EG&G INC, 10-Q, 1999-08-11

EG&G INC
10-Q, 1999-08-11
ENGINEERING SERVICES

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<PAGE> 1

================================================================================

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 JULY 4, 1999

[ ] 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)

<TABLE>
<S> <C>
MASSACHUSETTS 04-2052042
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
</TABLE>

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:

<TABLE>
<CAPTION>
CLASS OUTSTANDING AT AUGUST 2, 1999
----- -----------------------------
<S> <C>
Common Stock, $1 par value 45,854,647
(Excluding treasury shares)
</TABLE>

================================================================================
<PAGE> 2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EG&G, INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales:
Products.................................... $291,748 $192,353 $522,154 $392,755
Services.................................... 12,510 17,071 25,321 36,311
-------- -------- -------- --------
Total Sales............................ 304,258 209,424 547,475 429,066
-------- -------- -------- --------
Cost of Sales:
Products.................................... 187,491 121,478 336,654 249,734
Services.................................... 10,410 15,102 21,948 31,093
Revaluation of Acquired Inventory
(Note 2).................................. 2,464 -- 2,464 --
-------- -------- -------- --------
Total Cost of Sales.................... 200,365 136,580 361,066 280,827
Research and Development Expenses................ 16,264 10,941 29,661 21,983
Selling, General and Administrative Expenses..... 71,167 53,314 123,258 108,247
In-Process Research and Development Charge
(Note 2)....................................... 23,000 -- 23,000 --
Restructuring Charges (Note 3)................... -- 19,527 -- 50,027
Asset Impairment Charge.......................... -- 7,400 -- 7,400
Gains on Dispositions (Note 4)................... (8,478) (58,344) (8,478) (125,822)
-------- -------- -------- --------
OPERATING INCOME FROM CONTINUING OPERATIONS...... 1,940 40,006 18,968 86,404
Other Expense, Net (Note 5)...................... (6,197) (1,093) (10,829) (3,007)
-------- -------- -------- --------
Income (Loss) From Continuing Operations Before
Income Taxes................................... (4,257) 38,913 8,139 83,397
Provision (Benefit) for Income Taxes............. (1,532) 11,160 2,822 27,056
-------- -------- -------- --------
Income (Loss) From Continuing Operations......... (2,725) 27,753 5,317 56,341
Income From Discontinued Operations, Net of
Income Taxes (Note 14)......................... 6,342 3,861 12,387 9,756
-------- -------- -------- --------
NET INCOME....................................... $ 3,617 $ 31,614 $ 17,704 $ 66,097
======== ======== ======== ========
Basic Earnings (Loss) Per Share:
CONTINUING OPERATIONS....................... $ (.06) $ .61 $ .12 $ 1.24
Discontinued Operations..................... .14 .08 .27 .21
-------- -------- -------- --------
NET INCOME.................................. $ .08 $ .69 $ .39 $ 1.45
======== ======== ======== ========
Diluted Earnings (Loss) Per Share:
CONTINUING OPERATIONS....................... $ (.06) $ .60 $ .12 $ 1.22
Discontinued Operations..................... .14 .08 .27 .21
-------- -------- -------- --------
NET INCOME.................................. $ .08 $ .68 $ .39 $ 1.43
======== ======== ======== ========

Cash Dividends Per Common Share.................. $ .14 $ .14 $ .28 $ .28
Weighted Average Shares of Common Stock
Outstanding:
Basic....................................... 45,275 45,682 45,092 45,472
Diluted..................................... 46,298 46,446 45,958 46,110
</TABLE>

The accompanying unaudited notes are an integral part of these consolidated
financial statements.
1
<PAGE> 3

EG&G, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1999 1999
----------- ----------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents.............................. $ 58,459 $ 95,565
Accounts Receivable (Note 6)........................... 304,590 170,171
Inventories (Note 7)................................... 198,673 123,568
Other Current Assets................................... 142,485 110,954
Net Assets of Discontinued Operations (Note 14)........ 13,579 23,370
---------- ----------
TOTAL CURRENT ASSETS.............................. 717,786 523,628
---------- ----------
Property, Plant and Equipment:
At Cost (Note 8)....................................... 490,871 491,647
Accumulated Depreciation and Amortization.............. (257,357) (272,967)
---------- ----------
Net Property, Plant and Equipment........................... 233,514 218,680
---------- ----------
Investments................................................. 15,194 13,506
Intangible Assets (Note 9).................................. 615,240 317,611
Other Assets................................................ 70,776 63,210
---------- ----------
TOTAL ASSETS...................................... $1,652,510 $1,136,635
========== ==========
Current Liabilities:
Short-Term Debt (Note 10).............................. $ 530,903 $ 157,888
Accounts Payable....................................... 135,070 73,420
Accrued Restructuring Costs (Note 3)................... 52,414 34,569
Accrued Expenses (Note 11)............................. 246,406 217,000
---------- ----------
TOTAL CURRENT LIABILITIES......................... 964,793 482,877
---------- ----------
Long-Term Debt.............................................. 114,988 129,835
Long-Term Liabilities....................................... 170,357 124,256
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...................................... 627,615 623,591
Accumulated Other Comprehensive Income (Loss) (Note
12)................................................... (13,711) 3,729
Cost of shares held in treasury; 14,476,000 shares at
July 4, 1999 and 15,355,000 shares at January 3,
1999.................................................. (271,634) (287,755)
---------- ----------
Total Stockholders' Equity.................................. 402,372 399,667
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,652,510 $1,136,635
========== ==========
</TABLE>

The accompanying unaudited notes are an integral part of these consolidated
financial statements.
2
<PAGE> 4

EG&G, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JULY 4, JUNE 28,
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................. $ 17,704 $ 66,097
Deduct net income from discontinued operations......... (12,387) (9,756)
--------- ---------
Income from continuing operations...................... 5,317 56,341
Adjustments to reconcile income from continuing
operations to net cash provided by continuing
operations:
Revaluation of acquired inventory................. 2,464 --
In-process research and development charge........ 23,000 --
Noncash portion of restructuring charges.......... -- 11,620
Asset impairment charge........................... -- 7,400
Depreciation and amortization..................... 29,720 22,434
Deferred taxes.................................... 806 (1,818)
Gains on dispositions and investments, net........ (11,386) (126,184)
Changes in assets and liabilities which provided
(used) cash, excluding effects from companies
purchased and divested:
Accounts receivable............................... (13,859) 12,023
Inventories....................................... 6,813 (6,055)
Accounts payable and accrued expenses............. 1,042 2,784
Accrued restructuring costs....................... (8,555) 33,282
Prepaid expenses and other........................ (18,969) (12,224)
--------- ---------
Net Cash Provided by (Used in) Continuing Operations........ 16,393 (397)
Net Cash Provided by Discontinued Operations................ 22,168 36,695
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 38,561 36,298
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures................................... (15,309) (17,506)
Proceeds from dispositions of businesses and sales of
property, plant and equipment......................... 26,966 204,998
Cost of acquisitions................................... (295,685) (54,647)
Other.................................................. (1,071) 409
--------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES......... (285,099) 133,254
--------- ---------
FINANCING ACTIVITIES:
Increase (decrease) in commercial paper borrowings..... 126,000 (45,844)
Increase (decrease) in other debt...................... 82,266 (309)
Proceeds from issuance of common stock................. 15,230 20,910
Purchases of common stock.............................. (185) (11,446)
Cash dividends......................................... (12,604) (12,714)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 210,707 (49,403)
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... (1,275) (510)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (37,106) 119,639
Cash and cash equivalents at beginning of period............ 95,565 57,934
--------- ---------
Cash and cash equivalents at end of period.................. $ 58,459 $ 177,573
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
One-year secured 5% promissory notes issued to The
Perkin-Elmer Corporation in connection with the
acquisition of the Analytical Instruments Division (Note
2)........................................................ $ 150,000 $ --
</TABLE>

The accompanying unaudited notes are an integral part of these consolidated
financial statements.

3
<PAGE> 5

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. Certain information in footnote disclosures
normally included in financial statements has been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.

These statements should be read in conjunction with the Company's Annual
Report for the year ended January 3, 1999, filed on Form 10-K with the
Securities and Exchange Commission. The balance sheet amounts at January 3, 1999
in this report were extracted from the Company's audited 1998 financial
statements included in the respective period's Form 10-K. Certain prior period
amounts have been reclassified to conform to the current-year presentation for
discontinued operations. The information set forth in these statements may be
subject to normal year-end adjustments. The information reflects all adjustments
that, in the opinion of management, are necessary to present fairly the
Company's results of operations, financial position and cash flows for the
periods indicated. 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 July 4,
1999 are not necessarily indicative of the results for the entire year.

The Financial Accounting Standards Board issued SFAS No. 137, Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of SFAS No. 133, in July 1999. SFAS No. 133 is now effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000; earlier adoption is
allowed. SFAS No. 133 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 relatively 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) ACQUISITIONS

On December 16, 1998, the Company acquired substantially all of the
outstanding common stock and options of Lumen Technologies, Inc. (Lumen), a
maker of high-technology specialty light sources. The purchase price of
approximately $253 million, which included $75 million of assumed debt, was
funded with existing cash and commercial paper borrowings. The acquisition was
accounted for as a purchase under Accounting Principles Board Opinion No. 16
(APB No. 16). Further details and disclosures are discussed more fully in the
Company's Annual Report for the year ended January 3, 1999, filed on Form 10-K
with the Securities and Exchange Commission. Lumen is primarily reported in our
Optoelectronics segment with the photolithography business of Lumen reported
within our Instruments segment. The Company acquired Life Sciences Resources,
Ltd. (LSR) in the fourth quarter of 1998. Acquisitions in early 1998 included
Isolab in our Life Sciences segment and Belfab in our Engineered Products
segment.

