UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5075
EG&G, Inc.
----------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2052042
------------- ----------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
45 William Street, Wellesley, Massachusetts 02481
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
(781) 237-5100
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date:
Class Outstanding at July 26, 1998
----- ----------------------------
Common Stock, $1 par value 45,957,000
(Excluding treasury shares)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Six Months Ended June 28, 1998 and June 29, 1997
(Unaudited)
-----------
<TABLE>
<CAPTION>
(In Thousands Except Per Share Data)
------------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
JUN 28, JUN 29, JUN 28, JUN 29,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales:
Products ........................................... $ 192,353 $ 212,415 $ 392,755 $ 414,928
Services ........................................... 163,929 156,257 319,463 300,750
--------- --------- --------- ---------
Total Sales ........................................ 356,282 368,672 712,218 715,678
--------- --------- --------- ---------
Cost of Sales:
Products ........................................... 121,478 138,686 249,734 270,057
Services ........................................... 147,071 140,302 283,575 268,570
--------- --------- --------- ---------
Total Cost of Sales ................................ 268,549 278,988 533,309 538,627
Research and Development Expenses .................. 10,941 11,919 21,983 23,073
Selling, General and Administrative Expenses ....... 58,812 59,799 120,127 119,457
Restructuring Charges (Note 2) ..................... 23,100 -- 54,500 --
Asset Impairment Charge (Note 3) ................... 7,400 28,200 7,400 28,200
Gains on Dispositions (Note 4) ..................... (58,344) -- (125,822) --
--------- --------- --------- ---------
Operating Income (Loss) From
Continuing Operations ........................... 45,824 (10,234) 100,721 6,321
Other Income (Expense), Net (Note 5) ............... (878) (2,618) (2,080) (4,676)
--------- --------- --------- ---------
Income (Loss) From Continuing Operations
Before Income Taxes ............................. 44,946 (12,852) 98,641 1,645
Provision for Income Taxes ......................... 13,332 538 32,544 5,467
--------- --------- --------- ---------
Income (Loss) From Continuing Operations ........... 31,614 (13,390) 66,097 (3,822)
Income From Discontinued Operations,
Net of Income Taxes (Note 6) .................... -- 1,545 -- 2,003
--------- --------- --------- ---------
Net Income (Loss) .................................. $ 31,614 $ (11,845) $ 66,097 $ (1,819)
========= ========= ========= =========
Basic Earnings (Loss) Per Share:
Continuing Operations .............................. $ .69 $ (.29) $ 1.45 $ (.08)
Discontinued Operations ............................ -- .03 -- .04
--------- --------- --------- ---------
Net Income (Loss) .................................. $ .69 $ (.26) $ 1.45 $ (.04)
========= ========= ========= =========
Diluted Earnings (Loss) Per Share:
Continuing Operations .............................. $ .68 $ (.29) $ 1.43 $ (.08)
Discontinued Operations ............................ -- .03 -- .04
--------- --------- --------- ---------
Net Income (Loss) .................................. $ .68 $ (.26) $ 1.43 $ (.04)
========= ========= ========= =========
Cash Dividends Per Common Share .................... $ .14 $ .14 $ .28 $ .28
========= ========= ========= =========
Weighted Average Shares of
Common Stock Outstanding:
Basic .............................................. 45,682 45,888 45,472 46,054
Diluted ............................................ 46,446 46,007 46,110 46,217
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of June 28, 1998 and December 28, 1997
(Dollars in Thousands Except Per Share Data)
--------------------------------------------
<TABLE>
<CAPTION>
JUN 28, DEC 28,
1998 1997
---- ----
(Unaudited)
-----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ........................ $ 177,573 $ 57,934
Accounts receivable (Note 7) ..................... 213,088 243,963
Inventories (Note 8) ............................. 104,851 112,875
Other current assets ............................. 72,331 73,414
--------- ---------
Total Current Assets ............................. 567,843 488,186
--------- ---------
Property, Plant and Equipment:
At cost (Note 9) ................................. 439,089 482,382
Accumulated depreciation and amortization ........ (280,090) (301,239)
--------- ---------
Net Property, Plant and Equipment ................ 158,999 181,143
--------- ---------
Investments ...................................... 17,343 16,730
Intangible Assets (Note 4) ....................... 114,237 79,257
Other Assets ..................................... 67,403 66,787
--------- ---------
Total Assets ..................................... $ 925,825 $ 832,103
========= =========
Current Liabilities:
Short-term debt .................................. $ 17 $ 46,167
Accounts payable ................................. 72,129 73,360
Accrued restructuring costs (Note 2) ............. 41,247 --
Accrued expenses (Note 10) ....................... 206,545 166,088
--------- ---------
Total Current Liabilities ........................ 319,938 285,615
--------- ---------
Long-Term Debt ................................... 114,860 114,863
Long-Term Liabilities ............................ 100,578 103,237
Contingencies
Stockholders' Equity:
Preferred stock - $1 par value, authorized
1,000,000 shares; none outstanding ............ -- --
Common stock - $1 par value, authorized
100,000,000 shares; issued 60,102,000 shares... 60,102 60,102
Retained earnings ................................ 595,888 540,379
Accumulated other comprehensive loss (Note 11) ... (4,643) (3,857)
Cost of shares held in treasury;
14,190,000 shares at June 28, 1998 and
14,769,000 shares at December 28, 1997 ....... (260,898) (268,236)
-------- --------
Total Stockholders' Equity ....................... 390,449 328,388
--------- ---------
Total Liabilities and Stockholders' Equity ....... $ 925,825 $ 832,103
========= =========
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 28, 1998 and June 29, 1997
(Unaudited)
-----------
<TABLE>
<CAPTION>
(In Thousands)
--------------
Six Months Ended
----------------
JUN 28, JUN 29,
1998 1997
---- ----
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income (loss) ...................................................... $ 66,097 $ (1,819)
Deduct net income from discontinued operations ......................... -- (2,003)
--------- ---------
Income (loss) from continuing operations ............................... 66,097 (3,822)
Adjustments to reconcile income (loss) from continuing operations
to net cash provided by continuing operations:
Noncash portion of restructuring charges ............................... 12,020 --
Restructuring charges to be paid in future periods ..................... 41,247 --
