference.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
24 Power of Attorney (appears on signature page).
27 Financial Data Schedule.
*This exhibit is a management contract or compensatory plan or arrangement
required to be filed as an Exhibit pursuant to Item 14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K
A report on Form 8-K was filed with the Commission on October 24, 1997 regarding
a press release containing the Company's financial results for the quarter ended
September 28, 1997.
A report on Form 8-K was filed with the Commission on December 23, 1997
regarding an agreement to sell the business and assets of the company's
Industrial Seals Division to TI Group, plc., and to simultaneously purchase TI
Group's Belfab Division.
(c) PROXY STATEMENT
EG&G's 1998 Proxy Statement, in definitive form, was filed electronically on
March 4, 1998, with the Securities and Exchange Commission in Washington, D.C.
pursuant to the Commission's Rule 14a-6.
-43-
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
To EG&G, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of EG&G, Inc. included in this
Form 10-K and have issued our report thereon dated January 20, 1998. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. Schedule II is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP
Boston, Massachusetts
January 20, 1998
-44-
<PAGE> 45
SCHEDULE II
EG&G, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 28, 1997
<TABLE>
<CAPTION>
(In thousands) Additions
(Subtractions)
Balance Charged Accounts Balance
at Beginning (Credited) Charged at End
Description of Year to Income Off Other of Year
- ----------- ------------ -------------- -------- ----- -------
<S> <C> <C> <C> <C> <C>
Reserve for
Doubtful Accounts
- -----------------
Year Ended December 31, 1995 $5,820 $ (468) $(1,214) $ 218 $4,356
Year Ended December 29, 1996 $4,356 $2,055 $(2,217) $ 47 $4,241
Year Ended December 28, 1997 $4,241 $2,234 $(1,388) $(295) $4,792
</TABLE>
-45-
<PAGE> 46
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated January 20, 1998, included in this Form 10-K,
into Registration Statements previously filed by EG&G, Inc. on, respectively,
Form S-8, File No. 2-98168; Form S-8, File No. 33-36082; Form S-8, File No.
33-35379; Form S-8, File No. 33-49898; Form S-8, File No. 33-57606; Form S-8,
File No. 33-54785; Form S-8, File No. 33-62805; Form S-8, File No. 333-8811;
Form S-8, File No. 333-32059; Form S-8, File No. 333-32463 and Form S-3, File
No. 33-59675.
/s/Arthur Andersen LLP
- ----------------------
Arthur Andersen LLP
Boston, Massachusetts
March 23, 1998
POWER OF ATTORNEY
We, the undersigned officers and directors of EG&G, Inc., hereby severally
constitute John M. Kucharski, and Murray Gross, and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly, to
sign for us and in our names, in the capacities indicated below, this Annual
Report on Form 10-K and any and all amendments to said Annual Report on Form
10-K, and generally to do all such things in our name and behalf in our
capacities as officers and directors to enable EG&G, Inc. to comply with the
provisions of the Securities Exchange Act of 1934, and all requirements of the
Securities and Exchange Commission, hereby rectifying and confirming signed by
our said attorneys, and any and all amendments thereto.
Witness our hands on the date set forth below.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
MARCH 23, 1998 BY: /s/ JOHN M. KUCHARSKI
---------------------------------
JOHN M. KUCHARSKI
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
MARCH 23, 1998 BY: /s/ JOHN F. ALEXANDER, II
---------------------------------
JOHN F. ALEXANDER, II
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
MARCH 23, 1998 BY: /s/ WILLIAM J. RIBAUDO
---------------------------------
WILLIAM J. RIBAUDO
CORPORATE CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
-46-
<PAGE> 47
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATE INDICATED:
BY: /s/ JOHN M. KUCHARSKI
-----------------------------------
JOHN M. KUCHARSKI, DIRECTOR
DATE: MARCH 23, 1998
BY: /s/ TAMARA J. ERICKSON
-----------------------------------
TAMARA J. ERICKSON, DIRECTOR
DATE: MARCH 12, 1998
BY: /s/ JOHN B. GRAY
-----------------------------------
JOHN B. GRAY, DIRECTOR
DATE: MARCH 23, 1998
BY: /s/ KENT F. HANSEN
-----------------------------------
KENT F. HANSEN, DIRECTOR
DATE: MARCH 12, 1998
BY: /s/ JOHN F. KEANE
-----------------------------------
JOHN F. KEANE, DIRECTOR
DATE: MARCH 11, 1998
BY: /s/ NICHOLAS A. LOPARDO
-----------------------------------
NICHOLAS A. LOPARDO, DIRECTOR
DATE: MARCH 11, 1998
BY: /s/ GRETA E. MARSHALL
-----------------------------------
GRETA E. MARSHALL, DIRECTOR
DATE: MARCH 12, 1998
BY: /s/ MICHAEL C. RUETTGERS
-----------------------------------
MICHAEL C. RUETTGERS, DIRECTOR
DATE: MARCH 23, 1998
BY: /s/ GREGORY L. SUMME
-----------------------------------
GREGORY L. SUMME, DIRECTOR
DATE: MARCH 23, 1998
BY: /s/ JOHN LARKIN THOMPSON
-----------------------------------
JOHN LARKIN THOMPSON, DIRECTOR
DATE: MARCH 23, 1998
BY: /s/ G. ROBERT TOD
-----------------------------------
G. ROBERT TOD, DIRECTOR
DATE: MARCH 23, 1998
-47-
<PAGE> 48
EXHIBIT INDEX
Exhibit
Number Exhibit Name
- ------- ------------
3.2 EG&G, Inc. By-Laws as amended and restated by the EG&G, Inc.
Board of Directors on December 17, 1997.
10.2 EG&G, Inc. Economic Value Added Plan as amended and restated
by the EG&G, Inc. Board of Directors on December 17, 1997.
10.4 Termination, Replacement and Restatement Agreement dated as of
March 6, 1998 among EG&G, Inc., the Lenders Named Herein and
The Chase Manhattan Bank (as successor to Chemical Bank) as
Administrative Agent.
10.5 Employment Contract between John F. Alexander, II and EG&G,
Inc.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
-48-
<PAGE> 1
EXHIBIT 3.2
INDEX
EG&G, INC. BY-LAWS
AS OF DECEMBER 17, 1997
PAGE
----
ARTICLE I STOCKHOLDERS........................... 1
Place of Meetings................. 1
Annual Meetings................... 1
Special Meetings.................. 1
Notice of Meetings................ 3
Quorum............................ 3
Adjournments...................... 3
Voting and Proxies................ 4
Action at Meeting................. 4
Action without Meeting............ 4
ARTICLE II DIRECTORS.............................. 5
Powers............................ 5
Number and Election............... 5
Vacancies......................... 5
Change in Number of the Board..... 6
Resignation and Retirement........ 6
Removal........................... 6
Meetings.......................... 6
Notice of Special Meetings........ 7
Quorum............................ 7
Action at Meeting................. 7
Action by Consent................. 7
Committees........................ 7
ARTICLE III OFFICERS............................... 8
Enumeration....................... 8
Election.......................... 8
Qualification..................... 8
Tenure............................ 8
Removal........................... 9
Chairman of the Board............. 9
President......................... 9
Chief Executive Officer........... 9
Vice President and
Assistant Vice President........ 9
Financial Officers................ 10
Clerk and Assistant Clerks........ 10
Secretary and
Assistant Secretaries........... 11
Other Powers and Duties........... 11
i
<PAGE> 2
Index (Cont'd)
ARTICLE IV CAPITAL STOCK.......................... 11
Certificates of Stock............. 11
Transfers......................... 12
Record Date....................... 12
Replacement of Certificates....... 13
Issue of Capital Stock............ 13
ARTICLE V MISCELLANEOUS PROVISIONS............... 13
Fiscal Year....................... 13
Seal.............................. 13
Execution of Instruments.......... 13
Voting of Securities.............. 14
Corporate Records................. 14
Evidence of Authority............. 14
Articles of Organization.......... 14
Transactions with Interested
Parties......................... 14
Indemnification................... 15
Amendments........................ 16
1987 Massachusetts Control Share
Acquisition Act................. 16
ii
<PAGE> 3
EG&G, INC. BY-LAWS
As of December 17, 1997
ARTICLE I.
Stockholders.
1. Place of Meetings. All meetings of stockholders shall be held within
Massachusetts unless the Articles of Organization permit the holding of
stockholder meetings outside Massachusetts, in which event such meetings may be
held either within or without Massachusetts. Meetings of stockholders shall be
held at the principal office of the corporation unless a different place is
fixed by the Directors or the Chairman of the Board and stated in the notice of
the meeting. (Amended by Directors 4/20/78 and 3/23/83)
2. Annual Meetings. The annual meeting of stockholders shall be held on the
fourth Tuesday of April in each year (or if that be a legal holiday in the place
where the meeting is to be held, on the next succeeding full business day) at
10:30 o'clock A.M., unless a different hour is fixed by the Directors or the
Chairman of the Board and stated in the notice of the meeting. The purposes for
which the annual meeting is to be held, in addition to those prescribed by law,
by the Articles of Organization or by these By-Laws, may be specified by the
Directors or the Chairman of the Board. If no annual meeting is held in
accordance with the foregoing provisions, a special meeting may be held in lieu
thereof and any action taken at such meeting shall have the same effect as if
taken at the annual meeting. (Amended by Directors, 4/20/78; Amended by
Stockholders, 4/21/83)
3. Special Meetings. Special meetings of stockholders may be called by the
President or by the Directors. In addition, upon written application of one or
more stockholders who are entitled to vote and who hold at least the Required
Percentage (as defined below) of the capital stock entitled to vote at the
meeting (the "Voting Stock"), special meetings shall be called by the Clerk, or
in case of the death, absence, incapacity or refusal of the Clerk, by any other
officer. For purposes of this Section 3, the "Required Percentage" shall be 40%
or such lesser percentage as shall constitute the maximum percentage permitted
by law for this purpose. Any request for a call of special meeting of
stockholders (a "Call") by the holders of the Required Percentage of the Voting
Stock shall be governed by and
1
<PAGE> 4
subject to the following:
(a) Any stockholder of record seeking to solicit requests for a Call
pursuant to this Section 3 shall so notify the corporation in writing to the
Clerk of the corporation, and such written notification shall set forth the
reason or reasons for the Call and the purpose or purposes of such special
meeting.
(b) No solicitation of stockholder requests for a Call (a "Call
Solicitation") may be commenced (I) before the Call Request Record Date, as
defined in paragraph (c) of this Section 3, or (ii) during the period of 90 days
following the most recent meeting of the stockholders of the corporation.
(c) In order that the corporation may determine the stockholders
entitled to request a Call, the Board of Directors of the corporation shall fix
a record date (the "Call Request Record Date"). Any stockholder of record
seeking to solicit stockholder requests for a Call shall, with delivery to the
corporation of the written information specified in paragraph (a), request in
writing that the Board of Directors fix the Call Request Record Date. The Board
of Directors shall, within 10 days after the date on which such request is
received, adopt a resolution fixing the Call Request Record Date, and such Call
Request Record Date shall be not more than 10 days after the date upon which
such resolution is adopted by the Board of Directors.
(d) All requests for a Call and revocations thereof shall be delivered
to the corporation no later than the 30th day (the "Delivery Date") after the
Call Request Record Date.
(e) Any stockholder may revoke a prior request for a Call or opposition
to a Call by an instrument in writing delivered prior to the Delivery Date.
(f) Promptly after the Delivery Date, requests for a Call and
revocations thereof shall be counted and verified by an independent party
selected by the corporation.
(g) If, in response to any Call Solicitation, the holders of record of
the Required Percentage of the Voting Stock as of the Call Request Record Date
submit valid and unrevoked requests for a Call no later than the Delivery Date,
the Board of Directors of the corporation shall fix a record date and a meeting
date for the special meeting, PROVIDED that the date to be fixed for such
meeting shall be no earlier than 60 days or later than 90 days after the
Delivery Date, and PROVIDED FURTHER that the Board of Directors shall not be
obligated to fix a meeting date or to
2
<PAGE> 5
hold any meeting of stockholders within 60 days of the next scheduled meeting of
the stockholders of the corporation.
(h) In the absence of a quorum at any special meeting called pursuant
to a Call Solicitation, such special meeting may be postponed or adjourned from
time to time only by the officer of the corporation entitled to preside at such
meeting.