4
<PAGE> 6
EG&G, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On May 28, 1999, the Company completed its acquisition of the Analytical
Instruments Division of The Perkin-Elmer Corporation ("Perkin-Elmer") for an
aggregate purchase price of approximately $425 million. In addition, under the
terms of the Purchase Agreement, the Company will assume a long-term German
pension liability of approximately $65 million. This German pension liability
was historically funded on a pay-as-you-go basis, and the funding going-forward
is expected to remain consistent. The acquisition was accounted for as a
purchase under APB No. 16. In accordance with APB No. 16, the Company allocated
the purchase price of Perkin-Elmer based on the fair values of the net assets
acquired and liabilities assumed. The purchase price is subject to a
post-closing adjustment equal to the amount by which the net assets of the
Division as of the closing date are greater or less than, as the case may be,
certain target amounts set forth in the Purchase Agreement dated March 8, 1999
between the Company and PE Corp. (the "Purchase Agreement"). The acquired
Perkin-Elmer business produces high-quality analytical testing instruments and
consumables, and generated 1998 fiscal year sales of $569 million. The acquired
Perkin-Elmer business will be reported in the Company's Instruments segment.

The Company funded the acquisition through a combination of (i) $75 million
of available cash, (ii) $100 million of commercial paper borrowings with a
weighted-average interest rate of 5.2% per annum and maturities of 60 days or
less, (iii) aggregate principal amount of $100 million of money market loans
with Chase Securities, Inc., with a weighted-average interest rate of 5.2% per
annum and current maturities ranging from August 27, 1999 to September 6, 1999,
and (iv) one-year secured promissory notes in the aggregate principal amount of
$150 million issued by the Company to PE Corp. (the seller), which bear interest
at a rate of 5% per annum.

Portions of the purchase price, including intangible assets, were valued by
independent appraisers utilizing proven valuation procedures and techniques.
These intangible assets include approximately $23 million for acquired
in-process research and development (in-process R&D) for projects that did not
have future alternative uses. This allocation represents the estimated fair
value based on risk-adjusted cash flows related to the in-process R&D projects.
At the date of the acquisition, the development of these projects had not yet
reached technological feasibility, and the R&D in progress had no alternative
future uses. Accordingly, these costs were expensed in the second quarter of
1999. Other acquired intangibles totaling $172.9 million included the fair value
of trade names, trademarks, patents and developed technology. These intangibles
are being amortized over their respective estimated useful lives ranging from
10-40 years. Goodwill resulting from the acquisition is being amortized over 40
years. Approximately $36 million has been recorded as accrued restructuring
charges in connection with the acquisition. The restructuring plans include
initiatives to integrate the operations of the Company and Perkin-Elmer, and
reduce overhead. The primary components of these plans relate to: (a) employee
termination benefits and related costs for approximately 15% to 20% of the
acquired workforce of approximately 3,000 employees; to date, the Company has
announced plans to reduce the workforce by 350 individuals, (b) consolidation or
shutdown of certain operational facilities worldwide, and (c) the termination of
certain leases and other contractual obligations. Management is in the process
of finalizing its restructuring plans and, accordingly, the amounts recorded are
based on management's current estimates of those costs. The Company will
finalize these plans during 1999, and the majority of the restructuring actions
are expected to occur by 1999-2000.

5
<PAGE> 7
EG&G, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of the purchase price and preliminary allocation are as
follows:

<TABLE>
<S> <C>
(In thousands)
CONSIDERATION AND ACQUISITION COSTS:
Cash paid................................................. $ 275,000
Seller note............................................... 150,000
Germany pension liability assumed......................... 65,000
Acquisition costs......................................... 10,000
---------
$ 500,000
=========
PRELIMINARY ALLOCATION OF PURCHASE PRICE:
Current assets............................................ $ 253,294
Property, plant and equipment............................. 41,258
Acquired intangibles...................................... 172,900
In-process R&D............................................ 23,000
Goodwill.................................................. 177,218
Liabilities assumed and other............................. (167,670)
---------
$ 500,000
=========
</TABLE>

As indicated earlier, some allocations are based on studies and valuations
which are currently being finalized. Management does not believe that the final
purchase price allocation will produce materially different results than those
reflected herein.

Unaudited pro forma operating results from the Company, assuming the
acquisitions of Lumen and Perkin-Elmer occurred on December 29, 1997, are as
follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JULY 4, JUNE 28,
1999 1998
(In thousands) -------- --------
<S> <C> <C>
Sales.......................................... $762,309 $807,709
Net income..................................... 17,448 51,688
Basic earnings per share....................... .39 1.14
Diluted earnings per share..................... .38 1.12
</TABLE>

The pro forma amounts in the table above exclude the Perkin-Elmer $23
million and $2.3 million Lumen acquired in-process R&D charges. Pro forma
amounts for the other 1998 acquisitions are not included as their effect is not
material to the Company's consolidated financial statements.

(3) RESTRUCTURING CHARGES

The Company developed two restructuring plans during the first and second
quarters of 1998 to integrate and consolidate its businesses. These
restructuring plans were points in the continuing transformation of the Company
that began in 1994 and continued into 1998 with the addition of new leadership
and new management, changes in the organization of the businesses and the
realignment and consolidation of operations. Further details of the actions are
discussed more fully in the Company's Annual Report for the year ended January
3, 1999, filed on Form 10-K with the Securities and Exchange Commission and in
the Management's Discussion and Analysis section of this quarterly report filed
on Form 10-Q for the quarter and six months ended July 4, 1999.

6
<PAGE> 8
EG&G, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reduced depreciation and lower employment costs, totaled approximately $4.3
million during the second quarter of 1999, or $.06 earnings per diluted share.
Pre-tax costs savings under these restructuring plans totaled approximately $6.4
million for the six months ended July 4, 1999, or $.09 per diluted share. The
Company expects to incur approximately $23 million of cash outlays in connection
with its two restructuring plans throughout the remainder of 1999. These funds
are expected to come primarily from operating cash flows or borrowings from
existing credit facilities.

The components of the restructuring charges met the criteria set forth in
Emerging Issues Task Force Issue (EITF) 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). 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.

The following table summarizes restructuring activity for the first and
second quarter 1998 restructuring plans through July 4, 1999 ($ in millions):

<TABLE>
<S> <C>
Accrued restructuring costs at beginning of year............ $32.2
Charges/write-offs.......................................... (9.4)
-----
Accrued restructuring costs at July 4, 1999................. $22.8
=====
</TABLE>

The following table summarizes restructuring activity related to the
December, 1998 Lumen acquisition ($ in millions):

<TABLE>
<S> <C>
Accrued restructuring costs at beginning of year............ $ 5.0
Charges/write-offs.......................................... (.3)
-----
Accrued restructuring costs at July 4, 1999................. $ 4.7
=====
</TABLE>

(4) GAINS ON DISPOSITIONS

In January 1998, the Company sold its Rotron division 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 gains of these
divestitures was $45.2 million, or $.99 per diluted share. In April 1998, the
Company sold its Sealol Industrial Seals division for cash of $100 million,
resulting in a pre-tax gain of $58.3 million. The after-tax gain of this
divestiture was $42.6 million, or $.93 diluted earnings per share. Sealol's 1998
sales prior to the disposition were $23 million and its operating income was
$2.1 million, or $.04 diluted earnings per share. During the second quarter of
1999, the Company recognized approximately $4.2 million before taxes of the
previously deferred sales proceeds as a result of the resolution of certain
events and contingencies. The Company currently anticipates recognition of the
remainder of the $12 million of deferred gains related to the Sealol and Rotron
divestitures during the remainder of 1999 assuming the Company continues to
favorably resolve the remaining contingencies associated with these
divestitures.

During the second quarter of 1999, the Company sold its Structural
Kinematics business for $15 million cash. The pre-tax gain was $4.3 million, or
$.06 per diluted share. The net operating results of the divested business for
the six months ended July 4, 1999 were not significant. Additionally, as a
result of the Company's continuing evaluation of its Instruments Segment
businesses, the Company undertook certain repositioning actions during the
quarter, including exiting selected product lines and activities, rebalancing
its customer mix in certain businesses and other related activities. These
actions resulted in second quarter pre-tax charges of approximately $3.4
million, primarily recorded in cost of sales.

7
<PAGE> 9
EG&G, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(5) OTHER EXPENSE

Other expense, net, consisted of the following:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- --------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1999 1998 1999 1998
------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income...................... $ 1,230 $ 2,158 $ 1,826 $ 3,153
Interest expense..................... (6,292) (2,449) (11,841) (5,090)
Other................................ (1,135) (802) (814) (1,070)
------- ------- -------- -------
$(6,197) $(1,093) $(10,829) $(3,007)
======= ======= ======== =======
</TABLE>

(6) ACCOUNTS RECEIVABLE

Accounts receivable were net of reserves for doubtful accounts of $12.5
million and $4.4 million at July 4, 1999 and January 3, 1999, respectively. The
increase in 1999 is primarily due to the acquisition of Perkin-Elmer discussed
in Note 2.