Asset impairment charge ................................................ 7,400 28,200
Depreciation and amortization .......................................... 23,339 21,289
Gains on dispositions and investments, net ............................. (126,184) (2,063)
Changes in assets and liabilities, excluding
effects from companies purchased and divested:
Decrease (increase) in accounts receivable ............................. 10,841 (4,225)
Increase in inventories ................................................ (7,163) (6,973)
Increase (decrease) in accounts payable ................................ 5,042 (660)
Increase (decrease) in accrued expenses ................................ 17,574 (1,013)
Change in prepaid and deferred taxes ................................... (19) (3,727)
Change in prepaid expenses and other ................................... (13,858) (11,225)
--------- ---------
Net Cash Provided by Continuing Operations ............................. 36,336 15,781
Net Cash Provided by (Used in) Discontinued Operations ................. (100) 3,172
--------- ---------
Net Cash Provided by Operating Activities .............................. 36,236 18,953
--------- ---------
Cash Flows Provided by (Used in) Investing Activities:
Capital expenditures ................................................... (18,514) (26,418)
Proceeds from dispositions of businesses and sales
of property, plant and equipment .................................... 205,168 5,433
Cost of acquisitions ................................................... (54,647) (3,611)
Proceeds from sales of investment securities ........................... 1,309 2,182
Other .................................................................. -- (1,302)
--------- ---------
Net Cash Provided by (Used in) Investing Activities .................... 133,316 (23,716)
--------- ---------
Cash Flows Provided by (Used in) Financing Activities:
Increase (decrease) in commercial paper ................................ (45,844) 49,882
Proceeds from issuance of common stock ................................. 20,910 4,252
Purchases of common stock .............................................. (11,446) (17,440)
Cash dividends ......................................................... (12,714) (12,929)
Other .................................................................. (309) (1,524)
--------- ---------
Net Cash Provided by (Used in) Financing Activities .................... (49,403) 22,241
--------- ---------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents .................................................... (510) (1,776)
--------- ---------
Net Increase in Cash and Cash Equivalents .............................. 119,639 15,702
Cash and cash equivalents at beginning of period ....................... 57,934 47,846
--------- ---------
Cash and cash equivalents at end of period ............................. $ 177,573 $ 63,548
========= =========
</TABLE>
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
-----------
(1) Basis of Presentation
- --------------------------
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K. The balance
sheet amounts as of December 28, 1997 in this report were extracted from the
Company's audited 1997 financial statements included in the latest annual report
on Form 10-K. In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments, consisting only of normal
recurring accruals, necessary to present fairly the financial position as of
June 28, 1998, the results of operations for the three and six months ended June
28, 1998 and June 29, 1997 and cash flows for the six months then ended. 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. The
results of operations for the six months ended June 28, 1998 are not necessarily
to be considered indicative of the results for the entire year.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise
and Related Information, in June 1997. The statement 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. The required disclosures for SFAS No.
131, which is effective for fiscal years beginning after December 15, 1997, will
be included in the Company's 1998 annual report on Form 10-K.
The Financial Accounting Standards Board issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, in June 1998. The new statement
is effective for fiscal years beginning after June 15, 1999; earlier adoption is
allowed. The statement requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company has not yet determined the effect that adoption of SFAS
No. 133 will have or when the provisions of the statement will be adopted.
However, the Company currently expects that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a material
effect on the Company's results of operations or financial position.
(2) Restructuring Charges
- --------------------------
During the second quarter of 1998, management expanded the continuing effort to
restructure certain businesses to further improve the Company's performance. The
plan resulted in pre-tax restructuring charges of $23.1 million. The principal
actions in the restructuring plan include the integration of current operating
divisions into five strategic business units, close-down or consolidation of a
number of production facilities and general cost reductions. The restructuring
plan is expected to result in the elimination of approximately 300 positions.
The major components of the restructuring charges were $12 million of employee
separation costs, $6 million of noncash charges to dispose of certain assets
through sale or abandonment and $5 million of charges to terminate lease and
other contractual obligations no longer required as a result of the
restructuring plan.
During the first six months of 1998, management developed plans to restructure
certain businesses to improve the Company's performance. The plans resulted in
pre-tax restructuring charges of $54.5 million, of which $31.4 million was
recorded in the first quarter and $23.1 million was recorded in the second
quarter. The principal actions in the restructuring plans include close-down or
consolidation of a number of offices and facilities, integration into five
strategic business units, transfer of assembly activities to lower-cost
geographic locations, disposal of under-utilized assets, withdrawal from certain
product lines and general cost reductions. The restructuring plans are expected
to result in the elimination of approximately 900 positions. The major
components of the restructuring charges were $33 million of employee separation
costs, $12 million of noncash charges to dispose of certain product lines and
assets through sale or abandonment and
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
-----------
$10 million of charges to terminate lease and other contractual obligations no
longer required as a result of the restructuring plans. The charges do not
include additional costs associated with the restructuring plans, such as
training, consulting, purchase of equipment and relocation of employees and
equipment. These costs will be charged to operations or capitalized, as
appropriate, when incurred.