(i) If a Call Solicitation does not receive the support of the holders
of record of the Required Percentage of the Voting Stock, no subsequent Call may
be made or solicited by any stockholder during a period of 90 days after the
Delivery Date. (Amended by Directors, 4/20/78, 3/23/83, 4/24/90 and 4/23/91)
4. Notice of Meetings. A written notice of every meeting of stock-holders,
stating the place, date and hour thereof, and the purposes for which the meeting
is to be held, shall be given by the Clerk or other person calling the meeting
at least seven days before the meeting to each stockholder entitled to vote
thereat and to each stockholder who, by law, by the Articles of Organization or
by these By-Laws, is entitled to such notice, by leaving such notice with him or
at his residence or usual place of business, or by mailing it postage prepaid
and addressed to him at his address as it appears upon the books of the
corporation. Whenever any notice is required to be given to a stockholder by
law, by the Articles of Organization or by these By-Laws, no such notice need be
given if a written waiver of notice, executed before or after the meeting by the
stockholder or his attorney thereunto duly authorized, is filed with the records
of the meeting.
5. Quorum. Unless the Articles of Organization otherwise provide, a
majority in interest of all stock issued, outstanding and entitled to vote on
any matter shall constitute a quorum with respect to that matter, except that if
two or more classes of stock are outstanding and entitled to vote as separate
classes, then in the case of each such class a quorum shall consist of a
majority in interest of the stock of that class issued, outstanding and entitled
to vote.
6. Adjournments. Except as provided in Section 3 of this Article I, any
meeting of stockholders may be adjourned to any other time and to any other
place at which a meeting of stockholders may be held under these By-Laws by the
stockholders present or represented at the meeting, although less than a quorum,
or by any officer entitled to preside or to act as clerk of such meeting, if no
stockholder is present. It shall not be necessary to notify any stockholder of
any adjournment. Any business which could have been transacted at any meeting of
the stockholders as originally called may be transacted at any adjournment
thereof. (Amended by Directors, 4/24/90)
3
<PAGE> 6
7. Voting and Proxies. Each stockholder shall have one vote for each share
of stock entitled to vote held by him of record according to the records of the
corporation and a proportionate vote for a fractional share so held by him,
unless otherwise provided by the Articles of Organization. Stockholders may vote
either in person or by written proxy dated not more than six months before the
meeting named therein. Proxies shall be filed with the clerk of the meeting, or
of any adjournment thereof, before being voted. Except as otherwise limited
therein, proxies shall entitle the persons named therein to vote at any
adjournment of such meeting, but shall not be valid after final adjournment of
such meeting. A proxy with respect to stock held in the name of two or more
persons shall be valid if executed by one of them, unless at or prior to
exercise of the proxy the corporation receives a specific written notice to the
contrary from any one of them. A proxy purported to be executed by or on behalf
of a stockholder shall be deemed valid unless challenged at or prior to its
exercise.
8. Action at Meeting. When a quorum is present, the vote of a majority of
the stock present or represented and voting on a matter (or if there are two or
more classes of stock entitled to vote as separate classes, then in the case of
each such class, the vote of a majority of the stock of that class present or
represented and voting on a matter), except where a larger vote is required by
law, the Articles of Organization or these By-Laws, shall decide any matter to
be voted on by the stockholders. Any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
at the election. No ballot shall be required for such election unless requested
by a stockholder present or represented at the meeting and entitled to vote in
the election. The Corporation shall not directly or indirectly vote any share of
its stock. Nothing in this Section shall be construed as limiting the right of
this Corporation to vote shares of stock held directly or indirectly by it in a
fiduciary capacity. In the event that a vote of stockholders of this Corporation
is required to approve an agreement to consolidate this Corporation with another
corporation to form a new corporation, or to merge this Corporation into another
corporation, or to merge or consolidate another corporation into this
Corporation, the vote of two-thirds of each class of stock of this Corporation
outstanding and entitled to vote on the question, voting separately, shall be
necessary for the approval of such agreement. (Amended by Directors, 5/24/89)
9. Action without Meeting. Any action to be taken by stockholders may be
taken without a meeting if all stockholders entitled to vote on the matter
consent to the action by a writing filed with the records of the meetings of
4
<PAGE> 7
stockholders. Such consent shall be treated for all purposes as a vote at a
meeting.
ARTICLE II.
Directors.
1. Powers. The business of the corporation shall be managed by a Board of
Directors who may exercise all the powers of the corporation except as otherwise
provided by law, by the Articles of Organization or by these By-Laws. In the
event of a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board until the
vacancy is filled.
2. Number and Election. The number of Directors which shall constitute the
whole Board of Directors shall be such number, not less than three nor more than
thirteen, as shall be fixed by vote of the stockholders or the Board of
Directors. During the time periods specified in this Section 2, the Board of
Directors shall be divided into three classes in respect of term of office, each
class to contain, as nearly as possible, one-third of the whole number of the
Board. Of the Board of Directors elected at the Annual Meeting of Stockholders
in 1975, the members of one class shall serve until the Annual Meeting of
Stockholders held two years following their election, and the members of the
third class shall serve until the Annual Meeting of Stockholders held three
years following their election; provided, however, that in each case Directors
shall serve until their successors shall be elected and qualified. At each
Annual Meeting of Stockholders, commencing with the Annual Meeting in 1976
through and including the Annual Meeting in 1995, the successors of the
Directors of the class whose terms expire in that year shall be elected to serve
until the Annual Meeting of Stockholders held three years next following (and
until their successors shall be duly elected and qualified), so that the term of
one class of Directors shall expire in each year. At each Annual Meeting of
Stockholders, commencing with the Annual Meeting in 1996, the successors of the
Directors whose terms expire in that year shall be elected to serve until the
Annual Meeting of Stockholders held in the following year (and until their
successors shall be duly elected and qualified), so that, upon the expiration in
1998 of the terms of the Directors elected at the Annual Meeting in 1995, all
Directors shall be elected to hold office for a one-year term (and until their
successors shall be duly elected and qualified). (Amended by Directors, 5/16/74
and 1/25/95)
3. Vacancies. A vacancy in the Board of Directors, however occurring,
5
<PAGE> 8
unless and until filled by the stockholders, may be filled by the Directors.
(Amended by Directors, 5/16/74 and 1/25/95)
4. Change in Number of the Board. The number of the Board of Directors may
be increased or decreased and one or more additional Directors elected at any
special meeting of the stockholders or by a vote of a majority of the Directors
then in office. For so long as the Directors are divided into classes in
accordance with the terms of Section 2 of this Article II, Directors who are
elected to fill vacancies, whether or not created by an enlargement of the
Board, shall be apportioned among the classes so as to make all classes as
nearly equal in number as possible. Directors who are elected to fill vacancies,
whether or not created by an enlargement of the Board, shall serve until the
expiration of the term of his or her predecessor and until his or her successor
is duly elected and qualified. No decrease in the number of the Board of
Directors shall shorten the term of any incumbent Directors. (Amended by
Directors, 5/16/74 and 1/25/95)
5. Resignation and Retirement. Any Director may resign by delivering his
written resignation to the corporation at its principal office or to the
Chairman of the Board, the President, Clerk or Secretary. Such resignation shall
be effective upon receipt unless it is specified to be effective at some other
time or upon the happening of some event. Except in special circumstances
specifically approved by the Board, a Director shall be deemed to have retired
at the Annual Meeting of Stockholders following the date the Director shall have
attained the age of seventy. (Amended by Directors, 5/16/74, 4/20/78 and
12/17/97)
6. Removal. A Director may be removed from office (a) with or without cause
by a vote of two-thirds of the stock outstanding and entitled to vote in the
election of Directors, provided that the Directors of a class elected by a
particular class of stockholders may be removed only by the vote of two-thirds
of the shares of such class which are outstanding and entitled to vote or (b)
for cause by vote of a majority of the Directors then in office. A Director may
be removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him. (Amended by Stockholders, 4/16/74)
6
<PAGE> 9
7. Meetings. Regular meetings of the Directors may be held without call or
notice at such places, within or without Massachusetts, and at such times as the
Directors may from time to time determine, provided that any Director who is
absent when such determination is made shall be given notice of the
determination. A regular meeting of the Directors may be held without a call or
notice at the same place as the annual meeting of stockholders, or the special
meeting held in lieu thereof, following such meeting of stockholders.
Special meetings of the Directors may be held at any time and place,
within or without Massachusetts, designated in a call by the Chairman of the
Board, the President, Treasurer or two or more Directors. (Amended by Directors,
4/20/78 and 3/23/83)
8. Notice of Special Meetings. Notice of all special meetings of the
Directors shall be given to each Director by the Secretary, or if there be no
Secretary, by the Clerk, or Assistant Clerk, or in case of the death, absence,
incapacity or refusal of such persons, by the officer or one of the Directors
calling the meeting. Notice shall be given to each Director in person or by
telephone or by telegram sent to his business or home address at least
forty-eight hours in advance of the meeting, or by written notice mailed to his
business or home address at least seventy-two hours in advance of the meeting.
Notice need not be given to any Director if a written waiver of notice, executed
by him before or after the meeting, is filed with the records of the meeting, or
to any Director who attends the meeting without protesting prior thereto or at
its commencement the lack of notice to him. A notice or waiver of notice of a
Directors' meeting need not specify the purposes of the meeting.
9. Quorum. At any meeting of the Directors, a majority of the Directors
then in office shall constitute a quorum. Less than a quorum may adjourn any
meeting from time to time without further notice.
10. Action at Meeting. At any meeting of the Directors at which a quorum is
present, the vote of a majority of those present, unless a different vote is
specified by law, by the Articles of Organization or by these By-Laws, shall be
sufficient to take any action.
11. Action by Consent. Any action by the Directors may be taken without a
meeting if a written consent thereto is signed by all the Directors and filed
with the records of the Directors' meetings. Such consent shall be treated as a
vote of the Directors for all purposes.
7
<PAGE> 10
12. Committees. The Directors may, by vote of a majority of the Directors
then in office, elect from their number an executive committee or other
committees and may by like vote delegate thereto some or all of their powers
except those which by law, the Articles of Organization or these By-Laws they
are prohibited from delegating. Except as the Directors may otherwise determine,
any such committee may make rules for the conduct of its business, but unless
otherwise provided by the Directors or in such rules, its business shall be
conducted as nearly as may be in the same manner as is provided by these By-Laws
for the Directors.
ARTICLE III.
Officers.
1. Enumeration. The officers of the corporation shall consist of a
Chairman of the Board, President, one or more Vice Presidents, a Treasurer, a
Clerk and such other officers as the Directors may determine. Such other
officers may include, without limiting the foregoing, a Controller and a
Secretary or one or more Assistant Vice Presidents, Assistant Controllers,
Assistant Treasurers, Assistant Clerks and Assistant Secretaries. (Amended by
Directors, 3/25/81 and 3/23/83)
2. Election. The Chairman of the Board, President, Treasurer and Clerk
shall be elected annually by the Directors at their first meeting following the
annual meeting of stockholders. Other officers may be appointed by the Directors
at such meeting or at any other meeting. The Chief Executive Officer shall also
have the power to appoint Assistant Vice Presidents, Assistant Treasurers,
Assistant Controllers, Assistant Clerks and Assistant Secretaries. (Amended by
Directors, 3/25/81 and 3/23/83)
3. Qualification. The Chairman of the Board and the President shall be
Directors. No officer need be a stockholder. Any two or more officers may be
held by the same person, provided that the Chairman of the Board and Clerk shall
not be the same person, nor shall the President and Clerk be the same person.
The Clerk shall be a resident of Massachusetts unless the corporation has a
resident agent appointed for the purpose of service of process. Any officer may
be required by the Directors to give bond for the faithful performance of his
duties to the corporation in such amount and with such sureties as the Directors
may determine. (Amended by Directors, 4/20/78 and 3/23/83)
8
<PAGE> 11
4. Tenure. Except as otherwise provided by law, by the Articles of
Organization or by these By-Laws, the Chairman of the Board, President,
Treasurer and Clerk shall hold office until the first meeting of the Directors
following the annual meeting of stockholders and thereafter until his successor
is chose and qualified; and all other officers appointed by the Directors or by
the Chief Executive Officer shall hold office until the first meeting of the
Directors following the annual meeting of stockholders, unless a different term
is specified in choosing or appointing them. Any officer may resign by
delivering his written resignation to the corporation at its principal office or
to the Chairman of the Board, President, Clerk or Secretary, and such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event. (Amended
by Directors, 3/25/81 and 3/23/83)
5. Removal. The Directors may remove any officer with or without cause by a
vote or a majority of the entire number of Directors then in office, provided,
that an officer may be removed for cause only after reasonable notice and
opportunity to be heard by the Board of Directors prior to action thereon.