(7) INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1999 1999
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods...................................... $ 85,363 $ 34,940
Work in process..................................... 29,508 22,347
Raw materials....................................... 83,802 66,281
-------- --------
$198,673 $123,568
======== ========
</TABLE>

(8) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, consisted of the following:

<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1999 1999
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land................................................ $ 28,992 $ 23,879
Buildings and leasehold improvements................ 125,046 128,706
Machinery and equipment............................. 336,833 339,062
-------- --------
$490,871 $491,647
======== ========
</TABLE>

(9) INTANGIBLE ASSETS

Intangible assets consist mainly of goodwill from acquisitions accounted
for using the purchase method of accounting representing the excess of cost over
the fair value of the net assets of the acquired businesses. Goodwill from
acquisitions is being amortized over periods of 10-40 years. Other identifiable
intangible assets from acquisitions include patents, trademarks, trade names and
developed technology and are being amortized over periods of 10-40 years.

Goodwill, net of accumulated amortization, was $515 million and $301
million at July 4, 1999 and January 3, 1999, respectively.

8
<PAGE> 10
EG&G, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) SHORT-TERM DEBT

Short-term debt at July 4, 1999 consisted primarily of commercial paper
borrowings of $276 million, secured promissory notes of $150 million issued to
Perkin-Elmer (See Note 2) and money market loans of $100 million.

(11) ACCRUED EXPENSES

Accrued expenses consisted of the following:

<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1999 1999
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Payroll and incentives................................ $ 28,288 $ 22,463
Employee benefits..................................... 38,861 31,171
Federal, non-U.S. and state income taxes.............. 31,168 36,211
Other accrued operating expenses...................... 148,089 127,155
-------- --------
$246,406 $217,000
======== ========
</TABLE>

(12) COMPREHENSIVE INCOME

Comprehensive income presented in accordance with SFAS No. 130, Reporting
Comprehensive Income, consisted of the following:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- --------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1999 1998 1999 1998
------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income........................... $ 3,617 $31,614 $ 17,704 $66,097
------- ------- -------- -------
Other comprehensive income (loss),
net of tax:
Gross foreign currency translation
adjustments........................ (6,054) (485) (17,695) (3,663)
Reclassification adjustment for
translation losses realized upon
sale of Sealed Industrial Seals.... -- 3,115 -- 3,115
Unrealized gains (losses) on
securities......................... 265 (451) 255 (238)
------- ------- -------- -------
Other comprehensive income (loss).... (5,789) 2,179 (17,440) (786)
------- ------- -------- -------
Comprehensive income................. $(2,172) $33,793 $ 264 $65,311
======= ======= ======== =======
</TABLE>

The components of accumulated other comprehensive income (loss) were as
follows:

<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1999 1999
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Foreign currency translation adjustments............. $(14,352) $3,343
Unrealized gains on securities....................... 641 386
-------- ------
Accumulated other comprehensive income (loss)........ $(13,711) $3,729
======== ======
</TABLE>

(13) INDUSTRY SEGMENT INFORMATION

The Company's continuing businesses are reported as four reportable
segments which reflect the Company's management and structure under its four
strategic business units (SBUs). The Company's

9
<PAGE> 11
EG&G, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Technical Services segment has been classified as discontinued operations due to
the pending divestiture as discussed in Note 1.

The accounting policies of the reportable segments are the same as those
described in Note 1 of the Company's Annual Report for the year ended January 3,
1999, filed on Form 10-K with the Securities and Exchange Commission. The
Company evaluates the performance of its operating segments based on operating
profit. Intersegment sales and transfers are not significant.

The segments and their principal products or service areas are:

Life Sciences: High-performance bioanalytic and diagnostic instruments for
use in hospitals, clinics and pharmaceutical and medical research facilities.
The Company also sells reagents and consumables for use in connection with
certain of these instruments.

Optoelectronics: A broad variety of components that emit and detect light,
including photocells, imaging systems, light sources with various types of
flashtubes and laser diodes, and devices for weapons' trigger systems. Products
included micromachined detectors, amorphous silicon detector panels, flashlamps,
specialty lighting CCDs, X-ray tubes, detectors, photodiodes, and high-intensity
specialty discharge lamps.

Instruments: Instruments and systems for X-ray imaging, security
screening, food screening, process measurement, nuclear, electro-chemical and
photolithography applications. The Company also conducts lubricant testing
simulations for the transportation industry.

Engineered Products: Static and dynamic sealing, bellows devices, advanced
pneumatic components, systems and valves for use in the aerospace, power
generation and semiconductor industries.

Unaudited sales and operating profit information by segment for the second
quarters and first six months of 1999 and 1998 are shown in Item 2 of this
Quarterly Report on Form 10-Q and are considered an integral part of this note.

(14) SUBSEQUENT EVENT

On July 19, 1999, the Company announced that it had entered into a
definitive agreement to divest its Technical Services segment (government
services business) to the Carlyle Group for approximately $250 million cash. The
transaction is subject to customary closing conditions and is expected to close
late in the third fiscal quarter of 1999. The Company anticipates a pre-tax gain
from this transaction of approximately $170-$190 million. The results of
operations of the Technical Services segment have been classified as
discontinued operations and, accordingly, prior periods have been restated. The
Company contracted to sell the EG&G name, trademark and related rights in
connection with this divestiture. Subject to shareholder approval, the Company
plans to change its name in the fourth quarter of 1999 to PerkinElmer. This
action will provide enhanced worldwide name recognition for the Company in its
respective markets, and represents a further step in the Company's ongoing
transformation to officially exit the government services business, and focus
the portfolio on its high growth commercial businesses.

The Technical Services segment provided engineering, scientific,
environmental, management and technical support services for a broad range of
governmental and industrial customers.

10
<PAGE> 12
EG&G, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summary operating results of the discontinued operations were as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales............................. $118,186 $146,858 $232,456 $283,152
Costs and expenses................ 108,624 141,040 214,104 268,835
-------- -------- -------- --------
Operating income from discontinued
operations...................... 9,562 5,818 18,352 14,317
Other income...................... 347 215 1,003 927
-------- -------- -------- --------
Income from discontinued
operations before income
taxes........................... 9,909 6,033 19,355 15,244
Provision for income taxes........ 3,567 2,172 6,968 5,488
-------- -------- -------- --------
Income from discontinued
operations, net of income
taxes........................... $ 6,342 $ 3,861 $ 12,387 $ 9,756
======== ======== ======== ========
</TABLE>

11
<PAGE> 13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

EG&G, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS

Summarized financial information covering the Company's reportable segments
is shown in the table below. The following unaudited industry segment
information is presented as an aid to better understand the Company's operating
results:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- ---------------------------------
JULY 4, JUNE 28, INCREASE JULY 4, JUNE 28, INCREASE
1999 1998 (DECREASE) 1999 1998 (DECREASE)
-------- -------- ---------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
LIFE SCIENCES
Sales................... $ 39,735 $ 35,468 $ 4,267 $ 76,590 $ 68,350 $ 8,240
Operating Profit
(Loss)................ 4,451 (674) 5,125 8,430 (50) 8,480
OPTOELECTRONICS
Sales................... $101,666 $ 68,939 $ 32,727 $202,142 $132,604 $ 69,538
Operating Profit
(Loss)................ 11,187 (6,678) 17,865 18,991 (13,999) 32,990
INSTRUMENTS
Sales................... $116,545 $ 61,056 $ 55,489 $181,237 $124,296 $ 56,941
Operating Profit
(Loss)................ (23,749) (4,472) (19,277) (18,744) (8,460) (10,284)
ENGINEERED PRODUCTS
Sales................... $ 46,312 $ 43,961 $ 2,351 $ 87,506 $ 81,150 $ 6,356
Operating Profit
(Loss)................ 4,831 2,341 2,490 8,859 (3,517) 12,376
OTHER
Sales................... $ -- $ -- $ -- $ -- $ 22,666 $ (22,666)
Operating Profit........ 5,220 49,489 (44,269) 1,432 112,430 (110,998)
CONTINUING OPERATIONS
Sales................... $304,258 $209,424 $ 94,834 $547,475 $429,066 $ 118,409
Operating Profit........ 1,940 40,006 (38,066) 18,968 86,404 (67,436)
</TABLE>

Operating profit from continuing operations for the three and six months
ended July 4, 1999 included an in-process research and development charge of $23
million and revaluation of acquired inventory of $2.5 million in the Instruments
segment. Operating profit for the three and six months ended July 4, 1999 also
included gains of $8.5 million on dispositions of businesses in Other. The
Company developed restructuring plans during 1998 to integrate and consolidate
its businesses and recorded restructuring charges in the first and second
quarters of 1998, which are discussed separately below. These restructuring
plans were points in the continuing transformation of the Company that began in
1994 and continued into 1998 with the addition of new leadership and new
management, changes in the organization of the businesses and the realignment
and consolidation of operations. Further details of the actions are presented
below in the Restructuring Charges section of this Item 2, and in the Company's
Annual Report for the year ended January 3, 1999 filed on Form 10-K with the
Securities and Exchange Commission. Operating profit from continuing operations
for the three and six months ended June 28, 1998 included restructuring charges
of $19.5 million and $50 million, respectively. The impact of these
restructuring charges on each segment for the three and six months was as
follows: Life Sciences -- $3.9 million and $4.6 million,
Optoelectronics -- $11.7 million and $20.3 million, Instruments -- $1.6 million
and $11.3 million, Engineered Products -- $1.4 million and $9.9 million, and
Other -- $0.9 million and $3.9 million, respectively. Operating profit for the
three and six months ended June 28, 1998 included a $7.4 million asset
impairment charge in Instruments and a $3 million charitable contribution in
Other. Operating profit 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 Other.

