SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 3, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5075
EG&G, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2052042
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
45 William Street, Wellesley, Massachusetts 02181
(Address of principal executive offices)(Zip Code)
(617) 237-5100
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Class Outstanding at July 31, 1994
Common Stock, $1 par value 55,121,000
(Excluding treasury shares)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Three and Six Months Ended July 3, 1994 and July 4, 1993
(Unaudited)
---------
(In Thousands Except Per Share Data)
----------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
------- ------- ------- -------
Sales:
Products $353,531 $388,073 $ 734,844 $ 765,984
Services 292,466 273,980 587,639 544,995
-------- -------- ---------- ----------
Total Sales 645,997 662,053 1,322,483 1,310,979
-------- -------- ---------- ----------
Costs and Expenses:
Cost of sales:
Products 290,583 326,721 614,832 647,930
Services 267,034 245,358 538,459 486,582
-------- -------- ---------- ----------
Total cost of sales 557,617 572,079 1,153,291 1,134,512
Selling, general and administrative expenses 62,873 58,621 121,751 115,732
-------- -------- ---------- ----------
Total Costs and Expenses 620,490 630,700 1,275,042 1,250,244
-------- -------- ---------- ----------
Income From Operations 25,507 31,353 47,441 60,735
Other income (expense), net (Note 2) (433) 328 (454) (322)
-------- -------- ---------- ----------
Income Before Income Taxes 25,074 31,681 46,987 60,413
Provision for Federal and non-U.S. income taxes 8,651 10,613 16,211 20,238
-------- -------- ---------- ----------
Income Before Cumulative Effect of
Accounting Changes 16,423 21,068 30,776 40,175
Cumulative Effect of Accounting Changes:
Income taxes (Note 3) - - - (7,300)
Postretirement benefits other than
pensions (Note 4)
- - - (13,200)
-------- -------- ---------- ----------
Net Income $ 16,423 $ 21,068 $ 30,776 $ 19,675
======== ======== ========== ==========
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the Three and Six Months Ended July 3, 1994 and July 4, 1993 (Continued)
Earnings Per Share:
Income Before Cumulative Effect of
Accounting Changes $.30 $.37 $.56 $ .71
Cumulative Effect of Accounting Changes:
Income taxes - - - (.13)
Postretirement benefits other than pensions - - - (.23)
---- ---- ---- -----
Net Income $.30 $.37 $.56 $ .35
==== ==== ==== =====
Cash Dividends Per Common Share $.14 $.13 $.28 $ .26
==== ==== ==== =====
Weighted Average Shares of Common Stock
Outstanding 55,121 56,489 55,421 56,606
The accompanying unaudited notes are an integral part of these consolidated financial
statements.
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of July 3, 1994 and January 2, 1994
(Dollars in Thousands)
--------------------
July 3, January 2,
1994 1994
------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 55,518 $ 72,185
Accounts receivable (including unbilled
receivables of $65,700 as of July 3, 1994
and $67,800 as of January 2, 1994), less reserves 236,224 237,609
Inventories (Note 5) 129,312 121,581
Other 42,251 33,657
-------- --------
Total Current Assets 463,305 465,032
-------- --------
Property, Plant and Equipment:
At cost (Note 6) 350,227 327,416
Less - Accumulated depreciation and amortization 234,613 221,320
-------- --------
Net Property, Plant and Equipment 115,614 106,096
-------- --------
Investments (Note 7) 29,465 25,920
-------- --------
Intangible and Other Assets (Note 8) 186,214 171,760
-------- --------
Total Assets $794,598 $768,808
======== ========
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
As of July 3, 1994 and January 2, 1994
Current Liabilities:
Short-term debt $ 55,131 $ 43,589
Accounts payable 60,241 60,794
Accrued expenses (Note 9) 130,347 132,714
-------- --------
Total Current Liabilities 245,719 237,097
-------- --------
Long-Term Liabilities 57,792 54,177
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
Capital in excess of par value - -
Retained earnings 511,596 496,063
Cumulative translation adjustments 3,986 (8,287)
Unrealized gain on marketable investments (Note 7) 4,053 -
-------- --------
579,737 547,878
Less - Cost of shares held in treasury;
4,981,000 shares at July 3, 1994 and
3,970,000 shares at January 2, 1994 88,650 70,344
-------- --------
Total Stockholders' Equity 491,087 477,534
-------- --------
Total Liabilities and Stockholders' Equity $794,598 $768,808
======== ========
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended July 3, 1994 and July 4, 1993
(Unaudited)
(In Thousands)
------------
Six Months Ended
----------------------
July 3, July 4,
1994 1993
------- -------
Cash Flows From Operating Activities:
Net income $ 30,776 $ 19,675
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting changes - 20,500
Depreciation and amortization 17,737 19,008
Changes in assets and liabilities, net of effects
from companies purchased:
Decrease in accounts receivable 4,439 10,064
Increase in inventories (5,704) (1,342)
Decrease in accounts payable and accrued expenses (5,534) (7,620)
Other (18,972) (17,060)
-------- --------
Net Cash Provided by Operating Activities 22,742 43,225
-------- --------
Cash Flows From Investing Activities:
Capital expenditures (21,253) (12,335)
Cost of acquisitions, net of cash