6. Chairman of the Board. The Directors shall appoint a Chairman of the
Board. When present he shall preside at all meetings of the Directors and
stockholders and shall have such other powers and duties as are usually vested
in the office of Chairman of the Board as well as such other powers and duties
as may be vested in him by the Board of Directors. (Amended by Directors,
4/20/78 and 3/23/83)
7. President. The President shall have general supervision and control of
all or a substantial portion of the operations of the business, as well as such
other power and duties as may be vested in the President by the Board of
Directors, or the Chief Executive Officer if other than the President. In the
absence of the Chairman of the Board, the President shall preside, when present,
at all meetings of the Directors and stockholders. In the absence or disability
of the Chief Executive Officer, if other than the President, the President shall
perform the duties and exercise the powers of the Chief Executive Officer.
(Amended by Directors, 4/20/78, 3/23/83 and 4/25/89)
8. Chief Executive Officer. The Board of Directors, shall appoint, as the
Chief Executive Officer of the Company, the President, the Chairman of the
Board, or any other officer of the corporation as the Board of Directors may
deem appropriate. The Chief Executive Officer shall have the ultimate
supervision and control of the operations of the business. (Amended by
Directors, 3/23/83)
9
<PAGE> 12
9. Vice President and Assistant Vice President. Unless otherwise specified
by the Board of Directors, the Vice President, or if there shall be more than
one, the Vice Presidents in the order determined by the Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties and shall have such
other powers as the Directors or the Chief Executive Officer may from time to
time prescribe. (Amended by Directors, 3/25/81, 3/23/83 and 11/28/84)
An Assistant Vice President shall have such duties and powers as the
Directors, the Chief Executive Officer may from time to time prescribe. (Amended
by Directors, 3/25/81 and 3/23/83)
10. Financial Officers. In addition to the election of a Treasurer, the
Directors may appoint one or more additional financial officers. The Directors
may designate one of the officers as the chief financial officer who, subject to
the direction of the Directors and the Chief Executive Officer, shall have
overall supervision and control of the internal and external financial affairs
of the corporation including financial reporting, and the management of the
assets of the corporation as well as such other powers and duties as may be
vested in him by the Directors or the Chief Executive Officer. He shall have
responsibility, custody and control of all funds, securities and valuable
documents of the corporation except as the Directors may otherwise provide.
(Amended by Directors, 3/23/83)
The Treasurer shall, subject to the direction of the Directors, the
Chief Executive Officer and the chief financial officer, if there be one, have
general charge of managing the assets of the corporation. He shall perform such
other duties as may be vested in him by the Directors, the Chief Executive
Officer, or the chief financial officer. In the event the Directors have not
designated a chief financial officer, or, if one is designated, in his absence
or disability, the Treasurer shall have custody of all funds, securities and
valuable documents of the corporation except as the Directors may otherwise
provide. (Amended by Directors, 3/23/83)
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Directors, shall in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and shall have such
other powers as the Directors may from time to time prescribe. (Amended by
Directors, 3/25/81)
10
<PAGE> 13
The Assistant Controller, or if there shall be more than one, the
Assistant Controllers in the order determined by the Directors, shall, in the
absence or disability of the Controller, perform the duties and exercise the
powers of the Controller and shall perform such other duties and shall have such
other powers as the Directors may from time to time prescribe. (Amended by
Directors, 3/25/81)
11. Clerk and Assistant Clerks. The Clerk shall keep a record of the
meetings of stockholders. Unless a Transfer Agent is appointed, the clerk shall
keep or cause to be kept in Massachusetts, at the principal office of the
corporation or at his office, the stock and transfer records of the corporation,
in which are contained the names of all stockholders and the record address, and
the amount of stock held by each.
If there is no Secretary or Assistant Secretary, the Clerk shall keep
the record of the meetings of the Directors.
The Assistant Clerk, or if there shall be more than one, the Assistant
Clerks in the order determined by the Directors, shall, in the absence or
disability of the Clerk, perform the duties and exercise the powers of the Clerk
and shall perform such other duties and shall have such other powers as the
Directors may from time to time prescribe.
12. Secretary and Assistant Secretaries. If a Secretary is appointed, he
shall attend all meetings of the Directors and shall keep a record of the
meetings of the Directors. He shall, when required, notify the Directors of
their meetings, and shall have such other powers and shall perform such other
duties as the Directors may from time to time prescribe.
The Assistant Secretary, or if there shall be more than one, the
Assistant Secretaries in the order determined by the Directors, shall in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and shall have such
other powers as the Directors may from time to time prescribe.
13. Other Powers and Duties. Each officer shall, subject to these By-Laws,
have in addition to the duties and powers specifically set forth in these
By-Laws, such duties and powers as are customarily incident to his office, and
such duties and powers as the Directors may from time to time designate.
11
<PAGE> 14
ARTICLE IV.
Capital Stock.
1. Certificates of Stock. Each stockholder shall be entitled to a
certificate of the capital stock of the corporation in such form as may be
prescribed from time to time by the Directors. The certificate shall be signed
by the Chairman of the Board of Directors, the President or a Vice President and
by the Treasurer or any Assistant Treasurer, but when a certificate is
countersigned by a transfer agent or a registrar, other than a Director, officer
of employee of the corporation, such signatures may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the time of its issue. (Amended by Directors, 4/20/78 and
1/22/92)
Every certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Articles of Organization, the By-Laws or
any agreement to which the corporation is a party, shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restrictions and a statement
that the corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge. Every certificate issued
when the corporation is authorized to issue more than one class or series of
stock shall set forth on its face or back either the full text of the
preferences, voting powers, qualifications and special and relative rights of
the shares of each class and series authorized to be issued or a statement of
the existence of such preferences, powers, qualifications and rights and a
statement that the corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.
2. Transfers. Subject to the restrictions, if any, stated or noted on the
stock certificates, shares of stock may be transferred on the books of the
corporation by the surrender to the corporation or its transfer agent of the
certificate therefor properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the corporation or its
transfer agent may reasonably require. Except as may be otherwise required by
law, by the Articles of Organization or by these By-Laws, the corporation shall
be entitled to treat the record holder of stock as shown on its books as the
owner of such stock for all purposes, including the payment of dividends and the
right to vote with respect thereto, regardless of any transfer pledge or other
disposition of such stock,
12
<PAGE> 15
until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the corporation of
his post office address and of his taxpayer identification number.
3. Record Date. The Directors may fix in advance a time not more than
sixty days preceding the date of any meeting of stockholders or the date for the
payment of any dividend or the making of any distribution to stockholders or the
last day on which the consent or dissent of stockholders may be effectively
expressed for any purpose, as the record date for determining the stockholders
having the right to notice of and to vote at such meeting, and any adjournment
thereof, or the right to receive such dividend or distribution or the right to
give such consent or dissent. In such case only stockholders of record on such
record date shall have such right, notwithstanding any transfer of stock on the
books of the corporation after the record date. Without fixing such record date
the Directors may for any of such purposes close the transfer books for all or
any part of such period.
4. Replacement of Certificates. In case of the alleged loss or destruction
or the mutilation of a certificate of stock, a duplicate certificate may be
issued in place thereof, upon such terms as the Directors may prescribe,
including the presentation of reasonable evidence of such loss, destruction or
mutilation and the giving of such indemnity as the Directors may require for the
protection of the corporation or any transfer agent or registrar.
5. Issue of Capital Stock. Unless otherwise voted by the stockholders, the
whole or any part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of the capital stock of the corporation
held in its treasury may be issued or disposed of by vote of the Directors, in
such manner, for such consideration and on such terms as the Directors may
determine.
ARTICLE V
Miscellaneous Provisions.
1. Fiscal Year. The fiscal year of the corporation shall end on the 31st
day of December in each year in which such date falls on Sunday, or the Sunday
next preceding or following the 31st day of December in each year, which ever
Sunday is nearest to such 31st day of December.
13
<PAGE> 16
2. Seal. The seal of the corporation shall, subject to alteration by the
Directors, bear its name, the word "Massachusetts", and the year of its
incorporation.
3. Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the Chairman of the Board and
Chief Executive Officer or the Treasurer except as the Directors may generally
or in particular cases otherwise determine. (Amended by Directors, 4/20/78)
4. Voting of Securities. Except as the Directors may otherwise designate,
the Chairman of the Board, the President the chief financial officer, Treasurer
or clerk may waive notice of, and act as, or appoint any person or persons to
act as, proxy or attorney-in-fact for, this corporation (with or without power
of substitution) at any meeting of stockholders or shareholders of any other
corporation or organization, the securities of which may be held by this
corporation. (Amended by Directors, 4/20/78)
5. Corporate Records. The original, or attested copies, of the Articles of
Organization, By-Laws and records of all meetings of the incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the principal office of the corporation, or at
an office of its transfer agent or of the Clerk. Said copies and records need
not all be kept in the same office. They shall be available at all reasonable
times to the inspection of any stockholder for any proper purpose, but not to
secure a list of stockholders for the purpose of selling said list or copies
thereof or of using the same for a purpose other than in the interest of the
applicant, as a stockholder, relative to the affairs of the corporation.
6. Evidence of Authority. A certificate by the Clerk or Secretary, or an
Assistant Clerk or Assistant Secretary, or a temporary Clerk or temporary
Secretary, as to any action taken by the stockholders, Directors, Executive
Committee or any officer or representative of the corporation shall as to all
persons who rely thereon in good faith be conclusive evidence of such action.
7. Articles of Organization. All references in these By-Laws to the
Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to time.
14
<PAGE> 17
8. Transactions with Interested Parties. In the absence of fraud, no
contract or other transaction between this corporation and any other corporation
or any firm, association, partnership or person shall be affected or invalidated
by the fact that any Director or officer of this corporation is pecuniarily or
otherwise interested in or is a director, member or officer of such other
corporation or of such firm, association or partnership or is a party to or is
pecuniarily or otherwise interested in such contract or other transaction or is
in any way connected with any person or persons, firm, association, partnership
or corporation pecuniarily or otherwise interested therein; provided that the
fact that he individually or as a director, member or officer of such
corporation, firm, association or partnership is such a party or is so
interested shall be disclosed to or shall have been known by the Board of
Directors or a majority of the Board of Directors at which action upon any such
contract or transaction shall be taken; any Director may be counted in
determining the existence of a quorum and may vote at any meeting of the Board
of Directors of this corporation for the purpose of authorizing any such
contract or transaction with like force and effect as if he were not so
interested, or were not a director, member or officer of such other corporation,
firm, association or partnership, provided that any vote with respect to such
contract or transaction must be adopted by a majority of the Directors then in
office who have no interest in such contract or transaction.
9. Indemnification. The corporation shall indemnify and hold harmless each
person, who is or shall have been an officer or Director of the corporation,
from and against any and all claims, liabilities and expenses to which he may be
or become subject by reason of his being or having been an officer or a Director
of the corporation or by reason of his alleged acts or omissions as an officer
or Director of the corporation, and shall indemnify and reimburse each such
officer and Director against and for any and all legal and other expenses
reasonably incurred by him in connection with any such claims and liabilities,
actual or threatened, whether or not at or prior to the time when so
indemnified, held harmless and reimbursed, he has ceased to be an officer or a
Director of the corporation.
The corporation shall similarly indemnify and hold harmless persons who
serve and shall have served at its request as directors or officers of another
organization in which the corporation directly or indirectly owns shares or of
which it is a creditor.
Such indemnification may include payment by the corporation of expenses
incurred in defending a civil or criminal action or proceeding in advance of the
final disposition of such action or proceeding, upon receipt of an undertaking
by the
15
<PAGE> 18
person indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under this section.