12
<PAGE> 14

ACQUISITIONS AND DIVESTITURES

Acquisitions in early 1998 included Isolab in our Life Sciences segment and
Belfab in our Engineered Products segment. In the fourth quarter of 1998, the
Company acquired Lumen Technologies, Inc. (Lumen) and Life Sciences Resources,
Ltd. (LSR). Lumen is primarily reported in our Optoelectronics segment with the
photolithography business of Lumen reported within our Instruments segment. LSR
is reported in our Life Sciences segment.

The Company acquired Perkin-Elmer's Analytical Instruments Division,
effective May 28, 1999, for a purchase price of approximately $425 million. The
Company financed the transaction with a combination of existing cash and
equivalents, borrowings under its existing credit facilities and other
financing. In addition, under the terms of the Purchase Agreement, the Company
will assume a long-term German pension liability of approximately $65 million.
This German pension liability was historically funded on a pay-as-you-go basis,
and the funding going forward is expected to remain consistent. The Division is
a leading producer of high-quality analytical testing instruments and
consumables, and generated 1998 fiscal year sales of $569 million.

On July 19, 1999, the Company entered into a definitive agreement to divest
its Technical Services segment (government services business) to the Carlyle
Group for $250 million cash. The transaction is subject to customary closing
conditions and is expected to close late in the third fiscal quarter of 1999.
The Company anticipates a pre-tax gain from this transaction of approximately
$170-$190 million. The results of operations of the Technical Services segment
have been classified as discontinued operations and, accordingly, prior periods
have been restated. The Company contracted to sell the EG&G name, trademark and
related rights in connection with this divestiture. Subject to shareholder
approval, the Company plans to change its name in the fourth quarter of 1999 to
PerkinElmer. This action will provide enhanced worldwide name recognition for
the Company in its respective markets, and represents a further step in the
Company's ongoing transformation to officially exit the government services
business, and focus the portfolio on its high growth commercial businesses.

DISCUSSION OF CONSOLIDATED RESULTS OF OPERATIONS

Sales from continuing operations for the second quarter of 1999 were $304.3
million versus $209.4 million in 1998, a 45% increase over the comparable 1998
level. The LSR, Lumen and Perkin-Elmer acquisitions in the aggregate contributed
approximately $101.6 million of revenues during the second quarter of 1999.

Operating income from continuing operations was $1.9 million in the second
quarter of 1999 versus $40 million in the same period of 1998. The 1999
operating income included Perkin-Elmer charges related to acquired in-process
research and development of $23 million and $2.5 million for the revaluation of
acquired inventory. 1999 operating income also included gains from dispositions
of $8.5 million. 1998 operating income included $58.3 million of gains from the
divestiture of certain businesses, an asset impairment charge of $7.4 million
and restructuring charges of $19.5 million. Discussion of operating income by
segment during the second quarter of 1999 versus 1998 is presented in the
section to follow herein. Research and development expenses were $16.3 million
in the second quarter of 1999, an increase of $5.3 million over comparable 1998
levels. This increase was due primarily to expenditures for Perkin-Elmer, Lumen
and other investments across the organization, particularly Life Sciences and
Instruments, to support the overall product growth and development efforts.

13
<PAGE> 15

Sales from continuing operations for the six months ended July 4, 1999 were
$547.5 million, an increase of $118.4 million, or 28%, over the same period of
1998. The LSR, Lumen and Perkin-Elmer acquisitions in the aggregate contributed
approximately $152.5 million to this increase for the six months ended July 4,
1999 and were offset by divestitures and relatively flat sales in certain base
segment businesses during 1999 versus 1998, as discussed in further detail
below.

Operating income from continuing operations from the first six months of
1999 was $19 million versus $86.4 million for the same period of 1998. Included
in 1999 operating income was a $23 million acquired in-process research and
development charge and a $2.5 million charge for the revaluation of acquired
inventory related to the Perkin-Elmer acquisition, along with gains on
dispositions of $8.5 million. The six months 1998 operating income included
$125.8 million of gains on the divestiture of certain businesses, an asset
impairment charge of $7.4 million and restructuring charges of $50 million.
Discussion of operating income by segment during the six months of 1999 versus
1998 is presented below.

SEGMENT RESULTS OF OPERATIONS

The Company's continuing businesses are reported as four reportable
segments, which reflect the Company's management methodology and structure under
continuing Strategic Business Units (SBUs). The Company evaluates performance
based on operating profit of the respective segments. The discussion that
follows is a summary analysis of the primary changes in operating results by
segment for the second quarter of 1999 versus the same period of 1998.

Life Sciences

Sales for the second quarter of 1999 were $39.7 million compared to $35.5
million for the second quarter of 1998, which represents a $4.2 million, or 12%,
increase. Higher sales volumes from certain base businesses and revenues from
recently developed products were the primary reasons for the increase during the
second quarter of 1999, primarily related to the bioanalytical research
business.

Sales for the first six months of 1999 were $76.6 million, increasing $8.2
million over the same period of 1998. Growth in the bioanalytical research and
diagnostic businesses, and revenue from the Isolab acquisition completed in
early 1998 were the primary components of the increase in 1999.

Reported operating income for the second quarter of 1999 was $4.5 million
compared to a $.7 million operating loss for the second quarter of 1998, which
represents a $5.2 million increase. The second quarter of 1998 operating income
included restructuring charges of $3.9 million. Excluding nonrecurring items,
operating profit for the first quarter of 1999 increased approximately $1.2
million, or 36%. The increase was due primarily to the higher revenues discussed
above, improved gross margins from most businesses resulting from the sales of
higher margin new products, and lower 1999 expense levels for the second quarter
of 1999 compared to the same period of 1998.

Operating income for the first six months of 1999 was $8.4 million versus
approximately breakeven for the same period of 1998. The 1998 six months
operating income included restructuring charges of $4.6 million. Excluding
nonrecurring items, operating income for the six months ended July 4, 1999
increased $3.7 million, or 79% versus the comparable 1998 period. Higher sales
from base businesses and 1998 acquisitions and increased gross margins were the
primary components for the increase.

Optoelectronics

Sales for the second quarter of 1999 were $101.7 million compared to $68.9
million for the second quarter of 1998, which represents a $32.8 million, or
48%, increase. The increase in revenues is due to revenues from Lumen, (acquired
in December 1998) offset by slight declines in certain base business sales
volume during the second quarter of 1999 versus the second quarter of 1998 and
the effects of the absence of revenues in 1999 related to the low-margin
automotive sensors and printer circuit board assembly businesses (the Company
exited both businesses in late 1998).

14
<PAGE> 16

Sales for the first six months of 1999 were $202.1 million, increasing
$69.5 million, or 52%, versus the same period of 1998. Revenues from Lumen
comprised the majority of the increase.

Reported operating income for the second quarter of 1999 was $11.2 million
compared to a loss of $6.7 million for the second quarter of 1998. The 1998
operating income included restructuring charges of $11.7 million. Excluding
nonrecurring items, 1999 operating profit for the second quarter increased
approximately $6.2 million, and was 11% of total segment sales for the second
quarter of 1999 versus the 7.3% operating margin for the second quarter of 1998
before nonrecurring items. The 1999 increase was due primarily to higher
revenues discussed above, particularly certain higher-margin Lumen products, the
favorable impact of restructuring activities, including the relocation of
certain production to the Far East, higher gross margins across most businesses,
and a favorable product mix.

Operating income for the first six months of 1999 and 1998 was $19 million
and a loss of $14 million, respectively. The 1998 operating income included
$20.3 million of restructuring charges. Excluding nonrecurring items, 1999
operating profit increased $12.7 million, or 200 basis points. Higher revenues
in 1999 due to the Lumen acquisition in 1998 and increased gross margins during
1999 were the primary contributors to the increase.

Instruments

Sales for the second quarter of 1999 were $116.5 million compared to $61.1
million for the second quarter of 1998, which represents a $55.4 million, or
91%, increase. Revenues of $58 million from the Perkin-Elmer acquisition during
the second quarter of 1999 and the inclusion of the Lumen photolithography
business offset the impact of continued declines in the Company's security and
automotive businesses.

Sales for the six months ended 1999 and 1998 were $181.2 million and $124.3
million, respectively. The $56.9 million, or 46%, increase during 1999 is due to
the revenues from Perkin-Elmer and Lumen offset by slight declines in base
businesses, as discussed above.

