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 March 29, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5075
EG&G, Inc.
----------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2052042
------------- ----------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
45 William Street, Wellesley, Massachusetts 02181
-------------------------------------------------
(Address of principal executive offices) (Zip Code)
(781) 237-5100
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date:
Class Outstanding at April 26, 1998
----- -----------------------------
Common Stock, $1 par value 45,418,000
(Excluding treasury shares)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 29, 1998 and March 30, 1997
(Unaudited)
-----------
(In Thousands Except Per Share Data)
------------------------------------
Three Months Ended
------------------
MAR 29, MAR 30,
1998 1997
---- ----
Sales:
Products .................................................. $200,402 $202,513
Services .................................................. 155,534 144,493
-------- --------
Total Sales ............................................... 355,936 347,006
-------- --------
Cost of Sales:
Products .................................................. 128,256 131,371
Services .................................................. 136,504 128,268
-------- --------
Total Cost of Sales ....................................... 264,760 259,639
Research and Development Expenses ......................... 11,042 11,154
Selling, General and Administrative Expenses .............. 61,315 59,658
Restructuring Charges (Note 2) ............................ 31,400 --
Gains on Dispositions (Note 3) ............................ (67,478) --
-------- --------
Operating Income From
Continuing Operations .................................. 54,897 16,555
Other Income (Expense), Net (Note 4) ...................... (1,202) (2,058)
-------- --------
Income From Continuing Operations
Before Income Taxes .................................... 53,695 14,497
Provision for Income Taxes ................................ 19,212 4,929
-------- --------
Income From Continuing Operations ......................... 34,483 9,568
Income From Discontinued Operations,
Net of Income Taxes (Note 5) ........................... -- 458
-------- --------
Net Income ................................................ $ 34,483 $ 10,026
======== ========
Basic Earnings Per Share:
Continuing Operations ..................................... $ .76 $ .21
Discontinued Operations ................................... -- .01
-------- --------
Net Income ................................................ $ .76 $ .22
======== ========
Diluted Earnings Per Share:
Continuing Operations ..................................... $ .75 $ .21
Discontinued Operations ................................... -- .01
-------- --------
Net Income ................................................ $ .75 $ .22
======== ========
Cash Dividends Per Common Share ........................... $ .14 $ .14
======== ========
Weighted Average Shares of Common Stock Outstanding:
Basic ..................................................... 45,262 46,220
Diluted ................................................... 45,766 46,437
The accompanying unaudited notes are an integral part of these consolidated
financial statements.
EG&G, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of March 29, 1998 and December 28, 1997
(Dollars in Thousands Except Per Share Data)
--------------------------------------------
MAR 29, DEC 28,
1998 1997
---- ----
(Unaudited)
---------
Current Assets:
Cash and cash equivalents ............................. $102,895 $ 57,934
Accounts receivable (Note 6) .......................... 235,744 243,963
Inventories (Note 7) .................................. 116,728 112,875
Other current assets .................................. 73,238 73,414
-------- --------
Total Current Assets .................................. 528,605 488,186
-------- --------
Property, Plant and Equipment:
At cost (Note 8) ...................................... 462,925 482,382
Accumulated depreciation and amortization ............. (293,336) (301,239)
-------- --------
Net Property, Plant and Equipment ..................... 169,589 181,143
-------- --------
Investments (Note 9) .................................. 16,710 16,730
Intangible Assets ..................................... 80,557 79,257
Other Assets .......................................... 66,586 66,787
-------- --------
Total Assets .......................................... $862,047 $832,103
======== ========
Current Liabilities:
Short-term debt ....................................... $ 62 $ 46,167
Accounts payable ...................................... 78,478 73,360
Accrued restructuring costs (Note 2) .................. 25,191 --
Accrued expenses (Note 10) ............................ 192,236 166,088
-------- --------
Total Current Liabilities ............................. 295,967 285,615
-------- --------
Long-Term Debt ........................................ 114,776 114,863
Long-Term Liabilities ................................. 101,658 103,237
Contingencies
Stockholders' Equity:
Preferred stock - $1 par value, authorized
1,000,000 shares; none outstanding ................. -- --
Common stock - $1 par value, authorized
100,000,000 shares; issued 60,102,000 shares........ 60,102 60,102
Retained earnings ..................................... 568,760 540,379