No indemnification shall be provided for any person with respect to any
matter as to which such person shall have been finally adjudicated in any
proceeding, not to have acted in good faith in the reasonable belief that his
action was in the best interest of the corporation; nor shall indemnification be
provided where the corporation is required or has undertaken to submit to a
court of appropriate jurisdiction the question of whether or not indemnification
by it is against public policy and it has been finally adjudicated that such
indemnification is against public policy; provided, however, that, prior to such
final adjudication, the corporation may compromise and settle any such claims
and liabilities and pay such expenses, if such settlement or payment, or both,
appears, in the judgment of a majority of those members of the Board of
Directors who are not directly involved in such matters, to be for the best
interest of the corporation as evidenced by a resolution to that effect adopted
after receipt by the corporation of a written opinion of counsel for the
corporation that, based on the facts available to such counsel, such person has
not acted in a manner that would prohibit indemnification.
The foregoing right of indemnification shall not be exclusive of any other
rights to which any such person is entitled under any agreement, vote of
stockholders, statute, or as a matter of law, or otherwise. The provisions of
this section are separable, and if any provision or portion hereof shall for any
reason be held inapplicable, illegal or ineffective, this shall not affect any
other right of indemnification existing under this section. As used herein, the
term "Person" includes his heirs, executors, administrators or other legal
representatives."
10. Amendments. The stockholders may by a vote of two-thirds of the stock
of the corporation, outstanding and entitled to vote, make, amend or repeal the
By-Laws of the corporation in whole or in part at any meeting of the
stockholders provided that notice of the substance of the proposed action is
stated in the notice of meeting. The Directors may make, amend or repeal the
By-Laws of the corporation in whole or in part at any meeting of the Directors
by vote of a majority of the Directors then in office, except that the
provisions thereof fixing the place of the meetings of stockholders, fixing the
date of the annual meeting of stockholders, designating the number necessary to
constitute a quorum at meetings of the stockholders, governing procedure with
respect to the removal of Directors, affording indemnification to Directors or
officers and governing amendment of these By-Laws, may be made, amended, or
repealed only by the stockholders. No change in the date of the annual meeting
may be made within sixty days before the date fixed in these By-Laws, and in
case of any change of such date, notice thereof shall
16
<PAGE> 19
be given to each stockholder in person or by letter mailed to his last known
post office address at least twenty days before the new date fixed for such
meeting.
11. 1987 Massachusetts Control Share Acquisition Act. The 1987
Massachusetts Control Share Acquisition Act, Chapter 110D of the Massachusetts
General Laws, as it may be amended from time to time, shall not apply to the
corporation. (Amended by Directors, 9/23/87 and 1/25/95)
17
<PAGE> 1
EXHIBIT 10.2
As Amended and Restated
By EG&G Board of Directors
on December 17, 1997
EG&G, INC.
EVA INCENTIVE PLAN
ARTICLE I
STATEMENT OF PURPOSE
1.1 The purpose of the EVA Incentive Plan (the "Plan") is to provide a
system of incentive compensation which will promote the maximization of
Economic Value Added ("EVA") over the long term. In order to align
management incentives with shareholder interests, incentive
compensation will reward the creation of value. This Plan will tie
incentive compensation to EVA and thereby reward management for
creating value.
1.2 EVA is the performance measure of value creation for EG&G, Inc. (the
"Company"). Managers create value when they employ capital in an
endeavor that generates a return that exceeds the cost of the capital
employed. Managers lose value when they employ capital in an endeavor
that generates a return that is less than the cost of capital employed.
EVA measures the total value created (or lost) by management by
subtracting the cost of capital employed from the operating profit
after tax generated by an EVA Business Unit, as hereinafter defined.
ARTICLE II
DEFINITIONS
Unless the context provides a different meaning, the following terms shall have
the following meanings:
"Act" means the Securities Exchange Act of 1934, as amended.
<PAGE> 2
"Actual EVA" means, with respect to an EVA Business Unit for a fiscal year, the
EVA of such EVA Business Unit for such year as determined by the Chief Financial
Officer with the concurrence of the Committee.
"Code" means the Internal Revenue Code of 1986, as amended.
"Capital" means, with respect to an EVA Business Unit for a fiscal year, the
investment made in such EVA Business Unit, as determined by the Chief Financial
Officer with the concurrence of the Committee for such year. Each component of
Capital will be measured by computing an average balance based on the ending
monthly balance for the twelve months of a fiscal year.
"Capital Charge" means, with respect to an EVA Business Unit for a fiscal year,
the deemed opportunity cost of employing Capital in the business of such EVA
Business Unit for such year. The Capital Charge is computed as follows:
Capital Charge ' Capital x Cost of Capital
"Cause" shall have the meaning set forth in the personnel policies for the EVA
Business Unit by which a Participant is employed at the time of termination.
Notwithstanding the foregoing, in the event of a Change of Control, "Cause"
shall mean:
(i) misappropriating any funds or property of the EVA Business
Unit;
(ii) unreasonable refusal to perform the duties assigned to the
Participant;
(iii) conviction of a felony;
(iv) continuous conduct bringing notoriety to the EVA Business Unit
and having an adverse effect on the name or public image of
the EVA Business Unit; or
(v) continued failure by the Participant to observe any provisions
of any written employment contract with the EVA Business Unit
after being informed of such breach.
"Change in Control" means that any of the following events shall occur or be
deemed to have occurred:
(i) any "person", as such term is used in Section 13(d) and 14(d) of the
Act (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same
2
<PAGE> 3
proportion as their ownership of stock in the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 30%
or more of the combined voting power of the Company's then outstanding
securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the
Company, and any new director whose election by the Board of Directors
or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office
who were either directors at the beginning of the period or whose
election or whose nomination for election was previously so approved,
cease for any reason to constitute a majority of the Board of
Directors;
(iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or
(iv) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
"Chief Executive Officer" means the Chief Executive Officer of the Company as
designated by the Board of Directors of the Company from time to time.
"Chief Financial Officer" means the Chief Financial Officer of the Company as
designated by the Board of Directors of the Company from time to time.
"Committee" means the Compensation and Stock Option Committee of the Board of
Directors of the Company or such other committee as such Board may designate
from time to time.
"Company" means EG&G, Inc., a Massachusetts corporation, and its successors and
assigns, including any corporation with which the Company is merged or
consolidated.
"Cost of Capital" means for a fiscal year the weighted average of the after-tax
cost of debt and the cost of equity for such year, as determined by the Chief
Financial Officer with the concurrence of the Committee.
"Declared Incentive" means, with respect to a Participant for a fiscal year, the
product of the Initial Declared Incentive multiplied by the Individual
Performance Factor, if any.
3
<PAGE> 4
"EVA" means, with respect to an EVA Business Unit for a fiscal year, the NOPAT
of such EVA Business Unit for such year minus the Capital Charge of such EVA
Business Unit for such year, all as determined by the Chief Financial Officer
with the concurrence of the Committee. EVA may be positive or negative.
"EVA Business Unit" means a business unit or group of business units, including
the Company, that are uniquely identified for the purpose of calculating EVA.
"Expected Improvement in EVA" means the constant EVA improvement that is added
to shift the target up each year as determined by the Company from time to time.
This is determined by the expected growth in EVA per year with respect to an EVA
Business Unit.
"Executive Officer" means a corporate officer of the Company elected by the
Board of Directors of the Company.
"First Negative Year" means with respect to Highly-Compensated and Non-Highly
Compensated Employees, the first year in an unbroken series of one or more such
consecutive years in which both the Reserve Balance and the Declared Incentive
are negative. If a year or series of years in which both the Reserve Balance and
the Declared Incentive are negative is followed by a year or years in which
either both the Reserve Balance and the Declared Incentive are positive or the
Reserve Balance is negative and the Declared Incentive is positive, a new "First
Negative Year" shall be deemed to have occurred the next time there is a year in
which both the Reserve Balance and the Declared Incentive are negative.
"Incentive Multiple" means, with respect to an EVA Business Unit for a fiscal
year, [(the Actual EVA minus the Target EVA) divided by the Leverage Factor]
plus 1.0.
"Incentive Reserve For Highly-Compensated Employees" means, with respect to a
Participant who is either an Executive Officer of the Company, a general manager
of an EVA Business Unit, or a highly compensated employee as determined from
time to time by the Committee, a bookkeeping record of an account to which any
portion of the Declared Incentive remaining after current year distribution to
the Participant is credited, or debited as the case may be, from time to time
under the Plan, and from which distribution amounts not covered by the Declared
Incentive are debited.
"Individual Performance Factor" means, with respect to a Participant, the
addition or subtraction of up to 25% of the Declared Incentive adjusted to
reflect individual job performance for the fiscal year. The Individual
Performance Factor may be utilized at the discretion of the manager of an EVA
Business Unit provided that the total accrued incentive for the EVA Business
Unit does not increase or decrease as a result of the utilization of the
Individual Performance Factor.
"Initial Declared Incentive" means, with respect to a Participant for a fiscal
year, the product of the Target Incentive multiplied by the Incentive Multiple.
4
<PAGE> 5
"Leverage Factor" means, with respect to an EVA Business Unit for a fiscal year,
the negative (positive) deviation from Target EVA necessary before a zero (two
times) Target Incentive is earned as determined by the Committee from time to
time.
"Incentive Reserve For Non-Highly Compensated Employees" means, with respect to
employees not subject to the Incentive Reserve For Highly-Compensated Employees,
a bookkeeping record of an account to which only negative Declared Incentives
are credited from time to time under the Plan and against which any positive
incentive payments are offset in determining any current distribution.
"Reserve Balance For Non-Highly Compensated Employees" means, with respect to a
Participant subject to the Incentive Reserve For Non-Highly Compensated
Employees, a bookkeeping record of the net balance following the end of each
fiscal year of the negative amounts , if any, credited against such
Participant's Incentive Reserve For Non-Highly Compensated Employees as offset
by any positive Declared Incentives. The Reserve Balance For Non-Highly
Compensated Employees shall always be zero or a number less than zero.
"NOPAT " means, with respect to an EVA Business Unit for a fiscal year, the net
operating profit after taxes for such fiscal year, as determined by the Chief
Financial Officer with the concurrence of the Committee.
"Participant" means, for a fiscal year, each salaried employee who is designated
as a Participant, in the case of Executive Officers of the Company, by the
Committee, and in all other cases, by the Chief Executive Officer or his
designee.
"Plan" means this EG&G, Inc. EVA Incentive Plan, as amended from time to time.
"Reserve Balance For Highly-Compensated Employees" means, with respect to a
Participant subject to the Incentive Reserve For Highly-Compensated Employees, a
bookkeeping record of the net balance of the amounts credited to and debited
against such Participant's Incentive Reserve For Highly-Compensated Employees
following the end of each fiscal year. For a Participant's first year of
participation in the Plan, such Participant's Reserve Balance For
Highly-Compensated Employees shall initially be equal to zero.
"Target EVA" means, with respect to an EVA Business Unit for the initial year
that such EVA Business Unit is subject to the Plan, the level of EVA as
determined by the Company.
After the initial year that an EVA Business Unit is subject to the Plan, the
Target EVA for such EVA Business Unit for each succeeding fiscal year shall be
revised according to the following formula:
5
<PAGE> 6
Target EVA = [(Prior Fiscal Year's Actual EVA + Prior Fiscal
Year's Target EVA) divided by 2] + Expected
Improvement in EVA
"Target Incentive" means, with respect to a Participant for a fiscal year, the
Target Incentive for such Participant for such fiscal year as determined by the
Committee in the case of Participants who are Executive Officers of the Company
at the time of determination, and, in all other cases, by the Chief Executive
Officer or his designee.
ARTICLE III
DETERMINATIONS AND DISTRIBUTION OF INCENTIVES
3.1 DETERMINATIONS. For each fiscal year of the Company beginning with the
1995 fiscal year, the Company shall determine with respect to such
fiscal year:
(1) the persons who will be Participants;
(2) the EVA Business Unit
or Units for each such Participant and the weighting between or
among said Units;
(3) the Target Incentive for each Participant;
(4) the minimum and maximum ranges for the Individual Performance
Factors; and
(5) the Target EVA, Leverage Factor, and Expected
Improvement in EVA for each EVA Business Unit.
As soon as practicable following the close of such fiscal year, the
Company shall determine the following with respect to such fiscal year
for each Participant:
(1) the Actual EVA for each EVA Business Unit;
(2) the Incentive Multiple by EVA Business Unit;
(3) the Individual Performance Factors, if any;
(4) the Initial Declared Incentive; and (5) the Declared
Incentive.