(3) Asset Impairment Charge
- ---------------------------
During the second quarter of 1998, the Company recorded a $7.4 million noncash
impairment charge related to an automotive testing facility that is part of the
Technical Services segment. The impairment charge applied to fixed assets and
resulted from projected changes in the principal customer's demand for services.
The Company calculated the present value of expected cash flows of the testing
facility to determine the fair value of the assets.
During the second quarter of 1997, the Company recorded a noncash impairment
charge of $28.2 million, with $26.7 million related to IC Sensors and $1.5
million related to the goodwill of an environmental services business. As a
result of IC Sensors' inability to achieve the improvements specified in its
corrective action plan, 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. 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, for a write-down of goodwill of $13.6
million and fixed assets of $13.1 million.
(4) Gains on Dispositions
- -------------------------
In early January 1998, the Company sold its Rotron division to Ametek, Inc. for
$103 million in cash, resulting in a pre-tax gain of $64.4 million. During the
first quarter of 1998, the Company also sold a small product line for $4 million
in cash, resulting in a pre-tax gain of $3.1 million. The after-tax gain on
these divestitures was $45.2 million, or $1.00 basic earnings per share. Rotron,
which manufactures fans, blowers and motors, had 1997 sales of $70 million and
operating income of $11.9 million ($.16 earnings per share).
In early April 1998, the Company sold its Sealol Industrial Seals division to
the TI Group plc for cash of $100 million, resulting in a pre-tax gain of $58.3
million. The after-tax gain on this divestiture was $42.6 million, or $.93 basic
earnings per share. Sealol Industrial Seals, which manufactures mechanical
seals, had 1997 sales of $88 million and operating income of $11.4 million ($.21
earnings per share).
In connection with the above transaction, the Company purchased the Belfab
division of John Crane Inc., a unit of the TI Group, for $45 million in cash.
The acquisition was accounted for using the purchase method. While the Company
has not yet finalized the purchase price allocation, the excess of the cost over
the fair market value of the net assets acquired is estimated to be $32 million,
which is being amortized over 20 years using a straight-line method. Belfab's
results of operations, which were included in the consolidated results of the
Company from the date of the acquisition, are not material to the consolidated
results of operations.
(5) Other Income (Expense)
- ---------------------------
Other income (expense), net, consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
Three Months Ended Six Months Ended
------------------ ----------------
JUN 28, JUN 29, JUN 28, JUN 29,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income ............. $ 2,158 $ 559 $ 3,153 $ 979
Interest expense ............ (2,449) (3,126) (5,090) (5,996)
Other ....................... (587) (51) (143) 341
------- ------- ------- -------
$ (878) $(2,618) $(2,080) $(4,676)
======= ======= ======= =======
</TABLE>
Higher interest income on increased cash and lower interest expense on reduced
debt levels resulted from the proceeds from dispositions of businesses.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
-----------
(6) Discontinued Operations
- ----------------------------
The former Department of Energy (DOE) Support segment, which provided services
under management and operations contracts, is presented as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30. The
Mound contract, which was the Company's 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.
(7) Accounts Receivable
- ------------------------
Accounts receivable as of June 28, 1998 and December 28, 1997 included unbilled
receivables of $37 million and $48 million, respectively, which were due
primarily from U.S. government agencies. Accounts receivable were net of
reserves for doubtful accounts of $5.4 million and $4.8 million as of June 28,
1998 and December 28, 1997, respectively.
(8) Inventories
- ----------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 28, DEC 28,
1998 1997
---- ----
<S> <C> <C>
Finished goods ....................................... $ 25,898 $ 31,570
Work in process ...................................... 25,599 24,810
Raw materials ........................................ 53,354 56,495
-------- --------
$104,851 $112,875
======== ========
</TABLE>
(9) Property, Plant and Equipment
- ---------------------------------
Property, plant and equipment, at cost, consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 28, DEC 28,
1998 1997
---- ----
<S> <C> <C>
Land ................................................. $ 12,383 $ 12,712
Buildings and leasehold improvements ................. 110,947 114,698
Machinery and equipment .............................. 315,759 354,972
-------- --------
$439,089 $482,382
======== ========
</TABLE>
The decrease in property, plant and equipment resulted primarily from the sales
of the Rotron and Sealol Industrial Seals divisions in 1998.
(10) Accrued Expenses
- ----------------------
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 28, DEC 28,
1998 1997
---- ----
<S> <C> <C>
Payroll and incentives ............................... $ 20,320 $ 24,473
Employee benefits .................................... 52,619 48,936
Federal, non-U.S. and state income taxes ............. 36,471 22,352
Other accrued operating expenses ..................... 97,135 70,327
-------- --------
$206,545 $166,088
======== ========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
-----------
(11) Comprehensive Income
- -------------------------
In the first quarter of 1998, the Company adopted the provisions of SFAS No.130,
Reporting Comprehensive Income. The statement established standards for
reporting and display of comprehensive income and its components.