and cash equivalents acquired - (33,548)
Other 3,217 (1,722)
-------- --------
Net Cash Used in Investing Activities (18,036) (47,605)
-------- --------
Cash Flows From Financing Activities:
Changes in commercial paper 9,967 29,984
Other changes in debt 759 (2,694)
Proceeds from issuing common stock 1,166 6,453
Purchases of common stock (19,139) (17,292)
Cash dividends (15,576) (14,747)
-------- --------
Net Cash Provided by (Used in) Financing Activities (22,823) 1,704
-------- --------
Effect of exchange rate changes on cash
and cash equivalents 1,450 (1,197)
-------- --------
Net Decrease in Cash and Cash Equivalents (16,667) (3,873)
Cash and cash equivalents at beginning of period 72,185 69,752
-------- --------
Cash and cash equivalents at end of period $ 55,518 $ 65,879
======== ========
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Principles of Consolidation
- - --------------------------------
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 and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The
Company believes, however, that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K. The balance sheet amounts as of
January 2, 1994 in this report were extracted from the Company's audited
1993 financial statements included in the latest annual report on
Form 10-K.
In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments, consisting only of
normal recurring accruals, necessary to present fairly the financial
position as of July 3, 1994 and the results of operations for the three
and six months ended July 3, 1994 and July 4, 1993 and the cash flows
for the six months then ended. The results of operations are not
necessarily to be considered indicative of the results for the entire
year.
Effective January 3, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 on accounting for postemployment
benefits. This new standard requires that benefits paid for former or
inactive employees after employment but prior to retirement must be
accrued if certain criteria are met. Adoption of the statement did not
have a material impact on the Company's financial position or results of
operations.
(2) Other Income (Expense), Net
- - --------------------------------
Other income (expense), net, consisted of the following:
(In Thousands)
------------
Three Months Ended Six Months Ended
------------------ ----------------
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
------- ------- ------- -------
Interest and
dividend income $ 614 $ 832 $ 1,453 $ 1,686
Interest expense (1,145) (1,582) (2,110) (3,083)
Other 98 1,078 203 1,075
------- ------- ------- -------
$ (433) $ 328 $ (454) $ (322)
======= ======= ======= =======
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3) Accounting for Income Taxes
- - --------------------------------
Effective January 4, 1993, the Company adopted SFAS No. 109 on
accounting for income taxes. As part of adopting the new standard,
the Company recorded a one-time, non-cash charge against earnings of
$7.3 million ($.13 per share) in the first quarter of 1993.
(4) Postretirement Benefits Other Than Pensions
- - ------------------------------------------------
Effective January 4, 1993, the Company adopted SFAS No. 106 on
accounting for postretirement benefits other than pensions for its U.S.
retiree health benefits. As part of adopting the new standard, the
Company recorded a one-time, non-cash charge against earnings of
$20 million before taxes, or $13.2 million after income taxes ($.23
per share), in the first quarter of 1993.
(5) Inventories
- - ----------------
Inventories consisted of the following:
(In Thousands)
------------
July 3, January 2,
1994 1994
------- ----------
Finished goods $ 34,579 $ 30,864
Work in process 32,929 30,393
Raw materials 61,804 60,324
-------- --------
$129,312 $121,581
======== ========
(6) Property, Plant and Equipment, at Cost
- - -------------------------------------------
Property, plant and equipment consisted of the following:
(In Thousands)
------------
July 3, January 2,
1994 1994
------- ----------
Land $ 17,303 $ 14,327
Buildings and leasehold improvements 97,266 91,280
Machinery and equipment 235,658 221,809
-------- --------
$350,227 $327,416
======== ========
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(7) Investments
- - ----------------
Investments consisted of the following:
(In Thousands)
------------
July 3, January 2,
1994 1994
------- ----------
Marketable investments $12,881 $ 6,838
Other investments 11,801 13,426
Joint venture investments 4,783 5,656
------- -------
$29,465 $25,920
======= =======
Effective January 3, 1994, the Company adopted SFAS No. 115 on accounting
for certain investments in debt and equity securities. This new standard
requires that available-for-sale investments in equity securities that
have readily determinable fair values be measured at fair value in the
balance sheet and that unrealized holding gains and losses for these
investments be reported in a separate component of stockholders' equity
until realized. At July 3, 1994, marketable investments classified as
available-for-sale had an aggregate market value of $12.9 million and
gross unrealized holding gains of $6.3 million. At July 3, 1994,
$4.1 million was reported as a separate component of stockholders'
equity, representing the unrealized holding gains, net of deferred
federal income taxes.