3.2 DISTRIBUTION.
A. As soon as practicable following the close of each fiscal year of
the Company, but no later than March 15 following such close, the
Company, with respect to those Participants subject to the
Incentive Reserve For Highly-Compensated Employees, shall:
6
<PAGE> 7
(1) Pay out the prescribed distribution first, to the extent
possible, from the Declared Incentive, and then from the Reserve
Balance For Highly-Compensated Employees;
(2) Add the remaining portion, if any, of the Declared Incentive for
such fiscal year (including any negative incentives) to the
Incentive Reserve For Highly-Compensated Employees; and
(3) Carry the remaining Reserve Balance For Highly-Compensated
Employees (positive or negative) forward to the next fiscal year.
The prescribed distribution ratios for the Incentive Reserve For
Highly-Compensated Employees for a Participant are:
First year of the Plan 80%
Second year of the Plan 67%
Third year of the Plan 57%
Fourth and subsequent years of the Plan 50%
All distributions from the Incentive Reserve For Highly-Compensated
Employees shall be made on a last-in, first-out basis, such that the
distribution for any given fiscal year shall come first from the
Declared Incentive for that fiscal year, with any remainder of that
distribution coming from the Reserve Balance For Highly-Compensated
Employees attributable to years prior to the fiscal year for which the
current distribution is being made.
B. As soon as practicable following the close of each fiscal year of
the Company, but no later than March 15 following such close, the
Company shall pay the Declared Incentive as offset by the Reserve
Balance For Non-Highly Compensated Employees as of the close of
the fiscal year, but before considering the Declared Incentive,
to those Participants subject to the Incentive Reserve For
Non-Highly Compensated Employees.
3.3 NEGATIVE RESERVE BALANCE.
(a) If, as a result of a negative EVA, a Reserve Balance For
Highly-Compensated Employees, or a Reserve Balance For Non-Highly
Compensated Employees has a deficit, no Participant shall be required,
at any time, to make a cash reimbursement to his or her Incentive
Reserve For Highly-Compensated Employees or Incentive Reserve For
Non-Highly Compensated Employees. Except as hereinafter provided such
negative Reserve Balance For Highly-Compensated Employees or Reserve
Balance For Non-Highly Compensated Employees, however, will be carried
forward and will be netted 100% against future Declared Incentives.
7
<PAGE> 8
(b) In the event a First Negative Year should occur, for the first year
after such First Negative Year, the negative Reserve Balance of a
Participant shall be 100% netted against the Declared Incentive for that
year. For the second year after such First Negative Year, 50% of any
positive Declared Incentive or 1x the Target Incentive, whichever is
less, shall be paid out to the Participant and the balance of the
Declared Inventive shall be applied to the negative Reserve Balance. The
payout system set forth above for the second year after such First
Negative Year shall continue until the Reserve Balance becomes positive
or until a new First Negative Year occurs, whichever occurs first.
3.4 LUMP SUM. All distributions from the Plan shall be made in a cash lump
sum unless payment is deferred in a timely manner by the Participant
with the consent of the Company under the Company's incentive deferral
policy as in effect from time to time.
3.5 INTEREST. No interest shall be paid on or accrue to any Reserve Balance
For Highly-Compensated Employees.
ARTICLE IV
PLAN MATTERS AND CHANGE IN STATUS
4.1 PLAN MATTERS. The Committee on behalf of the Company shall determine all
Plan matters regarding the Plan with respect to Participants who are
Executive Officers at the time of determination. Unless otherwise
expressly reserved to the Committee, the Chief Executive Officer or his
designee on behalf of the Company shall determine all Plan matters with
respect to all other Participants.
4.2 HIRES, PROMOTIONS AND TRANSFERS. A Participant who is hired, transferred
or promoted during a fiscal year into a position qualifying for
participation in the Plan will participate on a prorated basis in the
year of hire, transfer or promotion based on the percentage of the
fiscal year the Participant is in such qualifying position. A
Participant who transfers his or her employment from one participating
EVA Business Unit to another EVA Business Unit will retain his or her
Incentive Reserve For Highly-Compensated Employees or Incentive Reserve
For Non-Highly Compensated Employees and the Initial Declared Incentive
and Declared Incentive for such Participant shall be pro-rated based on
the time spent in each EVA Business Unit.
4.3 RETIREMENT. A Participant who terminates employment with the Company
during a fiscal year by virtue of retirement at age 55 or older shall be
entitled to receive the positive Reserve Balance For Highly-Compensated
Employees, if any, and may be eligible for a share of the Declared
Incentive. The Declared Incentive shall be
8
<PAGE> 9
calculated as if the Participant had remained employed as of the end of
the fiscal year. Participant's share of the Declared Incentive will be
calculated by multiplying the Declared Incentive by a proration factor
equal to the number of full weeks of Participant's actual employment
during the fiscal year divided by fifty-two (52). Eligibility will be
based on the authorization of the Participant's manager and must be
approved at the start of the fiscal year in which the retirement is to
occur. Payment of the positive Reserve Balance For Highly-Compensated
Employees, if any, and Participant's share of any Declared Incentive
will be made at the same time as payments under the Plan are made to
Participants actively employed by the Company.
4.4 DISABILITY. A Participant who becomes permanently disabled, as defined
in the Company's long-term disability benefits program, shall be
entitled to receive the positive Reserve Balance For Highly-Compensated
Employees, if any, and may be eligible for a share of the Declared
Incentive. The Declared Incentive shall be calculated as if the
Participant had remained employed as of the end of the fiscal year.
Participant's share of the Declared Incentive will be calculated by
multiplying the Declared Incentive by a proration factor equal to the
number of full weeks of Participant's actual employment during the
fiscal year divided by fifty-two (52). Eligibility will be based on the
authorization of the Participant's manager. Payment of the positive
Reserve Balance For Highly-Compensated Employees, if any, and
Participant's share of any Declared Incentive will be made at the same
time as payments under the Plan are made to Participants actively
employed by the Company.
4.5 DEATH. If a Participant terminates employment with the Company during a
fiscal year by reason of death, the estate of the Participant shall be
entitled to receive the positive Reserve Balance For Highly-Compensated
Employees, if any, and may be eligible for a share of the Declared
Incentive. The Declared Incentive shall be calculated as if the
Participant had remained employed as of the end of the fiscal year.
Participant's share of the Declared Incentive will be calculated by
multiplying the Declared Incentive by a proration factor equal to the
number of full weeks of Participant's actual employment during the
fiscal year divided by fifty-two (52). Eligibility will be based on the
authorization of the Participant's manager. Payment of the positive
Reserve Balance For Highly-Compensated Employees, if any, and
Participant's share of any Declared Incentive will be made at the same
time as payments under the Plan are made to Participants actively
employed by the Company.
4.6 INVOLUNTARY TERMINATION WITHOUT CAUSE. A Participant whose employment is
terminated by the Company or any subsidiary without Cause shall forfeit
his or her Declared Incentive, Incentive Reserve For Highly-Compensated
Employees and any Reserve Balance For Highly-Compensated Employees
unless a different determination is made by the Company.
9
<PAGE> 10
4.7 VOLUNTARY TERMINATION. In the event that a Participant voluntarily
terminates employment with the Company or any of its subsidiaries, the
right of the Participant to his or her Declared Incentive, Incentive
Reserve For Highly-Compensated Employees and any Reserve Balance For
Highly-Compensated Employees shall be forfeited unless a different
determination is made by the Company.
4.8 INVOLUNTARY TERMINATION FOR CAUSE. In the event of termination of
employment for Cause, the right of the Participant to his or her
Declared Incentive, Incentive Reserve For Highly-Compensated Employees
and any Reserve Balance For Highly-Compensated Employees shall be
forfeited unless a different determination is made by the Company.
4.9 BREACH OF AGREEMENT. Notwithstanding any other provision of the Plan or
any other agreement, in the event that a Participant shall breach any
non-competition agreement or provision relating to the Company or breach
any agreement with respect to the post-employment conduct of such
Participant, including those contained in any benefit or incentive plan
or award, the Incentive Reserve For Highly-Compensated Employees held by
such Participant shall be forfeited.
4.10 CHANGE IN CONTROL. Upon a Change in Control, the Plan shall terminate
and positive Reserve Balances For Highly-Compensated Employees shall be
paid to Participants unless the Plan is continued on no less beneficial
terms to the Participants. Payments under this Section 4.10 shall be
made without regard to whether the deductibility of such payments (or
any other "parachute payments," as that term is defined in Section 280G
of the Code, to or for the benefit of the Participant) would be limited
or precluded by Section 280G and without regard to whether such payments
(or any other "parachute payments" as so defined) would subject the
Participant to the federal excise tax levied on certain "excess
parachute payments" under Section 4999 of the Code; provided that if the
total of all "parachute payments" to or for the benefit of the
Participant, after reduction for all federal, state and local taxes
(including the tax described in Section 4999 of the Code, if applicable)
with respect to such payments (the "Total After-Tax Payments"), would be
increased by the limitation or elimination of any payment under this
Section 4.10, amounts payable under this Section 4.10 shall be reduced
to the extent, and only to the extent, necessary to maximize the Total
After-Tax Payments. The determination as to whether and to what extent
payments under this Section 4.10 are required to be reduced in
accordance with the preceding sentence shall be made at the Company's
expense by Arthur Andersen LLP or by such other certified public
accounting firm as the Board of Directors of the Company may designate
prior to a Change in Control of the Company. In the event of any
underpayment or overpayment under this Section 4.10 as determined by
Arthur Andersen LLP (or such other firm as may have been designated in
accordance with the preceding sentence), the amount of such
10
<PAGE> 11
underpayment or overpayment shall forthwith be paid to the Participant
or refunded to the Company, as the case may be, with interest at the
applicable federal rate provided for in Section 7872 (f)(2) of the Code.
4.11 NO GUARANTEE. Participation in the Plan is no guarantee that payments
under the Plan will be made or that selection as a Participant will be
made for the subsequent fiscal year.
ARTICLE V
GENERAL PROVISIONS
5.1 WITHHOLDINGS. The Company shall have the right to withhold all amounts,
including but not limited to, taxes, which in the determination of the
Company, are required to be withheld under law with respect to any
amount due or paid under the Plan.
5.2 EXPENSES. All expenses and costs in connection with the adoption and
administration of the Plan shall be borne by the Company out of its
general funds.
5.3 CLAIMS FOR BENEFITS. Participants who terminate service for any reason
will be deemed to have made a claim for benefits and no written claim
will be required. Claims for benefits will be decided by the Chief
Executive Officer or, in the case of a claim pertaining to an Executive
Officer, by the Committee (collectively referred to as the
"Adjudicator"). If the Adjudicator believes that a terminated
Participant is not entitled to benefits, it shall notify the Participant
in writing of the denial of benefits within 90 days of the Participant's
termination of service. In the event that a claim is wholly or partially
denied, the Participant or his representative will receive a written
explanation of the reason for denial. The Participant or his
representative may request a review of the denied claim within 60 days
of receipt of the denial and, in connection therewith, may review
pertinent documents and submit comments in writing. Upon receipt of an
appeal, the Adjudicator shall decide the appeal within 60 days of
receipt. The decision on appeal shall be in writing, shall include
specific reasons for the decision and shall refer to pertinent
provisions of the Plan on which the decision is based. In reaching its
decision, the Adjudicator shall have complete discretionary authority to
determine all questions arising in the interpretation and administration
of the Plan and to construe the terms of the Plan, including any
doubtful or disputed terms and the eligibility of a Participant for
benefits.
5.4 ACTION TAKEN IN GOOD FAITH. The Company may employ attorneys,
consultants, accountants or other persons and the Company's directors
and officers shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or Chief
Executive Officer in good faith shall be final and binding upon all
11
<PAGE> 12
employees, the Company and all other interested parties. No member of
the Committee and no officer, director, employee or representative of
the Company, or any of its affiliates acting on behalf of or in
conjunction with the Committee, shall be personally liable for any
action, determination, or interpretation, whether of commission or
omission, taken or made with respect to the Plan.
5.5 RIGHTS PERSONAL TO EMPLOYEES. Any rights provided to an employee under
the Plan shall be personal to such employee, shall not be transferable
(except by will or pursuant to the laws of descent or distribution), and
shall be exercisable during the employee's lifetime, only by such
employee.