Comprehensive income (loss) consisted of the following:
<TABLE>
<CAPTION>
(In Thousands)
--------------
Three Months Ended Six Months Ended
------------------ ----------------
JUN 28, JUN 29, JUN 28, JUN 29,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) ............................................ $ 31,614 $(11,845) $ 66,097 $ (1,819)
-------- -------- -------- --------
Other comprehensive income (loss), net of tax:
Gross foreign currency translation adjustments ............... (485) (2,116) (3,663) (12,927)
Reclassification adjustment for translation
losses realized upon sale of Sealol Industrial
Seals division ............................................ 3,115 -- 3,115 --
Unrealized gains (losses) on securities ...................... (451) (216) (238) (154)
-------- -------- -------- --------
Other comprehensive income (loss) ............................ 2,179 (2,332) (786) (13,081)
-------- -------- -------- --------
Comprehensive income (loss) .................................. $ 33,793 $(14,177) $ 65,311 $(14,900)
======== ======== ======== ========
</TABLE>
The components of accumulated other comprehensive income (loss) were as follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
JUN 28, DEC 28,
1998 1997
---- ----
<S> <C> <C>
Foreign currency translation adjustments ..................... $ (4,928) $ (4,380)
Unrealized gains on securities ............................... 285 523
-------- --------
Accumulated other comprehensive income (loss) ................ $ (4,643) $ (3,857)
======== ========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Results
-----------------------------------------------
of Operations and Financial Condition
-------------------------------------
EG&G, INC. AND SUBSIDIARIES
Results of Operations
---------------------
The following industry segment information is presented as an aid to better
understand the Company's operating results:
<TABLE>
<CAPTION>
(In Thousands)
--------------
Three Months Ended Six Months Ended
------------------ ----------------
JUN 28, JUN 29, Increase JUN 28, JUN 29, Increase
1998 1997 (Decrease) 1998 1997 (Decrease)
---- ---- --------- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Instruments
Sales ................. $ 79,454 $ 72,350 $ 7,104 $ 156,336 $ 144,024 $ 12,312
Operating Income ...... 2,151 5,780 (3,629) 873 11,915 (11,042)
Mechanical Components
Sales ................. $ 43,960 $ 74,298 $ (30,338) $ 103,815 $ 146,032 $ (42,217)
Operating Income ...... 61,933 7,248 54,685 127,381 14,863 112,518
Optoelectronics
Sales ................. $ 68,939 $ 65,767 $ 3,172 $ 132,604 $ 124,872 $ 7,732
Operating Income (Loss) (5,441) (25,292) 19,851 (11,734) (25,001) 13,267
Technical Services
Sales ................. $ 163,929 $ 156,257 $ 7,672 $ 319,463 $ 300,750 $ 18,713
Operating Income ...... 299 8,334 (8,035) 8,263 16,655 (8,392)
General Corporate Expenses $ (13,118) $ (6,304) $ (6,814) $ (24,062) $ (12,111) $ (11,951)
Continuing Operations
Sales ................. $ 356,282 $ 368,672 $ (12,390) $ 712,218 $ 715,678 $ (3,460)
Operating Income (Loss) 45,824 (10,234) 56,058 100,721 6,321 94,400
</TABLE>
The operating income from continuing operations for the three and six
months ended June 28, 1998 included restructuring charges of $23.1 million
and $54.5 million, respectively. The impact of these charges on each
segment for the three and six months was as follows: Instruments-$5.4
million and $12.5 million, Mechanical Components-$1.4 million and $9.9
million, Optoelectronics-$11.7 million and $20.3 million, Technical
Services-$3.7 million and $7.9 million, and General Corporate Expenses-$0.9
million and $3.9 million, respectively. Operating income for the three and
six months ended June 28, 1998 included a $7.4 million asset impairment
charge in Technical Services and a $3 million charitable contribution in
General Corporate Expenses. Operating income for the three and six months
ended June 28, 1998 also included gains of $58.3 million and $125.8
million, respectively, on dispositions of businesses in the Mechanical
Components segment. The operating income (loss) from continuing operations
for the three and six months ended June 29, 1997 included an asset
impairment charge of $28.2 million. The impact of this charge was $26.7
million on the Optoelectronics segment and $1.5 million on the Technical
Services segment. The discussion that follows is a summary analysis of the
major changes in operating results by industry segment that occurred for
the three and six months ended June 28, 1998 compared to the three and six
months ended June 29, 1997.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Overview
The Company is continuing the realignment of its operating organization to
position the Company for sustained long-term growth. The realignment included
the divestiture of businesses that serve markets which do not meet our growth
criteria or strategic direction. The Company entered 1998 with fifteen operating
divisions. The Company divested the Rotron division in the first quarter of 1998
and the Sealol Industrial Seals division in the second quarter of 1998. The
Company intends to use the proceeds from recent divestitures to accelerate
certain consolidation programs and to invest in acquisitions in strategic growth
areas. The remaining businesses are being organized into five strategic business
units. The Company is emphasizing its ongoing program to reduce costs and to
improve its overall operating processes. As part of this program, the Company
has taken restructuring charges in the first and second quarters of 1998.
Second Quarter
<TABLE>
<CAPTION>
Operating Income
Sales (Loss)
----- ------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................ $ 356,282 $ 368,672 $ 45,824 $ (10,234)
Gains on Dispositions .................................. -- -- (58,344) --
Restructuring Charges .................................. -- -- 23,100 --
Asset Impairment Charge ................................ -- -- 7,400 28, 200
Charitable Contribution (included in selling,
general and administrative expenses) .............. -- -- 3,000 --
Results of Divested Operations ......................... -- (44,562) -- (5,421)
--------- --------- --------- ---------
Base Operations ........................................ $ 356,282 $ 324,110 $ 20,980 $ 12,545
========= ========= ========= =========
</TABLE>
Reported sales from continuing operations decreased 3% in the second quarter of
1998 compared to 1997, while base operations sales (which exclude the results of
operations divested in 1997 and 1998) increased 10% to $356.3 million in the
second quarter of 1998. Reported operating income from continuing operations was
$45.8 million in the second quarter of 1998 and included net nonrecurring income
of $24.8 million or $.41 basic earnings per share (see detailed schedule below).