Reported operating loss for the second quarter of 1999 was $23.7 million
compared to $4.5 million for the second quarter of 1998. The 1999 operating
income included Perkin-Elmer acquisition charges related to acquired in-process
research and development of $23 million and $2.5 million for the revaluation of
acquired inventory. The Company sold its Structural Kinematics business during
the second quarter of 1999. The net operating results of the divested business
for the six months ended July 4, 1999 were not significant. Additionally, as a
result of the Company's continuing evaluation of its Instruments Segment
businesses, the Company undertook certain repositioning actions during the
quarter, including exiting selected product lines and activities, rebalancing
its customer mix in certain businesses and other related activities. These
actions resulted in second quarter pre-tax charges of approximately $3.4
million, primarily recorded in cost of sales. The 1998 operating income included
an asset impairment charge of $7.4 million and restructuring charges of $1.6
million. Excluding these nonrecurring items, 1999 operating income for the
second quarter increased approximately $.6 million to $5.1 million, versus the
$4.5 million of operating income for the second quarter of 1998 before
nonrecurring items. Perkin-Elmer operating profit in 1999 and the inclusion of
Lumen photolithography operating income during the second quarter of 1999 and
higher ongoing licensing revenue in the second quarter of 1999 compared to the
second quarter of 1998 partially offset lower operating profit in the security
and automotive businesses.

Operating loss for both the first six months of 1999 and 1998 was $18.7
million and $8.5 million, respectively. The 1999 operating profit included an
in-process research and development charge of $23 million, a $2.5 million charge
for the revaluation of acquired inventory and the $3.4 million of charges for
the second quarter as discussed above. The 1998 operating profit included an
asset impairment charge of $7.4 million and restructuring charges of $11.3
million. Excluding nonrecurring items, operating profit of $10.1 million for the
first six months of 1999 was relatively flat versus the same period of 1998. The
operating profit of Perkin-Elmer partially offset lower margins in the security
and automotive testing businesses due to continued market softness.

15
<PAGE> 17

Engineered Products

Sales for the second quarter of 1999 were $46.3 million compared to $44
million for the second quarter of 1998, which represents a $2.3 million, or 5%,
increase. Second quarter 1999 Belfab revenue increased $5.3 million versus the
second quarter of 1998. This increase was offset primarily by the absence of
revenues during the second quarter from certain low-margin sheet metal
fabrication businesses, which the Company exited in late 1998.

Reported operating income for the second quarter of 1999 was $4.8 million
compared to $2.3 million for the second quarter of 1998. The 1998 operating
income included restructuring charges of $1.4 million. Excluding nonrecurring
items, 1999 operating income during the second quarter increased approximately
$1.1 million, and was 10.4% of total segment sales for the respective period
versus the 8.4% operating margin for the second quarter of 1998 before
nonrecurring items. Higher gross margins across most businesses driven primarily
by higher 1999 sales levels during the second quarter versus the comparable 1998
period and the benefits from certain productivity and manufacturing cost
programs within the segment contributed to this increase.

Sales for the first six months of 1999 and 1998 were $87.5 million and
$81.2 million, respectively. Revenues from the Belfab acquisition partially
offset softness in the aerospace markets and the decrease in fabrication
business revenues in 1999 versus 1998, as discussed above.

Reported operating income from the first six months of 1999 versus 1998 was
$8.9 million and a loss of $3.5 million, respectively. The 1998 operating income
included restructuring charges of $9.9 million. Excluding nonrecurring items,
1999 operating income increased 39% due to higher sales and cost productivity
improvements.

RESTRUCTURING CHARGES

The Company developed two restructuring plans during the first and second
quarters of 1998 to integrate and consolidate its businesses. The Company
recorded restructuring charges in the first and second quarters of 1998, which
are discussed separately below. These restructuring plans were points in the
continuing transformation of the Company that began in 1994 and continued into
1998 with the addition of new leadership and new management, changes in the
organization of the businesses and the realignment and consolidation of
operations. Further details of the actions for the two 1998 plans are presented
in the Company's Annual Report for the year ended January 3, 1999 filed on Form
10-K with the Securities and Exchange Commission

In connection with the Company's continued transformation of its portfolio
of companies, during the first quarter of 1998, management developed a plan to
restructure certain businesses. A discussion of the businesses affected within
each segment is presented below. The plan resulted in pre-tax restructuring
charges totaling $31.4 million. The principal actions in the restructuring plan
include close-down or consolidation of a number of offices and facilities,
transfer of assembly activities to lower-cost geographic locations, disposal of
underutilized assets, withdrawal from certain product lines and general cost
reductions.

16
<PAGE> 18

The restructuring charges were broken down as follows by operating segment:

<TABLE>
<CAPTION>
DISPOSAL OF TERMINATION OF
EMPLOYEE CERTAIN PRODUCT LEASES AND OTHER
SEPARATION LINES AND CONTRACTUAL
COSTS ASSETS OBLIGATIONS TOTAL
---------- --------------- ---------------- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Life Sciences....................... $ .3 $ .2 $ .2 $ .7
Optoelectronics..................... 6.7 .8 1.1 8.6
Instruments......................... 4.8 2.9 2.0 9.7
Engineered Products................. 4.8 1.9 1.8 8.5
Technical Services.................. .3 .4 .2 .9
Corporate and Other................. 3.0 -- -- 3.0
----- ---- ---- -----
Total.......................... $19.9 $6.2 $5.3 $31.4
===== ==== ==== =====
Amounts incurred through July 4,
1999.............................. $11.4 $6.2 $1.0 $18.6
Ending accrual at July 4, 1999...... $ 8.5 $ -- $4.3 $12.8
</TABLE>

During the second quarter of 1998, the Company expanded its continuing
effort to restructure certain businesses to further improve performance. The
plan resulted in additional pre-tax restructuring charges of $23.1 million. The
principal actions in this restructuring plan included 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 charges were broken down as follows by operating segment:

<TABLE>
<CAPTION>
DISPOSAL OF TERMINATION OF
EMPLOYEE CERTAIN PRODUCT LEASES AND OTHER
SEPARATION LINES AND CONTRACTUAL
COSTS ASSETS OBLIGATIONS TOTAL
---------- --------------- ---------------- -----
($ IN MILLIONS)
<S> <C> <C> <C> <C>
Life Sciences....................... $ 3.3 $ .2 $ .4 $ 3.9
Optoelectronics..................... 1.8 5.6 4.3 11.7
Instruments......................... 1.6 -- -- 1.6
Engineered Products................. 1.4 -- -- 1.4
Technical Services.................. 3.4 -- .2 3.6
Corporate and Other................. .8 -- .1 .9
----- ---- ---- -----
Total.......................... $12.3 $5.8 $5.0 $23.1
===== ==== ==== =====
Amounts incurred through July 4,
1999.............................. $ 4.4 $5.8 $2.9 $13.1
Ending accrual at July 4, 1999...... $ 7.9 $ -- $2.1 $10.0
</TABLE>

Approximately 397 employees of the total of 900 employees expected to be
terminated as part of the two restructuring plans have been severed as of July
4, 1999. The plans are expected to be mainly implemented by the segments by the
end of the third quarter of 1999, except for the SBU consolidation, the
completion of which is expected to occur by the end of 1999. Cash outlays,
primarily for employee separation costs, were $8.6 million for the first six
months of 1999. Pre-tax cost savings under these restructuring plans, due
primarily to reduced depreciation and lower employment costs, totaled
approximately $6.4 million during the first six months of 1999, or $.09 earnings
per diluted share. Fiscal year 2000 will reflect a full year's savings from the
restructuring plans and pre-tax annual savings are anticipated to be
approximately $20 million, or $.28 per diluted share. The Company expects to
incur approximately $23 million of cash outlays in connection with its
restructuring plans for the second half of fiscal 1999. These funds are expected
to come primarily from operating cash flows or borrowings from existing credit
facilities.

17
<PAGE> 19

DIVESTITURES AND OTHER

In January 1998, the Company sold its Rotron business unit for proceeds of
$103 million. In April 1998, the Company sold its Sealol Industrial Seals
operation for proceeds of $100 million, of which $45 million was utilized for
the Belfab acquisition. The Company realized gains of $125.8 million on the
dispositions.

DISCONTINUED OPERATIONS

The results of operations of the Company's Technical Services segment have
been classified as discontinued operations and, accordingly, prior periods have
been restated.

The Company's contract, through its Technical Services segment, to provide
support services to NASA at Florida's Kennedy Space Center (Florida contract)
expired at the end of the third quarter of 1998.

Sales from discontinued operations for the three and six months ended July
4, 1999 were $118.2 million and $232.5 million, respectively. Sales from
discontinued operations for the three and six months ended June 28, 1998 were
$146.9 million and $283.2 million, respectively. The decreases during the second
quarter and first six months of 1999 versus the comparable periods of 1998 are
due primarily to the loss of the Florida contract, as discussed above.

Operating income from discontinued operations was $9.6 million and $18.4
million for the three and six months ended July 4, 1999, respectively. Operating
income from discontinued operations was $5.8 million and $14.3 million for the
three and six months ended June 28, 1998, respectively. The 1998 operating
income included restructuring charges of $3.6 million and $4.5 million for the
second quarter and first six months, respectively. The 1999 operating income for
the second quarter and first six months was flat nominally versus the same
periods of 1998 before nonrecurring items, due in part, to the loss of sales
from the Florida contract.

OTHER

1999 Compared to 1998

Other expense was $6.2 million for the second quarter of 1999 versus $1.1
million reported in the same period of 1998. Other expense increased $7.8
million for the first six months of 1999 versus the comparable 1998 period to
$10.8 million. This net increase in other expense for the second quarter and
first six months of 1999 was due primarily to the impact of higher interest
expense on increased debt levels resulting from the Perkin-Elmer and Lumen
acquisitions. Income tax expense as a percent of pre-tax income before
nonrecurring items held constant at 36% for the second quarters and six months
ended 1999 and 1998. During the second quarter of 1999, the Company sold its
Structural Kinematics business for $15 million cash and recognized a pre-tax
gain of $4.3 million.