5.6 DISTRIBUTION. Upon termination of the Plan or suspension for a period of
more than 90 days, the positive Reserve Balance For Highly-Compensated
Employees of each Participant shall be distributed as soon as
practicable but in no event later than 90 days from such event. The
Committee, in its sole discretion, may accelerate distribution of the
balance of any Incentive Reserve For Highly-Compensated Employees, in
whole or in part, at any time without penalty.
5.7 NON-ALLOCATION OF AWARD. In the event of a suspension or termination of
the Plan during any fiscal year, as provided herein at Section 10.1, the
Declared Incentive for such year shall be deemed forfeited and no
portion thereof shall be allocated to Participants. In the event of a
suspension, any such forfeiture shall not affect the calculation of EVA
in any subsequent year.
ARTICLE VI
LIMITATIONS
6.1 NO CONTINUED EMPLOYMENT. Nothing contained herein shall provide any
employee with any right to continued employment or in any way abridge
the rights of the Company and its subsidiaries to determine the terms
and conditions of employment and whether to terminate employment of any
employee. Neither the establishment of the Plan or the grant of an award
or bonus hereunder shall be deemed to constitute an express or implied
contract of employment for any period of time or in any way abridge the
rights of the Company or any of its subsidiaries to determine the terms
and conditions of employment or to terminate the employment of any
employee with or without Cause at any time.
6.2 NO VESTED RIGHTS. Except as otherwise expressly provided herein, no
employee or other person shall have any claim of right (legal,
equitable, or otherwise) to any award, allocation, or distribution or
any right, title, or vested interest in any amounts in such employee's
Incentive Reserve For Highly-Compensated Employees and no officer or
employee of the Company or any subsidiary or any
12
<PAGE> 13
other person shall have any authority to make representations or
agreements to the contrary. No interest conferred herein to a
Participant shall be assignable or subject to any lien or pledge or any
claim by a Participant's creditors. The right of the Participant to
receive a distribution thereunder shall be an unsecured claim against
the general assets of the Company and the Participant shall have no
rights in or against any specific assets of the Company as the result of
participation hereunder.
6.3 NOT PART OF OTHER BENEFITS. The benefits provided in this Plan shall not
be deemed a part of any other benefit provided by the Company or any of
its subsidiaries to its employees. Neither the Company nor any of its
subsidiaries assumes any obligation to Participants except as specified
herein. This is a complete statement of the terms and conditions of the
Plan as in effect on January 1, 1995 and as amended on April 23, 1996.
6.4 OTHER PLANS. Nothing contained herein shall limit the power of either
the Company or its subsidiaries or the power of the Committee to grant
bonuses to employees of the Company or any of its subsidiaries, whether
or not Participants in this Plan.
6.5 UNFUNDED PLAN. This Plan is unfunded. Nothing herein shall create or be
deemed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company (or any of its subsidiaries) and any
Participant.
ARTICLE VII
AUTHORITY
7.1 Full and sole power and authority to interpret and administer this Plan
shall be vested in the Committee which shall have the sole authority to
make rules and regulations for the administration of the Plan. The
Committee may from time to time make such decisions and adopt such rules
and regulations for implementing the Plan as it deems appropriate for
any Participant under the Plan. Any decision taken by the Committee
arising out of or in connection with the construction, administration,
interpretation and effect of the Plan shall be final, conclusive and
binding upon all Participants and any person claiming under or through
them. The Committee may delegate its power and authority with respect to
the Plan to the Chief Executive Officer from time to time as it
determines.
13
<PAGE> 14
ARTICLE VIII
NOTICE
8.1 Any notice to be given pursuant to the provisions of the Plan shall be
in writing and directed to the appropriate recipient thereof at his or
her business address or office location.
ARTICLE IX
EFFECTIVE DATE
9.1 This Plan shall be effective as of January 1, 1995.
9.2 The Incentive Reserve For Non-Highly Compensated Employees and the
Reserve Balance For Non-Highly Compensated Employees shall be effective
commencing with the 1996 fiscal year.
ARTICLE X
AMENDMENTS
10.1 This Plan may be amended, suspended or terminated in whole or in part at
any time from time to time at the sole discretion of the Committee;
provided, however, that no such change in the Plan shall be effective to
eliminate or diminish the distribution of any award that has been
allocated to the Incentive Reserve of a Participant prior to the date of
such amendment, suspension or termination. Notice of any such amendment,
suspension or termination shall be given promptly to each Participant.
ARTICLE XI
APPLICABLE LAW
11.1 This Plan shall be construed in accordance with the provisions of the
laws of the Commonwealth of Massachusetts.
<PAGE> 1
EXHIBIT 10.4
TERMINATION, REPLACEMENT AND RESTATEMENT AGREEMENT (this "TRR Agreement")
dated as of March 6, 1998, of the 364-day Competitive Advance and Revolving
Credit Facility Agreement dated as of March 21, 1994, among EG&G, INC., a
Massachusetts corporation (the "Company"), the Borrowing Subsidiaries (as such
term is defined therein; together with the Company, the "Borrowers"), the
financial institutions listed in Schedule 2.01 hereto under the caption
"Lenders" (the "Lenders") and THE CHASE MANHATTAN BANK (as successor to Chemical
Bank), a New York banking corporation, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders. Capitalized terms used
and not defined herein shall have the meanings assigned to such terms in the New
Credit Agreement (as defined below).
WHEREAS, the Borrowers, the Lenders, and the Administrative Agent are
parties to a 364-day Competitive Advance and Revolving Credit Facility Agreement
dated as of March 21, 1994 (as amended, the "Original Credit Agreement");
WHEREAS, the Original Credit Agreement is to be terminated as provided
herein; and
WHEREAS, the Lenders are willing, subject to the terms and conditions of
this TRR Agreement, to replace the Original Credit Agreement with a new credit
agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual agreements contained in
this TRR Agreement and other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. TERMINATION, REPLACEMENT AND RESTATEMENT. Subject to the
conditions set forth in Section 3 hereof:
(a) the Original Credit Agreement, including all schedules and exhibits
thereto, is hereby terminated, subject to applicable provisions set forth
therein as to the survival of certain rights and obligations, and simultaneously
replaced by a new credit agreement (the "New Credit Agreement") identical in
form and substance to the Original Credit Agreement except as expressly set
forth below.
<PAGE> 2
(b) The heading of the New Credit Agreement shall read as follows:
"364-DAY COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT
dated as of March 6, 1998, among EG&G, INC., a Massachusetts
corporation (the "Company"), the Borrowing Subsidiaries (as such term
is defined herein; together with the Company, the "Borrowers"), the
lenders listed in Schedule 2.01 (the "Lenders") and THE CHASE
MANHATTAN BANK, a New York banking corporation, as administrative
agent for the Lenders (in such capacity, the "Administrative Agent")."
and all references to the "Closing Date" in the New Credit Agreement shall be
deemed to refer to March 6, 1998.
(c) (i) The definition of "Amendment Effective Date" is hereby deleted in
its entirety.
(ii) The definition of "Maturity Date" in Section 1.01 of the New
Credit Agreement shall read as follows:
"'Maturity Date' shall mean March 5, 1999."
(d) The reference to "March 31, 1996" in Section 2.05(a) of the Original
Credit Agreement shall be changed to a reference to "March 31, 1998" in the New
Credit Agreement.
(e) Section 3.04(a) of the New Credit Agreement shall read as follows:
"The Company has heretofore furnished to the Administrative Agent and
the Lenders copies of its consolidated financial statements as of and
for the fiscal year ended December 31, 1996, and as of and for the
period of nine months ended September 30, 1997. Such financial
statements present fairly, in all material respects, the consolidated
financial condition and the results of operations of the Company as of
such dates and for such periods in accordance with GAAP."
(f) Section 4.02(d) of the New Credit Agreement shall read as follows:
"The commitments under the 364-day Competitive Advance and Revolving
Credit Facility Agreement dated as of March 21, 1994, among the
Borrowers, the lenders party thereto and The Chase Manhattan
-2-
<PAGE> 3
Bank, as administrative agent shall have been terminated and all
principal, interest and other amounts outstanding thereunder
(including all Fees accrued thereunder to the Closing Date) shall have
been paid in full."
(g) The references to "March 21, 1994" in Exhibit A-1, Exhibit A-2,
Exhibit A-3, Exhibit A-4, Exhibit A-5, Exhibit C, Exhibit D-1, Exhibit D-2 and
Exhibit E of the Original Credit Agreement shall be changed to references to
"March 6, 1998" in the New Credit Agreement.
(h) Schedule 2.01 to the New Credit Agreement shall be in the form of
Schedule 2.01 to this TRR Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to each of the Lenders that:
(a) This TRR Agreement and the New Credit Agreement have been duly
authorized and, in the case of this TRR Agreement, executed and delivered by it
and constitute its legal, valid and binding obligations enforceable in
accordance with their terms.
(b) The representations and warranties set forth in Article III of the New
Credit Agreement, after giving effect to this TRR Agreement, are true and
correct in all material respects on the date hereof with the same effect as if
made on the date hereof, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) Before and after giving effect to this TRR Agreement, no Default has
occurred and is continuing.
SECTION 3. CONDITIONS TO EFFECTIVENESS. This TRR Agreement shall become
effective as of March 6, 1998 (the "Effective Date") upon the occurrence of the
following conditions precedent:
(a) The Administrative Agent shall have received counterparts of this TRR
Agreement which, when taken together, bear the signatures of all the parties
hereto.
(b) The Administrative Agent shall have received, on behalf of itself and
the Lenders, favorable written opinions of General Counsel for the Company,
substantially to the effect set forth in Exhibit D-1 of the Original Credit
Agreement but referring to this TRR Agreement and the New Credit Agreement, (i)
dated the date hereof, (ii) addressed to the Administrative Agent and the
Lenders,
-3-
<PAGE> 4
and (iii) covering such other matters relating to this TRR Agreement
and the Transactions as the Administrative Agent shall reasonably request, and
the Company hereby instructs such General Counsel to deliver such opinions.
(c) All legal matters incident to this TRR Agreement, the New Credit
Agreement and the borrowings and extensions of credit hereunder shall be
satisfactory to the Lenders and to Cravath, Swaine & Moore, counsel for the
Administrative Agent.
(d) The Administrative Agent shall have received on the date hereof (i) a
copy of the certificate or articles of incorporation, including all amendments
thereto, of the Company, certified as of a recent date by the Secretary of State
of the state of its organization, and a certificate as to the good standing of
the Company as of a recent date, from such Secretary of State; (ii) a
certificate of the Secretary or Assistant Secretary of the Company dated the
date hereof and certifying (A) that attached thereto is a true and complete copy
of the by-laws of the Company as in effect on the date hereof and at all times
since a date prior to the date of the resolutions described in clause (B) below,
(B) that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors of the Company authorizing this TRR Agreement
and the execution, delivery and performance of this TRR Agreement and the
borrowings under the New Credit Agreement, and that such resolutions have not
been modified, rescinded or amended and are in full force and effect, (C) that
the certificate or articles of incorporation of the Company have not been
amended since the date of the last amendment thereto shown on the certificate of
good standing furnished pursuant to clause (i) above, and (D) as to the
incumbency and specimen signature of each officer executing this TRR Agreement
or any other document delivered in connection herewith on behalf of the Company;
(iii) a certificate of another officer as to the incumbency and specimen
signature of the Secretary or Assistant Secretary executing the certificate
pursuant to (ii) above; and (iv) such other documents as the Lenders or Cravath,
Swaine & Moore, counsel for the Administrative Agent, may reasonably request.
(e) The Administrative Agent shall have received a certificate, dated the
date hereof and signed by a Financial Officer of the Company, confirming
compliance with the conditions precedent set forth in paragraphs (b) and (c) of
Section 2.
(f) The Administrative Agent shall have received all Fees and other
amounts due and payable on or prior to the
-4-
<PAGE> 5
date hereof, including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the Company
hereunder.
SECTION 4. APPLICABLE LAW. THIS TRR AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. ORIGINAL CREDIT AGREEMENT. Until the occurrence of the
Effective Date as provided in Section 3 hereof, the Original Credit Agreement
shall continue in full force and effect in accordance with the provisions
thereof and the rights and obligations of the parties thereto shall not be
affected hereby, and all Fees and interest accruing under the Old Credit
Agreement shall continue to accrue at the rates provided for therein.
SECTION 6. COUNTERPARTS. This TRR Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract.
SECTION 7. EXPENSES. The Company agrees to reimburse the Administrative
Agent for its out-of-pocket expenses in connection with this TRR Agreement
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this TRR Agreement
to be duly executed by their respective authorized officers as of the day and
year first written above.