The reported operating loss of $10.2 million in 1997 included an asset
impairment charge of $28.2 million. The after-tax charge in 1997 was $23.5
million ($.51 basic earnings per share). Base operating income (which excludes
nonrecurring items and results of divested operations) was $21 million compared
to $12.5 million in 1997 for an increase of 67%. All four industry segments
contributed to the increase in base operations sales and income.
Summary of 1998 nonrecurring items:
<TABLE>
<CAPTION>
Basic
Earnings
(In Thousands) Before-Tax After-Tax Per Share
- -------------- ---------- --------- ---------
<S> <C> <C> <C>
Gains on Dispositions .................................. $ 58,300 $ 42,600 $ .93
Restructuring Charges .................................. (23,100) (17,600) (.38)
Asset Impairment Charge ................................ (7,400) (4,400) (.10)
Charitable Contribution ................................ (3,000) (1,900) (.04)
-------- -------- --------
$ 24,800 $ 18,700 $ .41
======== ======== ========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Six Months
<TABLE>
<CAPTION>
Sales Operating Income
----- ----------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................ $ 712,218 $ 715,678 $ 100,721 $ 6,321
Gains on Dispositions .................................. -- -- (125,822) --
Restructuring Charges .................................. -- -- 54,500 --
Asset Impairment Charge ................................ -- -- 7,400 28,200
Charitable Contribution (included in selling,
general and administrative expenses) .............. -- -- 3,000 --
Results of Divested Operations ......................... -- (65,771) -- (8,839)
1997 Gains, Net of Integration Costs ................... -- -- -- (1,024)
--------- --------- --------- ---------
Base Operations ........................................ $ 712,218 $ 649,907 $ 39,799 $ 24,658
========= ========= ========= =========
</TABLE>
Reported sales from continuing operations decreased slightly in 1998 compared to
1997, reflecting the lost sales of divested operations, while base operations
sales increased 10%. Reported operating income from continuing operations was
$100.7 million in 1998 and included net nonrecurring income of $60.9 million or
$.92 basic earnings per share (see detailed schedule below). The 1997 reported
operating income of $6.3 million included an asset impairment charge of $28.2
million. The after-tax impairment charge in 1997 was $23.5 million ($.51 basic
earnings per share). Base operating income, excluding the nonrecurring items,
increased 61% to $39.8 million from $24.7 million in 1997. All four segments
contributed to the increase in base operations sales and income.
(See note 1 in Mechanical Components-Six Months)
Summary of 1998 nonrecurring items:
<TABLE>
<CAPTION>
Basic
Earnings
(In Thousands) Before-Tax After-Tax Per Share
- -------------- ---------- --------- ---------
<S> <C> <C> <C>
Gains on Dispositions .................................. $ 125,800 $ 87,800 $ 1.93
Restructuring Charges .................................. (54,500) (39,500) (.87)
Asset Impairment Charge ................................ (7,400) (4,400) (.10)
Charitable Contribution ................................ (3,000) (1,900) (.04)
---------- --------- ---------
$ 60,900 $ 42,000 $ .92
========== ========= =========
</TABLE>
Instruments
Second Quarter
<TABLE>
<CAPTION>
Sales Operating Income
----- ----------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................ $ 79,454 $ 72,350 $ 2,151 $ 5,780
Restructuring Charges .................................. -- -- 5,394 --
Results of Divested Operations ......................... -- (2,387) -- (282)
--------- --------- --------- ---------
Base Operations ........................................ $ 79,454 $ 69,963 $ 7,545 $ 5,498
========= ========= ========= =========
</TABLE>
Reported sales increased 10% while base operations sales (which exclude results
of divested operations) increased 14%. All operations contributed to the sales
increase, with the majority of the increase due to higher sales of medical
diagnostics products. Also contributing was the Isolab acquisition which was
concluded late in the first quarter of 1998. Reported operating income of $2.2
million included restructuring charges of $5.4 million. The restructuring plan
is expected to result in annualized cost reductions of approximately $3.8
million in the year 2000. Base operating income (which excludes nonrecurring
items and results of divested operations) increased 37% as the income earned on
the higher sales level and favorable product mix in medical diagnostics was
partially offset by price reductions due to competitive pressures on
conventional explosives-detection systems.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Instruments
Six Months
<TABLE>
<CAPTION>
Sales Operating Income
----- ----------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................ $ 156,336 $ 144,024 $ 873 $ 11,915
Restructuring Charges .................................. -- -- 12,494 --
Results of Divested Operations ......................... -- (5,285) -- (691)
1997 Gains, Net of Integration Costs ................... -- -- -- (1,024)
--------- --------- --------- ---------
Base Operations ........................................ $ 156,336 $ 138,739 $ 13,367 $ 10,200
========= ========= ========= =========
</TABLE>
Reported sales increased 9% from last year and base operations sales increased
13% with all operations contributing to this increase. Higher sales of medical
diagnostic products and the Isolab acquisition were the main contributors to the
increase. The six-month restructuring charges were $12.5 million, and the
restructuring plans are expected to result in annualized cost reductions of
approximately $6.7 million in the year 2000. Base operating income was $13.4
million, an increase of $3.2 million (31%) over the comparable period in 1997.
This increase was due to the income earned on the higher sales level partially
offset by price reductions due to competitive pressures.