(8) Intangible and Other Assets
- - --------------------------------
Intangible and other assets consisted of the following:
(In Thousands)
------------
July 3, January 2,
1994 1994
-------- ----------
Intangible assets $143,922 $139,205
Other assets 42,292 32,555
-------- --------
$186,214 $171,760
======== ========
The majority of the increase in other assets was due to an increase in
prepaid pension expense.
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(9) Accrued Expenses
- - ---------------------
Accrued expenses consisted of the following:
(In Thousands)
------------
July 3, January 2,
1994 1994
------- ----------
Payroll $ 13,032 $ 13,375
Employee benefits 47,624 46,121
Federal, non-U.S. and state
income taxes 21,150 26,119
Other 48,541 47,099
-------- --------
$130,347 $132,714
======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
EG&G, INC. AND SUBSIDIARIES
Results of Operations
---------------------
The following industry segment information is presented as an aid to a
better understanding of the operating results:
(In Thousands)
------------
Three Months Ended Six Months Ended
-------------------------- ---------------------------
July 3, July 4, Increase July 3, July 4, Increase
1994 1993 (Decrease) 1994 1993 (Decrease)
------- ------- -------- ------- ------- --------
Sales:
Technical Services $149,253 $161,176 $(11,923)$ 305,674 $ 319,267 $(13,593)
DOE Support 316,117 334,705 (18,588) 666,856 664,067 2,789
Instruments 71,074 55,449 15,625 133,929 102,671 31,258
Mechanical Components 58,386 62,644 (4,258) 114,425 126,285 (11,860)
Optoelectronics 51,167 48,079 3,088 101,599 98,689 2,910
-------- -------- -------- ---------- ---------- --------
Total $645,997 $662,053 $(16,056)$1,322,483 $1,310,979 $ 11,504
======== ======== ======== ========== ========== ========
Income from Operations:
Technical Services $ 11,798 $ 17,409 $ (5,611)$ 23,639 $ 33,360 $ (9,721)
DOE Support 11,455 12,723 (1,268) 21,516 26,974 (5,458)
Instruments 2,448 1,300 1,148 2,935 2,245 690
Mechanical Components 4,126 5,554 (1,428) 7,478 10,047 (2,569)
Optoelectronics 3,786 984 2,802 7,194 1,760 5,434
General Corporate Expenses (8,106) (6,617) (1,489) (15,321) (13,651) (1,670)
-------- -------- -------- ---------- ---------- --------
Total $ 25,507 $ 31,353 $ (5,846)$ 47,441 $ 60,735 $(13,294)
======== ======== ======== ========== ========== ========
The discussion that follows is a summary analysis of the major changes in
operating results by industry segment that occurred for the three and six
months ended July 3, 1994 compared to the three and six months ended
July 4, 1993.
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Second Quarter 1994 Compared to Second Quarter 1993
Sales
Sales for the second quarter of 1994 of $646 million were $16 million
below 1993 levels. Lower sales in Technical Services resulted primarily
from a $12 million reduction in program expenditures under the new base
operations contract at the Kennedy Space Center. In addition, sales
returned to more normal levels in the automotive testing business
following increases in 1993 caused by the introduction of new industry
testing protocols. Department of Energy (DOE) Support sales levels
declined primarily as a result of reduced program expenditures under the
Rocky Flats contract. The increase in Instruments sales was due primarily
to the acquisition of Wallac late in the second quarter of 1993 and, to a
lesser extent, several large shipments of security instruments. In
Mechanical Components, the decrease resulted primarily from the sale of
an operation in late 1993. In Optoelectronics, the increase was caused
by a higher level of shipments for flash products.
Income from Operations
Income from operations in 1994 was $25.5 million, $5.8 million less than
1993. In Technical Services, lower sales in the automotive testing
business resulted in reduced income. The decrease also reflected the
reduction in available fee under the new base operations contract at the
Kennedy Space Center. The 1993 results of this segment included favorable
contract adjustments negotiated in the second quarter.