EG&G, INC,
by
/s/ Daniel T. Heaney
---------------------
Name: Daniel T. Heaney
Title: Treasurer
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
by
/s/ Carol A. Ulmer
-----------------------
Name: Carol A. Ulmer
Title: Vice President
-5-
<PAGE> 6
BANKBOSTON, N.A.,
by
/s/ Harvey H. Thayer
-------------------------------
Name: Harvey H. Thayer
Title: Director
DRESDNER BANK AG, NEW YORK
and Grand Cayman Branches
by
/s/ Anthony J. Berti
-------------------------------
Name: Anthony J. Berti
Title: Assistant Treasurer
by
/s/ B. Craig Erickson
-------------------------------
Name: B. Craig Erickson
Title: Vice President
THE FIRST NATIONAL BANK OF
CHICAGO,
by
/s/ Paul Chao
-------------------------------
Name: Paul Chao
Title: Vice President
THE NORTHERN TRUST COMPANY,
by
/s/ James F. McArdle
-------------------------------
Name: James F. McArdle
Title: Vice President
ROYAL BANK OF CANADA,
by
/s/ Charles Romano
-------------------------------
Name: Charles Romano
Title: Manager
SOCIETE GENERALE
by
/s/ Michelle Martin
-------------------------------
Name: Michelle Martin
Title: Assistant Vice President
-6-
<PAGE> 7
STANDARD CHARTERED BANK,
by
/s/ Kristina McDavid
----------------------------
Name: Kristina McDavid
Title: Vice President
by
/s/ David D. Cutting
----------------------------
Name: David D. Cutting
Title: Senior Vice President
WACHOVIA BANK, N.A.
by
/s/ John P. Rafterty
----------------------------
Name: John P. Rafterty
Title: Senior Vice President
-7-
<PAGE> 8
SCHEDULE 2.01
<TABLE>
<CAPTION>
LENDERS COMMITMENT
<S> <C>
The Chase Manhattan Bank $16,000,000
BankBoston, N.A. $10,500,000
Dresdner Kleinwort Benson $10,500,000
The First National Bank of Chicago $10,500,000
The Northern Trust Company $10,500,000
Royal Bank of Canada $10,500,000
Societe Generale $10,500,000
Standard Chartered Bank $10,500,000
Wachovia Bank, N.A. $10,500,000
</TABLE>
<PAGE> 1
EXHIBIT 10.5
EG&G, INC.
EMPLOYMENT AGREEMENT
This Agreement made as of the 1st day of November, 1993, between EG&G,
Inc., a Massachusetts corporation (hereinafter called the "Company"), and John
F. Alexander, II of Southborough, Massachusetts (hereinafter referred to as the
"Employee").
WITNESSETH:
WHEREAS, the Employee has been employed in a management position with the
Company; and
WHEREAS, the Employee hereby agrees to continue to perform such services
and duties of a management nature as shall be assigned to him; and
WHEREAS, the Employee hereby agrees to the compensation herein provided and
agrees to serve the Company to the best of his ability during the period of this
Agreement.
NOW, THEREFORE, in consideration of the sum of One Dollar, and of the
mutual covenants herein contained, the parties agree as follows:
1. a) Except as hereinafter otherwise provided, the Company agrees to continue
to employ the Employee in a management position with the Company, and the
Employee agrees to remain in the employment of the Company in that capacity for
a period of one year from the date hereof and from year to year thereafter until
such time as this Agreement is terminated.
b) The Company will, during each year of the term of this Agreement, place
in nomination before the Board of Directors of the Company the name of the
Employee for election as an Officer of the Company except when a notice of
termination has been given in accordance with Paragraph 5(b).
2. The Employee agrees that, during the specified period of employment, he
shall, to the best of his ability, perform his duties, and shall not engage in
any business, profession or occupation which would conflict with the rendition
of the agreed upon services, either directly or indirectly, without the prior
approval of the Board of Directors.
<PAGE> 2
3. During the period of his employment under this Agreement, the Employee
shall be compensated for his services as follows:
a) Except as otherwise provided in this Agreement, he shall be paid a
salary during the period of this Agreement at a base rate to be determined by
the Company on an annual basis. Except as provided in Subparagraph 3d, such
annual base salary shall under no circumstances be fixed at a rate below the
annual base rate then currently in effect.
b) He shall be reimbursed for any and all monies expended by him in
connection with his employment for reasonable and necessary expenses on behalf
of the Company in accordance with the policies of the Company then in effect;
c) He shall be eligible to participate under any and all bonus, benefit,
pension, compensation, and option plans which are, in accordance with company
policy, available to persons in his position (within the limitation as
stipulated by such plans). Such eligibility shall not automatically entitle him
to participate in any such plan;
d) if, because of adverse business conditions or for other reasons, the
Company at any time puts into effect salary reductions applicable to all
management employees of the Company generally, the salary payments required to
be made under this Agreement to the Employee during any period in which such
general reduction is in effect may be reduced by the same percentage as is
applicable to all management employees of the Company generally. Any benefits
made available to the Employee which are related to base salary shall also be
reduced in accordance with any salary reduction;
4. a) During the period of his employment by the Company or for any period
which the Company shall continue to pay the Employee his salary under this
Agreement, whichever shall be the longer, the Employee shall not directly or
indirectly own, manage, control, operate, be employed by, participate in or be
connected with the ownership, management, operation or control of any business
which competes with the Company or its subsidiaries, provided, however, that the
foregoing shall not apply to ownership of stock in a publicly held corporation
which ownership is disclosed to the Board of Directors nor shall it apply to any
other relationship which is disclosed to and approved by the Board of Directors.
b) During the period of his employment by the Company and two years
following the Company's last payment of salary
-2-
<PAGE> 3
to him, the Employee shall not utilize or disclose to others any proprietary or
confidential information of any type or description which term shall be
construed to mean any information developed or identified by the Company which
is intended to give it an advantage over its competitors or which could give a
competitor an advantage if obtained by him. Such information includes, but is
not limited to, product or process design, specifications, manufacturing
methods, financial or statistical information about the Company, marketing or
sales information about the Company, sources or supply, lists of customers, and
the Company's plans, strategies, and contemplated actions.
c) During the period of his employment by the Company or for any period
during which the Company shall continue to pay the Employee his salary under
this Agreement, whichever shall be longer, the Employee shall not in any way
whatsoever aid or assist any party seeking to cause, initiate or effect a Change
in Control of the Company as defined in Paragraph 6 without the prior approval
of the Board of Directors.
5. Except for the Employee covenants set forth in Paragraph 4 which covenants
shall remain in effect for the periods stated therein, and subject to Paragraph
6, this Agreement shall terminate upon the happening of any of the following
events and (except as provided herein) all the Company's obligation under this
Agreement, including, but not limited to, making payments to the Employee shall
cease and terminate:
a) On the effective date set forth in any resignation submitted by the
Employee and accepted by the Company, or if no effective date is agreed upon,
the date of receipt of such letter.
b) One year after written notice of termination is given by either party to
the other party.
c) At the end of the month in which the Employee shall have attained the
age of sixty-five years;
d) At the death of the Employee;
e) At the termination of the Employee for cause. As used in the Agreement,
the term "cause" shall mean:
1) Misappropriating any funds or property of the Company;
2) Unreasonable refusal to perform the duties assigned to him under this
Agreement;
-3-
<PAGE> 4
3) Conviction of a felony;
4) Continuous conduct bringing notoriety to the Company and having an
adverse effect on the name or public image of the Company;
5) Violation of the Employee's covenants as set forth in Paragraph 4
above; or
6) Continued failure by the Employee to observe any of the provisions of
this Agreement after being informed of such breach.
f) At termination of the Employee by the Company without cause.
g) Twelve months after written notice of termination is given by the
Company to the Employee based on a determination by the Board of Directors that
the Employee is disabled (which, for purposes of this Agreement, shall mean that
the Employee is unable to perform his regular duties, with such determination to
be made by the Board of Directors, in reliance upon the opinion of the
Employee's physician or upon the opinion of one or more physicians selected by
the Company). Such notice shall be given by the Company to the Employee on the
106th day of continuous disability of the Employee. Notwithstanding the
foregoing, if, during the twelve-month notice period referred to above, the
Employee is no longer disabled and is able to return to work, such notice of
employment termination shall be rescinded, and the employment of the Employee
shall continue in accordance with the terms of this Agreement. During the first
106 days of continuous disability of the Employee, the Company will make
periodic payments to the Employee in an amount equal to the difference between
his base salary and the benefits provided by the Company's Short-Term Disability
Income Plan. During the twelve-month notice period following 106 days of
continuous disability, the Company will make periodic payments to the Employee
in an amount equal to the difference between his base salary and the benefits
provided by the Company's Long-Term Disability Plan. If the employment of the
Employee terminates at the end of such twelve-month notice period, the Company
will make periodic payments to the Employee, up to the amount remaining in his
sick leave reserve account, in an amount equal to the difference between his
base pay and the post-employment benefits provided to him under the Company's
Long-Term Disability Plan. Due to the fact that payments to the Employee under
the Company's Long-Term Disability Plan are not subject to federal income taxes,
the payments to be made directly by the Company pursuant to the
-4-
<PAGE> 5
two preceding sentences shall be reduced such that the total amount received by
the Employee (from the Company and from the Long-Term Disability Plan), after
payment of any income taxes, is equal to the amount that the Employee would have
received had he been paid his base salary, after payment of any income taxes on
such base salary.
h) Notwithstanding the foregoing provisions, in the event of the
termination of the Employee by the Company without cause, the Employee shall,
until the expiration of his then current employment term or one year from the
date of such termination, whichever is later, (i) continue to receive his Full
Salary (as defined below), which shall be payable in accordance with the payment
schedule in effect immediately prior to his employment termination, and (ii)
continue to be entitled to participate in all employee benefit plans and
arrangements of the Company (such as life, health and disability insurance and
automobile arrangements) to the same extent (including coverage of dependents,
if any) and upon the same terms as were in effect immediately prior to his
termination. For purposes of this Agreement, "Full Salary" shall mean the
Employee's annual base salary, plus the amount of any bonus or incentive
payments received by the Employee with respect to the last full fiscal year of
the Company for which all bonus or incentive payments to be made have been made.
6. a) In the event that there is a Change in Control of the Company (as
defined below), the provisions of this Agreement shall be amended as follows:
1) Paragraph 1a shall be amended to read in its entirety as follows:
"Except as hereinafter otherwise provided, the Company agrees to
continue to employ the Employee in a management position with the
Company, and the Employee agrees to remain in the employment in the
Company in that capacity, for a period of five (5) years less one day
from the date of the Change in Control. Except as provided in
Paragraph 3d, the Employee's salary as set forth in Paragraph 3a and
his other employee benefits pursuant to the plans described in
Paragraph 3c shall not be decreased during such period."
2) Paragraph 5a shall be amended by the addition of the following
provision at the end of such paragraph:
", provided that the Employee agrees not to resign, except for Good
Reason (as defined below), during the one-year period following the
date of the Change in Control."
-5-
<PAGE> 6
3) Paragraph 5b shall be deleted in its entirety.
4) Paragraph 5h shall be amended to read in its entirety as follows:
"Notwithstanding the foregoing provisions, in the event of the termination of
the Employee by the Company without cause, or the resignation of the Employee
for Good Reason, the Employee shall (i) receive, on the date of his employment
termination, a cash payment in an amount equal to his Full Salary (as defined
below) multiplied by the number of years (including any portions thereof)
remaining until the expiration of his then current employment term or five years
from the date of such termination, whichever is later (it being agreed that such
amount shall not be discounted based upon the present value of such amount), and
(ii) continue to be entitled to participate in all employee benefit plans and
arrangements of the Company (such as life, health and disability insurance and
automobile arrangements) to the same extent (including coverage of dependents,
if any) and upon the same terms as were in effect immediately prior to his
termination. For purposes of this Agreement, "Full Salary" shall mean the
Employee's annual base salary, plus the amount of any bonus or incentive
payments received by the Employee with respect to the last full fiscal year of
the Company for which all bonus or incentive payments to be made have been made.