Mechanical Components
Second Quarter
<TABLE>
<CAPTION>
Sales Operating Income
----- ----------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................ $ 43,960 $ 74,298 $ 61,933 $ 7,248
Gains on Dispositions .................................. -- -- (58,344) --
Restructuring Charges .................................. -- -- 1,370 --
Results of Divested Operations ......................... -- (42,175) -- (5,139)
--------- --------- --------- ---------
Base Operations ........................................ $ 43,960 $ 32,123 $ 4,959 $ 2,109
========= ========= ========= =========
</TABLE>
Reported sales decreased compared to last year due to the absence of the sales
of the divested divisions. Base operations sales increased 37% to $44 million in
1998. The main contributor to the increase was the Belfab acquisition, which
closed early in the second quarter. The remainder was due to higher demand for
aerospace products, reflecting second quarter strength in that market. Reported
operating income was $61.9 million in 1998 and included a gain on the
divestiture of the Sealol Industrial Seals division of $58.3 million and
restructuring charges of $1.4 million. Base operating income increased 135% as a
result of higher sales in the aerospace business and cost productivity
improvements.
Mechanical Components
Six Months
<TABLE>
<CAPTION>
Sales Operating Income
----- ----------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................ $ 103,815 $ 146,032 $ 127,381 $ 14,863
Gains on Dispositions .................................. -- -- (125,822) --
Restructuring Charges .................................. -- -- 9,870 --
Results of Divested Operations ......................... -- (60,486) -- (8,148)
--------- --------- --------- ---------
Base Operations (1) .................................... $ 103,815 $ 85,546 $ 11,429 $ 6,715
========= ========= ========= =========
</TABLE>
(1) Base operations include the results of the Sealol Industrial Seals division
for the first quarters only of 1998 and 1997, with sales of approximately $23
million and operating income of approximately $2 million in both periods.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Compared to last year, reported sales decreased due to the absence in 1998 of
the sales of the divested divisions. Base operations sales increased 21% due to
higher demand for aerospace products and, to a lesser extent, the Belfab
acquisition. Reported operating income of $127.4 million in 1998 included gains
on divestitures of $125.8 million and restructuring charges of $9.9 million.
Base operating income increased 70% due mainly to income earned on the higher
sales level and cost productivity improvements.
The Company sold the Rotron division in January 1998 for $103 million. In April
1998, the Company sold the 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 annual sales were $30 million. The Company realized gains
of $125.8 million on dispositions.
Optoelectronics
Second Quarter
<TABLE>
<CAPTION>
Operating Income
Sales (Loss)
----- ------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................ $ 68,939 $ 65,767 $ (5,441) $ (25,292)
Restructuring Charges .................................. -- -- 11,716 --
Asset Impairment Charge ................................ -- -- -- 26,700
--------- --------- ---------- ---------
Base Operations ........................................ $ 68,939 $ 65,767 $ 6,275 $ 1,408
========= ========= ========== =========
</TABLE>
Reported sales grew 5% to $68.9 million due to increases in the custom
optoelectronic components and imaging businesses. The reported operating loss in
1998 included restructuring charges of $11.7 million, while the 1997 loss
included a noncash asset impairment charge of $26.7 million. When fully
implemented, the restructuring plan is expected to result in annualized cost
reductions of $6 million in the year 2000. Excluding the nonrecurring charges,
base operating income increased $4.9 million mainly as the result of the
Company's success in operating IC Sensors at break-even compared to a loss in
1997. Contributing to a lesser extent was the income on the higher sales levels.
During the second quarter of 1998, the Company spent $1 million on the amorphous
silicon development project and $1.2 million on the advanced micromachined
sensor development project, the same spending levels as 1997.
Optoelectronics
Six Months
<TABLE>
<CAPTION>
Operating Income
Sales (Loss)
----- ------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................. $ 132,604 $ 124,872 $ (11,734) $ (25,001)
Restructuring Charges ................................... -- -- 20,316 --
Asset Impairment Charge ................................. -- -- -- 26,700
--------- --------- --------- ---------
Base Operations ......................................... $ 132,604 $ 124,872 $ 8,582 $ 1,699
========= ========= ========= =========
</TABLE>
Reported sales for the six months increased 6% to $132.6 million in 1998
compared to 1997. The increase resulted from higher sales in the custom
optoelectronic components, imaging and thermopile businesses. The reported
operating loss in 1998 included restructuring charges of $20.3 million while the
1997 reported loss included a noncash asset impairment charge of $26.7 million.
When fully implemented in the year 2000, the restructuring plans are expected to
result in annualized cost reductions of $9 million. Base operating income was
$8.6 million in 1998, an increase of $6.9 million (405%). The increase resulted
from the Company's success in operating IC Sensors at a lower loss and income
earned on higher sales. The 1998 cost of the development effort for the
amorphous silicon project was $2.5 million, while the development effort for the
advanced micromachined sensor project was $2.4 million, which are approximately
the same levels as 1997.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Technical Services
Second Quarter
<TABLE>
<CAPTION>
Sales Operating Income
----- ----------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................. $ 163,929 $ 156,257 $ 299 $ 8,334
Restructuring Charges ................................... -- -- 3,713 --
Asset Impairment Charge ................................. -- -- 7,400 1,500
--------- --------- --------- ---------
Base Operations ......................................... $ 163,929 $ 156,257 $ 11,412 $ 9,834
========= ========= ========= =========
</TABLE>
Reported sales increased 5% to $163.9 million compared with 1997 levels as a
result of the new Defense Logistics Agency contract and billings under the new
attack submarine contract for the Navy. These increases were partially offset by
the effect of a communication systems development contract which concluded last
year. 1998 reported operating income included $3.7 million of restructuring
charges and a noncash asset impairment charge of $7.4 million related to the
automotive testing business. The 1997 results included a $1.5 million impairment
charge related to an environmental services business. Excluding the nonrecurring
charges, base operating income increased 16% to $11.4 million compared with
1997. This increase was due to income earned on the higher sales partially
offset by a decrease in the automotive testing business.