FINANCIAL CONDITION

In March 1999, two of the Company's $100 million credit facilities were
renewed and increased to a $250 million credit facility that expires in March
2000. The Company has an additional revolving credit agreement for $100 million
that expires in March 2002. Debt at July 4, 1999 consisted of $531 million of
short-term debt, including $100 million of money market loans with Chase
Securities Inc., one-year secured promissory notes in the aggregate principal
amount of $150 million issued by the Company to Perkin-Elmer, with the balance
comprised of commercial paper borrowings and $115 million of long-term debt,
primarily unsecured long-term notes.

On December 16, 1998, Lighthouse Weston Corp. ("Lighthouse"), a wholly
owned subsidiary of the Company, completed its tender offer for shares of common
stock of Lumen for a purchase price of $253 million, including $75 million of
assumed debt. Lighthouse acquired approximately 92.3% of Lumen's common stock
pursuant to the tender offer. On January 4, 1999, Lumen became a wholly owned
subsidiary of the Company, as a result of the merger of Lighthouse with and into
Lumen. The acquisition of Lumen by the Company was accounted for as a purchase.
The Company financed the transaction with a combination of

18
<PAGE> 20

available cash and short-term debt. Debt assumed in connection with the Lumen
transaction was approximately $75 million on the date of the acquisition. The
Company paid off this debt by the end of April 1999.

In January 1999, the Company filed a shelf registration statement with the
Securities and Exchange Commission (SEC) to register $465 million of securities.
This registration statement, together with the $35 million of securities covered
by a previously filed registration statement, will provide the Company with
financing flexibility to offer up to $500 million aggregate principal amount of
common stock, preferred stock, depository shares, debt securities, warrants,
stock purchase contracts and/or stock purchase units. The Company expects to use
the net proceeds from the sale of the securities for general corporate purposes,
which may include, among other things: the repayment of outstanding
indebtedness, working capital, capital expenditures, the repurchase of shares of
common stock and acquisitions. The precise amount and timing of the application
of such proceeds will depend upon the Company's funding requirements and the
availability and cost of other funds.

On May 28, 1999, EG&G, Inc. (the "Company") completed its acquisition of
the Analytical Instruments Division (the "Division") of The Perkin-Elmer
Corporation ("Perkin-Elmer") for an aggregate purchase price of approximately
$425 million. The purchase price is subject to a post-closing adjustment equal
to the amount by which the net assets of the Division as of the closing date are
greater or less than, as the case may be, certain target amounts set forth in
the Purchase Agreement dated March 8, 1999 between the Company and Perkin-Elmer
(the "Purchase Agreement"). In addition, under the terms of the Purchase
Agreement, the Company will assume a long-term German pension liability of
approximately $65 million. This German pension liability was historically funded
on a pay-as-you-go basis, and the funding going - forward is expected to remain
consistent. The Division is a leading producer of high-quality analytical
testing instruments and consumables, and generated 1998 fiscal year sales of
$569 million.

The purchase price was based upon the Company's determination of the fair
value of the Division, and the terms of the Purchase Agreement were determined
by arms-length negotiation among the parties. The Company funded the acquisition
through a combination of (i) $75 million of available cash, (ii) $100 million of
commercial paper borrowings with a weighted-average interest rate of 5.2% per
annum and maturities of 60 days or less, (iii) aggregate principal amount of
$100 million of money market loans with Chase Securities, Inc., with a weighted
average interest rate of 5.2% per annum and current maturities ranging from
August 27, 1999 to September 6, 1999, and (iv) one-year secured promissory notes
in the aggregate principal amount of $150 million issued by the Company to PE
Corp. (the seller), which bear interest at a rate of 5% per annum.

In July 1999, the Company entered into a definitive agreement to sell its
government services business, Technical Services Segment, to The Carlyle Group
for approximately $250 million cash. The transaction is expected to close late
in the third quarter of 1999, subject to customary closing conditions. The
Company anticipates a pre-tax gain from this transaction of approximately
$170 - $190 million.

Cash and cash equivalents decreased by $37.1 million and were $58.5 million
at the end of the second quarter of 1999. Net cash provided by operating
activities for the six months ended July 4, 1999 was $38.6 million. Net cash
provided by continuing operations was $16.4 million for the six months ended
July 4, 1999. This was comprised of net income before depreciation, amortization
and other non-cash items, net, of $49.9 million offset by a $33.5 million net
change in certain other assets and liabilities during the 1999 six months ended.
The net change included a $6 million increase in working capital accounts and
$8.6 million of cash outlays associated with the Company's 1998 restructuring
programs. The accounts receivable increase of $13.9 million was due primarily to
the Lumen and Perkin-Elmer businesses. Capital expenditures were $15.3 million
for the six months ended July 4, 1999. Capital expenditures for fiscal 1999 are
not expected to exceed $52 million. The Company's credit facilities and
registration statements provide flexibility to refinance its outstanding debt
instruments at July 4, 1999 as they mature.

19
<PAGE> 21

THE YEAR 2000 ISSUE

The following Year 2000 statements constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Readiness and Disclosure Act of
1998.

The operations of the Company rely on various computer technologies which,
as is common to most corporations, may be affected by what is commonly referred
to as the Year 2000 ("Y2K") issue. The Y2K issue is the result of computer
programs that were written using two digits rather than four to define the
applicable year. Computer equipment and software, as well as devices with
embedded technology that are time-sensitive, may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations causing disruption of operations and normal business activities.

The Company has been evaluating the Y2K state of readiness of the acquired
Perkin-Elmer business since the transaction closed in May, 1999. The following
Y2K disclosures focus primarily on the pre-acquisition businesses. The Company
will focus efforts during the second half of 1999 to ensure that the acquired
business achieves Y2K compliance consistent with EG&G's Year 2000 Readiness
Disclosure.

THE COMPANY'S STATE OF READINESS

OVERVIEW

The Company has an extensive worldwide program in place to assess and
minimize its exposure to the Y2K issue. The Company began addressing the Y2K
issue on a Company-wide basis in late 1997. The Company's Y2K program is
designed to assess, prioritize, correct, monitor and report on certain key
elements of the Company's business and operations, which may be adversely
affected by the Y2K issue. This program is organized, structured and implemented
around six areas of potential risk related to the Y2K issue:

- Factory and shop floor control

- Facilities

- Information technology (IT) systems and related applications

- Products of the Company

- Suppliers, vendors and service providers

- Customers

PHASES OF THE COMPANY'S Y2K PROGRAM

The Company's Y2K program, which it implements Company-wide and at each of
its Strategic Business Units ("SBU") consists of five phases. A description of
each phase is presented below:

PHASE 1 -- INVENTORY

The purpose of this phase was to identify, collect, analyze and
prioritize Y2K compliance information on components, systems, software and
other devices containing program logic. As part of this process, a physical
inventory was conducted focusing on four areas of each SBU: factory/plant,
facilities, IT and products. Each inventoried item was assigned an internal
business risk rating of high, medium or low risk. The Company also
identified key and sole source suppliers to whom Y2K compliance
questionnaires and surveys were sent.

PHASE 2 -- ASSESSMENT

The purpose of this phase was to compile and review the inventoried
information gathered during Phase 1, assess potential Y2K risks and prepare
compliance initiatives. The Y2K status of each inventoried item was
determined through compliance statements, direct communication with vendors
and on-site item testing at each Company location.

20
<PAGE> 22

PHASE 3 -- REMEDIATION PLANNING

The purpose of this phase was to develop remediation plans for
inventoried items that were identified in Phase 2 as Y2K noncompliant.
Remediation plans were developed for each non-compliant item including a
detailed timetable with completion milestones and target dates based on the
business risk priority rating of the item. The Remediation Planning Phase
also included the evaluation and development of contingency plans at the
SBU and operating unit level. Each Y2K segment team is developing a
contingency plan intended to mitigate potential adverse effects from the
Y2K issue in the event that the remediation plan for "high" business impact
items previously identified fails or is delayed beyond schedule.

PHASE 4 -- REMEDIATION PLAN EXECUTION

The purpose of this phase is to execute the remediation and
contingency plans developed in Phase 3. Each item in the remediation plan
is allotted a timeframe for completion, and percentage of completion is
monitored and discussed regularly. All SBUs of the Company have targeted
mid-1999 for the completion of all remediation activities.

PHASE 5 -- FINAL TESTING

The purpose of this phase is to perform follow-up testing of
previously noncompliant items that have been corrected through the
implementation of Phase 4. This phase is scheduled to commence in mid-1999
and continue until completion later in the year.

A progress chart for the Company's Y2K program as of July 4, 1999 is
set forth below. Percentages in the table reflect the Company's best
estimate of progress completed to date in each risk area by phase as a
percentage of the total estimated time to complete the respective phase.

<TABLE>
<CAPTION>
REMEDIATION
REMEDIATION PLAN FINAL
INVENTORY ASSESSMENT PLANNING EXECUTION TESTING
--------- ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Factory/plant................ 100% 100% 100% 94% (a)
Facilities................... 100% 100% 100% 93% (a)
Applications................. 100% 100% 100% 96% (a)
Products..................... 100% 100% 100% 98% (a)
Suppliers, vendors and
service providers.......... 100% 100% 100% (a) (a)
Customers.................... (b) (b) (b) (b) (a)
</TABLE>

- ---------------
(a) Scheduled for completion later in the year.