Payments under this Paragraph 5h shall be made without regard to whether the
deductibility of such payments (or any other "parachute payments," as that term
is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), to or for the benefit of the Employee) would be limited or precluded by
Section 280G and without regard to whether such payments (or any other
"parachute payments" as so defined) would subject the Employee to the federal
excise tax levied on certain "excess parachute payments" under Section 4999 of
the Code; provided that if the total of all "parachute payments" to or for the
benefit of the Employee, after reduction for all federal, state and local taxes
(including the tax described in Section 4999 of the Code, if applicable) with
respect to such payments (the "Total After-Tax Payments"), would be increased by
the limitation or elimination of any payment under this Paragraph 5h, amounts
payable under this Paragraph 5h shall be reduced to the extent, and only to the
extent, necessary to maximize the Total After-Tax Payments. The determination as
to whether and to what extent payments under this Paragraph 5h are required to
be reduced in accordance with the preceding sentence shall be made at the
Company's expense by Arthur Andersen LLP or by such other certified public
accounting firm as the Board of Directors of the Company may designate prior to
a Change in Control of
-6-
<PAGE> 7
the Company. In the event of any underpayment or overpayment under this
Paragraph 5h as determined by Arthur Andersen LLP (or such other firm as may
have been designated in accordance with the preceding sentence), the amount of
such underpayment or overpayment shall forthwith be paid to the Employee or
refunded to the Company, as the case may be, with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code."
5) Paragraph 8 shall be amended to read in its entirety as
follows:
"The Employee may pursue any lawful remedy he deems necessary or
appropriate for enforcing his rights under this Agreement following a
Change in Control of the Company, and all costs incurred by the
Employee in connection therewith (including without limitation
attorneys' fees) shall be promptly reimbursed to him by the Company,
regardless of the outcome of such endeavor."
b) For purposes of this Agreement, a "Change in Control of the Company"
shall occur or be deemed to have occurred only if (i) any "person", as such term
is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportion as their ownership of stock in the
Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities; (ii) during any period of two consecutive years ending
during the term of this Agreement, individuals who at the beginning of such
period constitute the Board of Directors of the Company, and any new director
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were either directors at the beginning of the
period or whose election or whose nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board of
Directors; (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity)
-7-
<PAGE> 8
more than 50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation; or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
c) For purposes of this Agreement, "Good Reason" shall mean the occurrence
of any of the following events, except as provided in Paragraph 3d: (i) a
reduction in the Employee's base salary as in effect on the date hereof or as
the same may be increased from time to time; (ii) a failure by the Company to
pay annual cash bonuses to the Employees in an amount at least equal to the most
recent annual cash bonuses paid to the Employee; (iii) a failure by the Company
to maintain in effect any material compensation or benefit plan in which the
Employee participated immediately prior to the Change in Control, unless an
equitable arrangement has been made with respect to such plan, or a failure to
continue the Employee's participation therein on a basis not materially less
favorable than existed immediately prior to the Change in Control; (iv) any
significant and substantial diminution in the Employee's position, duties,
responsibilities or title as in effect immediately prior to the Change in
Control; (v) any requirement by the Company that the location at which the
Employee performs his principal duties be changed to a new location outside a
radius of 25 miles from the Employee's principal place of employment immediately
prior to the Change in Control; or (vi) any requirement by the Company that the
Employee travel on an overnight basis to an extent not substantially consistent
with the Employee's business travel obligations immediately prior to the Change
in Control. Notwithstanding the foregoing, the resignation shall not be
considered to be for Good Reason if any such circumstances are fully corrected
prior to the date of resignation.
7. Neither the Employee nor, in the event of his death, his legal
representative, beneficiary or estate, shall have the power to transfer, assign,
mortgage or otherwise encumber in advance any of the payments provided for in
this Agreement, nor shall any payments nor assets or funds of the Company be
subject to seizure for the payment of any debts, judgments, liabilities,
bankruptcy or other actions.
8. Any controversy relating to this Agreement and not resolved by the Board
of Directors and the Employee shall be settled by arbitration in the City of
Boston, Commonwealth of Massachusetts, pursuant to the rules then obtaining of
the American Arbitration Association, and judgment upon the award may be entered
in any court having jurisdiction, and
-8-
<PAGE> 9
the Board of Directors and Employee agree to be bound by the arbitration
decision on any such controversy. Unless otherwise agreed by the parties hereto,
arbitration will be by three arbitrators selected from the panel of the American
Arbitration Association. The full cost of any such arbitration shall be borne by
the Company.
9. Failure to insist upon strict compliance with any of the terms,
covenants, or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times by either party.
10. All notices or other communications hereunder shall be in writing and
shall be deemed to have been duly given when delivered personally to the
Employee or to the General Counsel of the Company or when mailed by registered
or certified mail to the other party (if to the Company, at 45 William Street,
Wellesley, Massachusetts 02181, attention General Counsel; if to the Employee,
at the last known address of the Employee as set forth in the records of the
Company).
11. This Agreement has been executed and delivered and shall be construed
in accordance with the laws of the Commonwealth of Massachusetts. This Agreement
is and shall be binding on the respective legal representatives or successors of
the parties, but shall not be assignable except to a successor to the Company by
virtue of a merger, consolidation or acquisition of all or substantially all of
the assets of the Company. All previous employment contracts between the
Employee and the Company or any of the Company's present or former subsidiaries
or affiliates is hereby canceled and of no effect.
IN WITNESS WHEREOF, the Company has caused its seal to be hereunto affixed
and these presents to be signed by its proper officers, and the Employee has
hereunto set his hand and seal the day and year first above written.
EG&G, INC.
(SEAL) BY: /s/ John M. Kucharski
-------------------------
John M. Kucharski,
Chairman and Chief
Executive Officer
EMPLOYEE: /s/ John F. Alexander II
----------------------------------
John F. Alexander, II
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Registrant
As of March 23, 1998, the following is a list of the parent (Registrant) and its
subsidiaries, together with their subsidiaries. Except as noted, all voting
securities of the listed subsidiaries are 100% beneficially owned by the
Registrant or a subsidiary thereof.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
State or Country Number
of Incorporation of
Name of Company or Organization Parent
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 EG&G, Inc. Massachusetts N/A
2 EG&G Alabama, Inc. Alabama 1
3 EG&G Astrophysics California 1
4 EG&G ATP GmbH Germany 19 (80%)
5 EG&G ATP GmbH & Co. Automotive Germany 19 (80%)
Testing Papenburg KG
6 EG&G Automotive Research, Inc. Texas 20
7 EG&G California, Inc. California 1
8 EG&G Benelux BV. Netherlands 20 (77%) 1 (23%)
9 EG&G Canada Investments, Inc. Canada 87
10 EG&G Canada Limited Canada 1 (10%) 30 (43.5%) 40 (46.5%)
11 EG&G Defense Materials, Inc. Utah 1
12 EG&G do Brasil Ltda. Brazil 20 (95%) 86 (5%)
13 EG&G E.C. Bahrain 20
14 EG&G Emissions Testing Services, Inc. Virginia 1
15 EG&G Energy Measurements, Inc. Nevada 1
16 EG&G Environmental, Inc. Delaware 1
17 EG&G Exporters Ltd. U.S. Virgin Islands 20
18 EG&G Florida, Inc. Florida 1
19 EG&G GmbH Germany 20
20 EG&G Holdings, Inc. Massachusetts 1 (89%) 25 (6%) 69 (5%)
21 EG&G Hong Kong Ltd. Delaware 1
22 EG&G IC Sensors, Inc. California 1
23 EG&G Idaho, Inc. Idaho 20
24 EG&G Information Technologies, Inc. California 1
25 EG&G Instruments, Inc. Delaware 20
26 EG&G Instruments International Ltd. Cayman Islands 28
27 EG&G Instruments GmbH Germany 1
28 EG&G International, Ltd. Cayman Islands 20
29 EG&G Japan, Inc. Delaware 20
30 EG&G Judson Infrared, Inc. Pennsylvania 1
31 EG&G KT Aerofab, Inc. California 20
32 EG&G Langley, Inc. Virginia 17
33 EG&G Ltd. United Kingdom 20 (80.9%) 3 (19.1%)
34 EG&G Management Services of San Texas 20
Antonio, Inc.
35 EG&G Management Systems, Inc. New Mexico 1
36 EG&G Missouri Metal Shaping Company Missouri 20
37 EG&G Mound Applied Technologies, Inc. Ohio 1
38 EG&G Omni, Inc. Philippines 20
39 EG&G Power Systems, Inc. California 1
40 EG&G Pressure Science Incorporated Maryland 20
41 EG&G Rocky Flats, Inc. Colorado 1
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
State or Country Number
of Incorporation of
Name of Company or Organization Parent
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
42 EG&G Sealol Eagle, Inc. Delaware 44 (51%)
43 EG&G Sealol Ltd. (Sealol Egypt) Egypt 20 (22%) 28 (78%)
44 EG&G Sealol, Inc. Delaware 20
45 EG&G Singapore Pte Ltd. Singapore 28
46 EG&G Special Projects, Inc. Nevada 1
47 EG&G Star City, Inc. Ohio 1
48 EG&G S.A. France 28
49 EG&G SpA Italy 20
50 EG&G Technical Services of West Virginia, Inc. West Virginia 1
51 EG&G Vactec Philippines, Ltd. Cayman Islands 28
52 EG&G Ventures, Inc. Massachusetts 1
53 EG&G Watertown, Inc. Massachusetts 20
54 Antarctic Support Associates (Partnership) Colorado 1 (40%)
55 Benelux Analytical Instruments S.A. Belgium 1 (92.3%)
56 Berthold Analytical Instruments, Inc. Delaware 1
57 Berthold A.G. Switzerland 20
58 Berthold France S.A. France 48
59 Biozone Oy Finland 84
60 B.A.I. GmbH Austria 20
61 Eagle EG&G Aerospace Co. Ltd. Japan 1 (49%)
62 EC III, Inc. New Mexico 1 (50%)
63 Heimann Optoelectronics GmbH Germany 65
64 Heimann Shenzhen Optoelectronics Co. Ltd. China 63 (60%) 28 (30%)
65 Berthold GmbH & Co. KG Germany 19 (58.0%) 27 (2.3%) 6 (39.7%)
66 NOK EG&G Optoelectronics Corporation Japan 1 (49%)
67 Pribori Oy Finland 84
68 PT EG&G Heimann Optoelectronics Indonesia 20
69 Reticon Corporation California 1
70 Reynolds Electrical & Engineering Co., Inc. Texas 1
71 Science Support Corporation Delaware 1
72 Sealol Hindustan Limited India 44 (20%)
73 Sealol S.A. Venezuela 44
74 Seiko EG&G Co. Ltd. Japan 1 (49%)
75 Shanghai EG&G Reticon Optoelectronics China 69 (50%)
Co. Ltd.
76 Societe Civile Immobiliere France 1 (82.5%) 56 (17.5%)
77 The Launch Support Company, L.C. Florida 18
78 Vactec, Inc. Missouri 1
79 WALLAC ADL AG Switzerland 80 (80%)
80 WALLAC ADL Gmbh Germany 82 (52%)
81 WALLAC A/S Denmark 84
82 WALLAC Holding GmbH Germany 19
83 WALLAC Norge AS Norway 84
84 WALLAC Oy Finland 20
85 WALLAC Sverige AB Sweden 84
86 WALLAC, Inc. Maryland 1
87 Wellesley B.V. Netherlands 89
88 Wellesley International, C.V. Netherlands 20 (99%) 1 (1%)
89 Wickford N.V. Netherlands Antillies 28
90 Wright Components, Inc. New York 20
91 ZAO Pribori Russia 67
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 57,934
<SECURITIES> 0
<RECEIVABLES> 243,963
<ALLOWANCES> 4,792
<INVENTORY> 112,875
<CURRENT-ASSETS> 488,186
<PP&E> 482,382
<DEPRECIATION> 301,239
<TOTAL-ASSETS> 832,103
<CURRENT-LIABILITIES> 285,615
<BONDS> 114,863
0
0
<COMMON> 60,102
<OTHER-SE> 268,286
<TOTAL-LIABILITY-AND-EQUITY> 832,103
<SALES> 860,598
<TOTAL-REVENUES> 1,460,805
<CGS> 553,551
<TOTAL-COSTS> 1,084,691
<OTHER-EXPENSES> 316,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,482
<INCOME-PRETAX> 54,026
<INCOME-TAX> 23,381
<INCOME-CONTINUING> 30,645
<DISCONTINUED> 3,047
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,692
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