Technical Services
Six Months
<TABLE>
<CAPTION>
Sales Operating Income
----- ----------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
As Reported ............................................. $ 319,463 $ 300,750 $ 8,263 $ 16,655
Restructuring Charges ................................... -- -- 7,913 --
Asset Impairment Charge ................................. -- -- 7,400 1,500
--------- --------- --------- ---------
Base Operations ......................................... $ 319,463 $ 300,750 $ 23,576 $ 18,155
========= ========= ========= =========
</TABLE>
Reported sales were $319.5 million in 1998, an increase of 6% over the 1997
level. The main contributors to the increase were the new Defense Logistics
Agency contract, billings under the new attack submarine contract for the Navy
and higher automotive testing sales. Partially offsetting these increases was
the effect of a communication systems development contract which concluded last
year. Reported operating income for 1998 included $7.9 million of restructuring
charges and a noncash asset impairment charge of $7.4 million related to the
automotive testing business, while 1997 results included a $1.5 million
impairment charge related to an environmental services business. The
restructuring plan is expected to result in annualized cost reductions of $3
million, which will be fully realized in the year 2000. Excluding the
nonrecurring charges, base operating income increased 30% to $23.6 million. This
increase resulted from the higher sales level and improved grades on the
chemical weapons disposal contract and the 1997 close-down of an environmental
services business which incurred a loss last year. 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 will be awarded during the third quarter of 1998 and be effective
October 1, 1998. The Company is participating in the recompetition for the new
contract as part of a joint venture.
General Corporate Expenses
Second Quarter
<TABLE>
<CAPTION>
Operating Expenses
------------------
(In Thousands) 1998 1997
- -------------- ---- ----
<S> <C> <C>
As Reported ............................................ $ (13,118) $ (6,304)
Restructuring Charges .................................. 907 --
Charitable Contribution ................................ 3,000 --
---------- ---------
Base Operations ........................................ $ (9,211) $ (6,304)
========== =========
</TABLE>
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
1998 reported expenses included a charitable contribution of $3 million, which
is classified as selling, general and administrative expenses, and restructuring
charges of $0.9 million. Excluding the nonrecurring charges, corporate expenses
increased $2.9 million as a result of management transition costs and increased
incentive costs.
General Corporate Expenses
Six Months
<TABLE>
<CAPTION>
Operating Expenses
------------------
(In Thousands) 1998 1997
- -------------- ---- ----
<S> <C> <C>
As Reported ............................................ $ (24,062) $ (12,211)
Restructuring Charges .................................. 3,907 --
Charitable Contribution ................................ 3,000 --
--------- ---------
Base Operations ........................................ $ (17,155) $ (12,111)
========= =========
</TABLE>
1998 reported expenses included restructuring charges of $3.9 million and a
charitable contribution of $3 million. Excluding the nonrecurring charges,
corporate expenses increased $5 million as a result of management transition
costs and increased incentive costs.
Other
The net decrease in other expense for the second quarter and six months was
mainly due to higher interest income on increased cash and lower interest
expense on reduced debt levels resulting from the proceeds from the 1998
dispositions. The 1998 effective tax rates for both the second quarter and
six-month periods (29.7% and 33%, respectively) were impacted by the tax
consequences of the nonrecurring items. Excluding the nonrecurring items and
their related tax effects, the effective tax rate for the second quarter and six
months of 1998 was 36% as planned. This rate is higher than the 1997 base
effective tax rate of 34%, due primarily to changes in the geographical
distribution of income resulting from the divestiture of the Sealol Industrial
Seals division.
Restructuring Charges
During the second quarter of 1998, management expanded the continuing effort to
restructure certain businesses to further improve the Company's performance. The
plan resulted in pre-tax restructuring charges of $23.1 million. The principal
actions in the restructuring plan include the integration of current operating
divisions into five strategic business units, close-down or consolidation of a
number of production facilities and general cost reductions. The restructuring
plan is expected to result in the elimination of approximately 300 positions.
These actions are expected to result in pre-tax savings of approximately $1
million in 1998. As the plan will be mainly implemented in 1999, the pre-tax
savings are expected to be $11-13 million in the year 2000. The major components
of the restructuring charges were $12 million of employee separation costs, $6
million of noncash charges to dispose of certain assets through sale or
abandonment and $5 million of charges to terminate lease and other contractual
obligations no longer required as a result of the restructuring plan. The
charges do not include additional costs associated with the restructuring plans,
such as training, consulting, purchase of equipment and relocation of employees
and equipment. These costs will be charged to operations or capitalized, as
appropriate, when incurred.
During the first six months of 1998, management developed plans to restructure
certain businesses to improve the Company's performance. The plans resulted in
pre-tax restructuring charges of $54.5 million, of which $31.4 million was
recorded in the first quarter and $23.1 million was recorded in the second
quarter. The principal actions in the restructuring plans include close-down or
consolidation of a number of offices and facilities, integration into five
strategic business units, transfer of assembly activities to lower-cost
geographic locations, disposal of under-utilized assets, withdrawal from certain
product lines and general cost reductions. The restructuring plans are expected
to result in the elimination of approximately 900 positions. These actions are
expected to result in pre-tax savings of approximately $4 million in 1998. As
the plan will be mainly implemented in 1999, the pre-tax savings are expected to
be $22-24 million in the year 2000. The major components of the restructuring
charges were $33 million of employee separation costs, $12 million of noncash
charges to dispose of certain product lines and assets through sale or
abandonment and $10 million of charges to terminate lease and other contractual
obligations no longer required as a result of the restructuring plans.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
The charges do not include additional costs associated with the restructuring
plans, such as training, consulting, purchase of equipment and relocation of
employees and equipment. These costs will be charged to operations or
capitalized, as appropriate, when incurred.