(b) Planned completion in Q3 1999.

State of Readiness by SBU

The Company has various worldwide operations. It has planned and continues
to execute its Y2K program utilizing a Strategic Business Unit and critical and
key operational unit focus. All of the SBUs have developed Y2K programs to
address the critical and primary risks assessed based on each SBU's Y2K risk
assessment and remediation processes. The primary areas of overall risk
assessment, including material third party risk, at the Life Sciences,
Optoelectronics, Engineered Products and Instruments SBUs of the Company include
but are not limited to:

- Raw materials availability and procurement

- Factory/plant manufacturing systems

- Continuity of heat, light, power and fuel sources for manufacturing and
office functionality

21
<PAGE> 23

- IT for financial reporting and accounting

- Internal and external telecommunications and network systems to support
communication and business with vendors, suppliers and customers

Year 2000 risks for the Company's Technical Services SBU include risks
noted above, other than the risks associated with raw materials procurement and
purchase; this is not a major area of risk for this SBU based on the nature of
the business. On an SBU basis, the Life Sciences, Optoelectronics and Engineered
Products SBUs are making significant progress along the various phases of the
program, and the Company does not expect any significant Y2K exposures.

THIRD PARTY REVIEW

As part of its Y2K program, the Company has sought to assess the effect on
the Company of the Y2K compliance of its significant customers, vendors,
suppliers, raw materials suppliers, primary service suppliers, and financial
institutions. The Company has followed a strategy of identification of risks,
risk assessment, continuous material third party monitoring and evaluation, and
contingency planning. The Company did not use or engage outside firms for the
purpose of independent verification and validation of the reliability of third
party risks assessed and cost estimates related thereto under the Company's Y2K
program.

The Company has identified critical third parties and performed risk
assessments using structured questionnaires and other procedures to estimate the
potential monetary and operational impact to the Company. Questionnaires and
surveys were sent out to approximately 6,000 key vendors and suppliers that
comprise approximately 30% of the Company's vendor/supplier population. The
responses received comprised approximately an 82% response rate. Approximately
92% of those who responded confirmed they were Y2K compliant. For those who were
not compliant or who did not respond, the Company developed or is in the process
of developing contingency plans in the event that these material third parties
are noncompliant. A complete discussion of the Company's contingency plans for
critical areas is discussed in this Year 2000 discussion and follows below. The
Company is in the process of sending out questionnaires and surveys to
approximately 1,000 key customers in Q2 1999. The Company also plans to perform
on-site readiness reviews for certain key customers.

Company Products

Although the Company has reviewed the Y2K compliance of a substantial
number of its material third parties, it is currently unable to predict the
final readiness of all of its material third parties. Certain of the Company's
products are used in conjunction with products of other companies in
applications that may be critical to the operations of its customers. Any
Company product's Y2K noncompliance, whether standing alone or used in
conjunction with the products of other companies, may expose the Company to
claims from its customers, material third parties or others, and could impair
market acceptance of the Company's products or services, increase service and
warranty costs, or result in payment of damages, which in turn could materially
adversely affect the results of operations and financial position of the
Company. While the Company expects such material third parties to address the
Y2K issue based on the representations made by such third parties to the
Company, it cannot guarantee that these systems will be made Y2K compliant in a
timely manner and cannot guarantee that it will not experience a material
adverse effect as a result of such noncompliance.

THE COSTS TO ADDRESS THE YEAR 2000 ISSUE

The Company has estimated costs for its Y2K program based on internal
estimates and independent quotes for IT and non-IT corrective actions, products
and services, as applicable, in each phase of the Company's Y2K program. The
following table sets forth the estimated costs incurred by the Company through
July 4, 1999 to address the Y2K issue. These amounts include the costs to lease,
purchase or expense

22
<PAGE> 24

new software and equipment needed to achieve Year 2000 compliance and enhance
existing systems, as well as internal costs related to this effort.

<TABLE>
<CAPTION>
REMEDIATION/IMPLEMENTATION
---------------------------
HISTORICAL/PLANNING REPLACE/
----------------------- REMEDIATION UPGRADE/ TOTAL AS OF
INVENTORY ASSESSMENT PLANNING REPAIR JULY 4, 1999
--------- ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Factory/plant........................ $102 $ 375 $ 162 $1,398 $2,037
Facilities........................... 14 147 54 374 589
IT................................... 163 553 527 4,094 5,337
Products............................. 247 422 382 758 1,809
Suppliers/vendors.................... 54 86 -- -- 140
1 25 -- -- 26
---- ------ ------ ------ ------
Totals..................... $581 $1,608 $1,125 $6,624 $9,938
==== ====== ====== ====== ======
</TABLE>

Amounts expended for remediation activities were outside of and incremental
to the Company's IT budget for ongoing operational projects. With the exception
of new hardware or software that qualify for capitalization under generally
accepted accounting principles, the Company expenses all costs associated with
the Y2K program. Funding requirements for the Company's Y2K program activities
during 1999 are estimated to be approximately $5.5 million and have been
incorporated into the Company's 1999 capital and operating plans. The Company
will utilize cash and equivalents and cash flows from operations to fund the
estimated $2.7 million of remaining Y2K program costs during the last six months
of 1999. None of the Company's other IT projects have been deferred due to its
Y2K efforts.

RISK ANALYSIS

Reasonably Likely Worst Case Scenario

Although no reasonable assurance can be made, the Company believes that due
to the diversity of the Company's business portfolio, there is no single event
or one likely worst case scenario, short of a major national infrastructure
catastrophe, which would have a material adverse effect on the Company's results
of operations or financial condition. The most reasonably likely worst case
scenario is that a short-term disruption will occur with a small number of
customers or suppliers, requiring an appropriate response. In the event of an
internal system failure caused by a Y2K problem, the Company could have trouble
accessing accurate internal data, processing transactions and maintaining
accurate books and records. Accordingly, the Company might be unable to prepare
its financial statements for the fourth quarter of 1999 or periods thereafter.
Additionally, the Company's manufacturing operating systems and other
applications could be impaired resulting in the Company's inability to
manufacture and sell its products to customers.

The Company believes its current products, with any applicable updates, are
well prepared for Y2K date issues, and the Company plans to support these
products for date issues that may arise related to the Y2K issue. However, there
can be no guarantee that one or more of the Company's current products do not
contain Y2K date issues that may result in material costs to the Company. The
outcome of litigation, if any, resulting from the Company's products that are
proven to be noncompliant for Y2K cannot be determined at this time.

The Company could also experience a slowdown or reduction of sales if
customers are adversely affected by Y2K. If the vendors of the Company's most
important goods and services, or the suppliers of the Company's necessary
energy, telecommunications and transportation needs, fail to provide the Company
with (1) the materials and services necessary to produce, distribute and sell
its products, (2) the electrical power and other utilities necessary to sustain
its operations, or (3) reliable means of transporting products and supplies,
such failure could result in the Company's inability to manufacture and sell its
products to customers. The Company's contingency plans, when complete, will
include steps to pre-order and build up raw materials and finished goods as
appropriate to avoid stock-outs that would have a negative impact on the
Company's ability to manufacture and sell its products.

23
<PAGE> 25

Additionally, the Company's operations are dependent on infrastructures
within all countries in which it operates and therefore a failure of any one of
those infrastructures related to Y2K could have a material adverse effect on the
Company's operations. The Company is not currently able to estimate the
financial impact of the Y2K failures addressed above as they relate to lost
revenues or additional resources that would be required to address such
failures.

CONTINGENCY PLANS

The Company believes that the IT and non-IT which support its critical
functions will be ready for the transition to the Year 2000. There can be no
assurance, however, that similar unforeseen issues for key commercial partners
(including utilities, financial services, building services and transportation
services) will not cause a material adverse effect on the Company. To address
these risks, and to address a risk that its own IT and non-IT will not perform
as expected during the Y2K transition, the Company has begun to develop
appropriate Y2K contingency plans. These plans will be established and revised
as necessary during the course of 1999. During the third quarter of 1999,
on-site readiness reviews will be conducted by the Company at its most critical
vendor and supplier locations. For the Company's material, key and sole source
vendors/suppliers who cannot be classified or certified as Y2K compliant,
contingency plans include, but are not limited to: (i) replacing the
vendor/supplier with one that is Y2K compliant, (ii) pre-ordering raw material
where applicable, (iii) pre-building product or products, or (iv) pre-shipping
product where practicable. These contingency plans are expected to be finalized
during the third quarter of 1999. The Company believes that its contingency
plans are sufficient to address any material business disruption in a reasonable
period of time to minimize the effects of an adverse impact to the operations of
the Company. If the contingency plans fail, or if the Company is for some
unforeseen reason "not ready" for the Y2K issue at a key level of the operations
of the business or a contingency plan cannot be implemented in a timely manner,
the Company will rely on alternative means of communications, alternative power
generation sources for the manufacture of key products, and other manual or
backup systems and processes on an interim basis until the Y2K issues can be
corrected.