In DOE Support, the reduction was due to lower performance grades earned
under the Idaho and Rocky Flats contracts. Uncertainty continues to exist
in the DOE Support segment. The Idaho contract is scheduled to expire
October 1, 1994. The Company is participating as the majority interest
in a joint venture that has submitted a proposal for increased work scope
at the facility. The DOE has not awarded the contract as of the date of
this filing. The terms of the joint venture's proposal could result in a
reduction of income to the Company.
The DOE is proceeding with a contract reform initiative and has recently
announced that five DOE sites will be competitively bid at the expiration
of the current contracts. In addition to Idaho, the list of sites
includes the Nevada Test Site and Rocky Flats where the Company's
contracts with the DOE expire late in 1995. The contract reform
initiative also provides for increased contractor liability. The Company
is reviewing and evaluating the recently issued request for proposal for
the Rocky Flats contract.
The decrease in Mechanical Components was due to increased start up costs
for the transportation element of the electromechanical business and the
impact of lower sales in the industrial seal business. The
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Optoelectronics increase was due to a higher level of shipments of flash
products and the continued benefit of cost reductions implemented in
1993.
In Instruments, the income contributed by the Wallac sales was offset by
costs associated with delays in new diagnostic product introductions and
continued price erosion in the security instruments business.
Several operating elements, particularly in the Instruments segment,
continue to underperform against key measures of profitability and return
on investment. Management has intensified the ongoing review and is
focusing on the development of alternative programs to achieve business
goals. This review may result in a charge to operating income if the
Company determines that restructuring is advantageous or if it is unable
to realize the value of any associated assets, including goodwill.
The increase in general corporate expenses was due to separation costs
and general cost increases. The change in other income (expense) was due
primarily to foreign exchange losses.
Six Months 1994 Compared to Six Months 1993
Sales
Sales for the six months of 1994 of $1.3 billion were slightly ahead of
1993. Technical Services sales declined $13.6 million primarily from a
$21 million reduction in program costs at the Kennedy Space Center,
partially offset by an increase in sales at the Tooele chemical
demilitarization facility which is preparing for operational start-up.
Instruments sales increased $31.3 million in 1994 primarily due to the
acquisition of Wallac late in the second quarter of 1993. The
$11.9 million decrease in Mechanical Components is primarily due to the
divestiture of an operation late in 1993. Lower sales in our industrial
seal and valve businesses also contributed to the decrease.
Income from Operations
Income from operations of $47.4 million declined $13.3 million in 1994.
The $9.7 million decrease in Technical Services reflects the reduction in
available fee at the Kennedy Space Center and the impact of lower sales
in the automotive testing business. In addition, the 1993 results of
Technical Services included adjustments from favorable contract
negotiations. The decrease in DOE Support operating income is the result
of lower performance grades at Rocky Flats and Idaho. In Instruments, the
income contributed by the Wallac acquisition was offset by costs
associated with delays in new diagnostic product introductions and price
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
erosion in security instruments. The Mechanical Components decrease
resulted from lower sales and inventory adjustments in the industrial
seal business and costs associated with new programs. In
Optoelectronics, the increase resulted from higher levels of shipments
and improved margins resulting from cost reductions. The increase in
general corporate expenses was due to separation costs and general cost
increases.
Liquidity and Capital Resources
-------------------------------
The Company's cash and cash equivalents decreased $16.7 million in the
first six months of 1994 while total debt increased $11.2 million. Net
cash provided by operating activities totaled $22.7 million during the
period. The Company invested $21.3 million in physical plant and
equipment during the first half of 1994. The $8.9 million increase in
capital expenditures over 1993 was due primarily to a higher level of
investment to support new product development initiatives in the
Optoelectronics segment.
In the fourth quarter of 1993, the Board of Directors authorized the
purchase of up to a total of 5.5 million shares of the Company's common
stock through periodic purchases on the open market. The Company has
purchased 2.2 million shares under this program to date, including
1.1 million shares purchased in the first quarter of 1994. No shares
were purchased under the program in the second quarter pending an
evaluation of investment opportunities.
Effective March 21, 1994, the Company concluded the restructuring of its
credit facilities with the signing of two revolving credit agreements
totaling $250 million. These agreements consist of a $175 million
364-day facility and a $75 million three-year facility and serve as
backup facilities for the commercial paper borrowing.
PART II. OTHER INFORMATION
EG&G, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended July 3, 1994.
EG&G, INC. AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EG&G, Inc.
By /s/ Thomas J. Sauser
---------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date August 1, 1994