Asset Impairment Charge
During the second quarter of 1998, the Company recorded a $7.4 million noncash
impairment charge related to an automotive testing facility that is part of the
Technical Services segment. The impairment charge resulted from projected
changes in the principal customer's demand for services. The charge applied to
fixed assets and will reduce future depreciation by approximately $1.4 million
annually.
During the second quarter of 1997, the Company recorded a noncash impairment
charge of $28.2 million with $26.7 million related to IC Sensors and $1.5
million related to an environmental services business. As a result of IC
Sensors' inability to achieve the improvements specified in its corrective
action plan, 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 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 and first six months
of 1998 was consistent with its revised operating plan. IC Sensors operated at
break-even during the second quarter of 1998. 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.
Discontinued Operations
Income from discontinued operations, net of income taxes, in 1997 reflected the
results of the Mound contract which expired in September 1997. The Company is in
the process of negotiating contract closeouts and does not anticipate incurring
a material loss in excess of previously established reserves.
Financial Condition
-------------------
The Company's cash and cash equivalents increased $120 million in 1998 while
commercial paper borrowings of $46 million at year-end 1997 were eliminated due
to the proceeds from the sale of two divisions. Net cash provided by continuing
operations during the first six months of 1998 was $36.3 million compared to
$15.8 million net cash used in 1997. The favorable change was mainly due to
collection of receivables and the accrued taxes on the higher income which will
be paid in future quarters. Capital expenditures were $18.5 million in the first
six months of 1998, a decrease of $7.9 million from the 1997 level and are
expected to be at a level of $50-60 million for the year 1998. The
implementation of the restructuring plans is expected to result in cash outlays
of $26 million in the remainder of 1998 and into 1999. In 1998, the Company
realized gross proceeds of over $200 million from the sales of the Rotron and
Sealol Industrial Seals divisions and used $45 million to purchase TI Group's
Belfab division. The Company plans to use these proceeds to accelerate certain
consolidation programs and to invest in acquisitions in strategic growth areas.
During the first six months of 1998, the Company purchased 447,000 shares of its
common stock through periodic purchases on the open market at a cost of $11.4
million. The Company has two revolving credit agreements totaling $200 million.
During the first quarter of 1998, the Company's $100 million 364-day credit
facility was extended to March 1999. The Company did not draw down its credit
facilities during the first six months of 1998.
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 2000 on all of its critical systems and
believes it will be able to modify or replace its affected systems in time to
minimize any detrimental effects on its 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.
<PAGE>
EG&G INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
On January 1, 1999, eleven of the fifteen member countries of the European Union
are scheduled to establish fixed conversion rates between their existing
sovereign currencies and the new common currency, the "euro". The participating
countries have agreed to adopt the euro as their common legal currency on that
date. There will be a transition period between January 1, 1999 and January 1,
2002, during which the euro will be adopted into the operations. The Company has
formed a cross-functional task force and has begun to assess the potential
impact to the Company that may result from the euro conversion. Areas of
assessment include the following: (1) cross-border price transparencies and the
resulting competitive impact; (2) adaptation of information technology and other
system requirements to accommodate euro transactions; (3) the impact on currency
exchange rate risk; (4) the impact on existing contracts; (5) taxation and
accounting. The Company's preliminary assessment is that the anticipated impact
of the euro conversion on the Company's operations will not be material.
Forward-Looking Information
---------------------------
All statements contained herein that refer to a time after June 28, 1998,
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 and continuing program
initiatives. Improved operational efficiency will be required to offset
increasing price pressure in many of the Company's product offerings. Other
factors that may impact future earnings performance include the ability to
replace sales and earnings lost through divestitures, potential issues related
to economic and financial difficulties arising in Asia, unanticipated issues
associated with the Year 2000 dating problem, and difficulty in attracting and
retaining key personnel in certain areas. The future results of the
Optoelectronics segment may be affected by management's ability to maintain IC
Sensors at break-even, 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 income generated by many of our government contracts is
dependent on meeting certain 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 contract 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 will be awarded during the third quarter
of 1998 and be effective October 1, 1998. The Company is participating in the
recompetition for the new contract as part of a joint venture.
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
carry-forwards, repatriation costs, resolution of outstanding tax audit issues
and changes in the portfolio of businesses.
<PAGE>
Exhibits
EG&G, INC. AND SUBSIDIARIES
Exhibit 27 - Financial data schedule
<PAGE>
PART II. OTHER INFORMATION
EG&G, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits incorporated by reference from Part I herein
Exhibit 27 - Financial data schedule (submitted in electronic format only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on April 16, 1998 regarding the sale
of the Company's Sealol Industrial Seals division, the purchase of the
Belfab division of John Crane, Inc. and the sale of the Company's Rotron
division.
The Company filed a report on Form 8-K on April 23, 1998, which included a
copy of a press release containing the Company's financial results for the
quarter ended March 29, 1998.
<PAGE>
EG&G, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EG&G, Inc.
By: /s/ John F. Alexander, II
---------------------------
John F. Alexander, II
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date August 10, 1998
---------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000031791
<NAME> EG&G, Inc.
<MULTIPLIER> 1000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<EXCHANGE-RATE> 1
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<SECURITIES> 0
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0
0
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<CGS> 249,734
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<INCOME-TAX> 32,544
<INCOME-CONTINUING> 66,097
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<EPS-PRIMARY> 1.45
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</TABLE>