EURO CONVERSION

On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the new common legal currency, the "euro," which was adopted on that date.
There is a transition period between January 1, 1999 and January 1, 2002, during
which the euro will be adopted into the operations. During 1998, the Company
formed a cross-functional task force to assess the potential impact to the
Company that may result from the euro conversion. Areas of assessment include
the following: cross-border price transparencies and the resulting competitive
impact; adaptation of information technology and other system requirements to
accommodate euro transactions; the impact on currency exchange rate risk; the
impact on existing contracts; and taxation and accounting. The Company's
assessment is that the anticipated impact of the euro conversion on the
Company's operations will not be material.

FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE

This Quarterly Report contains "forward-looking statements." For this
purpose, any statements contained in this Annual Report that are not statements
of historical fact may be deemed to be forward-looking statements. Words such as
"believes," "anticipates," "plans," "expects," "will" and similar expressions
are intended to identify forward-looking statements. There are a number of
important factors that could cause the results of EG&G to differ materially from
those indicated by these forward-looking statements. These factors include,
without limitation, those set forth in "Item 7. Management's Discussions and
Analysis of Financial Condition and Results of Operations -- Forward-Looking
Information and Factors Affecting Future Performance" of the Company's Annual
Report on Form 10-K as of January 3, 1999, which are expressly incorporated by
reference herein.

24
<PAGE> 26

ITEM 3. MARKET RISK

The Company is exposed to the impact of interest rate changes, foreign
currency fluctuations and changes in the market values of its investments.

In the normal course of business, the Company employs established policies
and procedures to manage its exposure to changes in interest rates and
fluctuations in the value of foreign currencies.

The Company's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention on its
core business issues and challenges. Accordingly, the Company enters into
various forward contracts that change in value as foreign exchange rates change
to protect the value of its existing foreign currency assets, liabilities,
commitments and anticipated foreign currency revenues. The principal currencies
hedged are the Finnish marka, Singapore dollar, Canadian dollar, British pound,
German mark, French franc and Japanese yen. In those currencies where there is a
liquid, cost-effective forward market, the Company maintains hedge coverage
between minimum and maximum percentages of its anticipated transaction exposure
for periods not to exceed one year. The gains and losses on these contracts
offset changes in the value of the related exposure.

It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest rate
transactions for speculative purposes.

25
<PAGE> 27

PART II. OTHER INFORMATION

EG&G, INC. AND SUBSIDIARIES

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Part I Exhibits:

Exhibit 27 -- Financial data schedule (submitted in electronic format
only)

Part II Exhibits:

Exhibit 99 -- Promissory Note issued by the Company to The Perkin-Elmer
Corporation

(b) Reports on Form 8-K

A report on Form 8-K was filed with the Securities and Exchange
Commission on May 6, 1999 regarding a press release issued on April 25,
1999 reporting on the Company's financial results for the first quarter
of 1999.

A report on Form 8-K was filed with the Securities and Exchange
Commission on May 7, 1999 regarding the election of Gregory L. Summe to
the position of Chairman of the Company's Board of Directors.

A report on Form 8-K was filed with the Securities and Exchange
Commission on June 14, 1999 regarding the completion of the Company's
acquisition of the Analytical Instruments Division of The Perkin-Elmer
Corporation.

26
<PAGE> 28

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/ ROBERT F. FRIEL
----------------------------------
ROBERT F. FRIEL
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)

Date August 11, 1999

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JUL-04-1999
<EXCHANGE-RATE> 1
<CASH> 58,459
<SECURITIES> 0
<RECEIVABLES> 304,590
<ALLOWANCES> 12,474
<INVENTORY> 198,673
<CURRENT-ASSETS> 717,786
<PP&E> 490,871
<DEPRECIATION> 257,357
<TOTAL-ASSETS> 1,652,510
<CURRENT-LIABILITIES> 964,793
<BONDS> 114,988
0
0
<COMMON> 60,102
<OTHER-SE> 342,270
<TOTAL-LIABILITY-AND-EQUITY> 1,652,510
<SALES> 522,154
<TOTAL-REVENUES> 547,475
<CGS> 336,654
<TOTAL-COSTS> 358,602
<OTHER-EXPENSES> 178,383
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,841
<INCOME-PRETAX> 8,139
<INCOME-TAX> 2,822
<INCOME-CONTINUING> 5,317
<DISCONTINUED> 12,387
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,704
<EPS-BASIC> .39
<EPS-DILUTED> .39

</TABLE>

<PAGE> 1
Exhibit 99

PROMISSORY NOTE

$135,000,000 New York, New York
May 28, 1999

FOR VALUE RECEIVED, EG&G, INC., a corporation organized and existing
under the laws of Massachusetts (the "COMPANY"), by this promissory note (this
"NOTE") unconditionally promises to pay to the order of THE PERKIN-ELMER
CORPORATION, a corporation organized and existing under the laws of New York
(the "SELLER"), the principal sum of ONE HUNDRED THIRTY-FIVE MILLION DOLLARS
($135,000,000) on May 25, 2000.

The Company further promises to pay interest to the Seller on the
unpaid principal amount hereof from the date hereof until maturity (whether as
stated, by acceleration or otherwise) at a rate per annum equal to 5%. Interest
is payable quarterly in arrears on the last Business Day of August, November and
February and at the maturity hereof (whether as stated, by acceleration or
otherwise). Any principal, interest or any other amount hereunder which is not
paid when due (whether as stated, by acceleration or otherwise) shall, to the
extent permitted by law, thereafter bear interest at a rate per annum equal to
7% until payment in full thereof, as well after as before judgment. Interest,
principal and any other amount due hereunder shall be payable on demand in
respect of any past due amount and upon payment in full of this Note. For
purposes hereof: "BUSINESS DAY" shall mean a day other than a Saturday, Sunday
or other day on which commercial banks in New York City are authorized or
required by law to close; "CREDIT AGREEMENT" shall mean the Credit Agreement,
dated as of March 5, 1999, by and among the Company, the lenders parties
thereto, The Chase Manhattan Bank, as administrative agent, and Chase Securities
Inc., as advisor and lead arranger, as such Agreement may be amended,
supplemented or otherwise modified from time to time, including any agreement
refinancing, replacing or otherwise restructuring all or any portion of the
indebtedness under such agreement and whether with the same, or any other agent,
lender or group of lenders; "GUARANTEE AND COLLATERAL AGREEMENT" shall mean the
Guarantee and Collateral Agreement, dated as of the date hereof, made by the
Company and the other grantors that are signatories thereto in favor of the
Seller; "LOAN DOCUMENTS" shall mean the collective reference to this Note, the
Guarantee and Collateral Agreement and the Promissory Note, dated as of the date
hereof, made by the Company in favor of the Seller, in the principal amount of
$15,000,000; and "LOAN PARTIES" shall mean the collective reference to the
Company and each other party to the Loan Documents.

The Company shall have the right to prepay this Note at any time and
from time to time, in whole or in part, provided that the minimum amount of each
partial prepayment shall be $1,000,000.

All payments to be made hereunder by the Company shall be made without
set-off or counterclaim, in immediately available funds by wire transfer to the
account of the Seller in accordance with the following instructions:

<PAGE> 2

Bank: Citibank, N.A., New York, NY
Swift Code: Citi US 33
ABA #: 021 0000 89
Account #: 000-42657
Credit: The Perkin Elmer Corporation

Whenever any payment hereunder shall be stated to be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day.

The Company hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.

This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by both parties.

The Company agrees to pay all of the Seller's costs and out-of-pocket
expenses (including, without limitation, fees and disbursements of counsel)
arising in connection with the enforcement of, and preservation of rights under,
this Note and the other Loan Document in the case that the Company shall have
failed to comply with its obligations under this Note or the other Loan Document
and such failure shall be continuing.

If (a) the Company shall fail to pay when due interest on this Note
and such failure shall have continued for a period of three Business Days; (b)
any representation or warranty made by any Loan Party in any Loan Document shall
prove to have been false or misleading in any material respect as of the time
when made or deemed made; (c) any Loan Party shall default in the performance or
observance of (i) any covenant contained in Section 5.3 of the Guarantee and
Collateral Agreement or (ii) any other covenant in the Guarantee and Collateral
Agreement and such default shall continue unremedied for a period of 10 days
after notice thereof from the Seller to the Company; (d) a "Change of Control"
as defined in the Credit Agreement (as in effect on the date hereof without
giving effect to any future amendments, supplements or other modifications
thereto) shall occur; (e) an "Event of Default" as defined in the Credit
Agreement shall have occurred (each of the foregoing, an "EVENT OF DEFAULT"),
the Seller may, by notice of default given to the Company, declare all unpaid
principal, accrued interest and all other amounts payable under this Note to be
immediately due and payable without presentment, demand, protest or other notice
of any kind, each of which is hereby expressly waived by the Company.

No action or omission by the Seller shall constitute a waiver of any
rights or remedies of the Seller hereunder. Such rights and remedies are
cumulative and not exclusive of any rights or remedies provided by law. Payment
of principal of and interest on this Note shall not discharge the Company's
obligation with respect to any other amount payable hereunder. This Note shall
be binding upon and inure to the benefit of the Company, the Seller and their
respective successors and assigns, except that the Company may not assign or
transfer any of its rights or obligations under this Note without the prior
written consent of the Seller.

<PAGE> 3

THIS NOTE SHALL BE A CONTRACT UNDER, AND BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

EG&G, INC.

By: /s/ Gregory L. Summe
---------------------------
Name:
Title:

Address for Notices:

45 William Street
Wellesley, MA 02181
Attention: Treasurer
Telecopy: (781) 431-4113