Accumulated other comprehensive loss (Note 11) ........ (6,822) (3,857)
Cost of shares held in treasury;
14,816,000 shares at March 29, 1998 and
14,769,000 shares at December 28, 1997 ............. (272,394) (268,236)
-------- --------
Total Stockholders' Equity ............................ 349,646 328,388
-------- --------
Total Liabilities and Stockholders' Equity ............ $862,047 $832,103
======== ========
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 Three Months Ended March 29, 1998 and March 30, 1997
(Unaudited)
-----------
(In Thousands)
--------------
Three Months Ended
------------------
MAR 29, MAR 30,
1998 1997
---- ----
Cash Flows Provided by (Used in) Operating Activities:
Net income ..................................................... $ 34,483 $ 10,026
Deduct net income from discontinued operations ................. -- (458)
-------- --------
Income from continuing operations .............................. 34,483 9,568
Adjustments to reconcile income from continuing operations
to net cash provided by (used in) continuing operations:
Noncash portion of restructuring charges ....................... 6,209 --
Restructuring charges to be paid in future periods ............. 25,191 --
Depreciation and amortization .................................. 12,160 10,785
Gains on dispositions and investments, net ..................... (67,846) (1,750)
Changes in assets and liabilities, net of
effects from companies purchased and divested:
Decrease (increase) in accounts receivable ..................... (1,742) 6,481
Increase in inventories ........................................ (9,232) (5,253)
Increase (decrease) in accounts payable ........................ 7,881 (6,120)
Increase (decrease) in accrued expenses ........................ 12,716 (7,610)
Change in prepaid expenses and other ........................... (9,911) (7,910)
-------- --------
Net Cash Provided by (Used in) Continuing Operations ........... 9,909 (1,809)
Net Cash Provided by Discontinued Operations ................... 62 457
-------- --------
Net Cash Provided by (Used in) Operating Activities ............ 9,971 (1,352)
-------- --------
Cash Flows Provided by (Used In) Investing Activities:
Capital expenditures ........................................... (9,246) (14,066)
Proceeds from dispositions of businesses and sales
of property, plant and equipment ............................ 108,398 5,233
Cost of acquisitions ........................................... (9,514) --
Proceeds from sales of investment securities ................... 2,093 336
Other .......................................................... -- (443)
-------- --------
Net Cash Provided by (Used in) Investing Activities ............ 91,731 (8,940)
-------- --------
Cash Flows Provided by (Used in) Financing Activities:
Increase (decrease) in commercial paper ........................ (45,844) 18,961
Proceeds from issuance of common stock ......................... 7,537 4,210
Purchases of common stock ...................................... (11,446) (11,551)
Cash dividends ................................................. (6,351) (6,488)
Other .......................................................... (346) 1,120
-------- --------
Net Cash Provided by (Used in) Financing Activities ............ (56,450) 6,252
-------- --------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents ............................................ (291) (1,425)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ........... 44,961 (5,465)
Cash and cash equivalents at beginning of period ............... 57,934 47,846
-------- --------
Cash and cash equivalents at end of period ..................... $102,895 $ 42,381
======== ========
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) Basis of Presentation
- --------------------------
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K. The balance
sheet amounts as of December 28, 1997 in this report were extracted from the
Company's audited 1997 financial statements included in the latest annual report
on Form 10-K. In the opinion of management, the unaudited consolidated financial
statements included herein contain all adjustments, consisting only of normal
recurring accruals, necessary to present fairly the financial position as of
March 29, 1998 and the results of operations and cash flows for the three months
ended March 29, 1998 and March 30, 1997. 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 three months
ended March 29, 1998 are not necessarily to be considered indicative of the
results for the entire year.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise
and Related Information, in June 1997. The statement establishes standards for
the way that public business enterprises report information and operating
segments in annual financial statements and requires reporting of selected
information in interim financial reports. The required disclosures for SFAS No.
131, which is effective for fiscal years beginning after December 15, 1997, will
be included in the Company's 1998 annual report on Form 10-K.
(2) Restructuring Charges
- --------------------------
During the first quarter of 1998, management developed a plan to restructure
certain businesses to attain the Company's business goals. The plan resulted in
pre-tax restructuring charges of $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 under-utilized assets, withdrawal from certain product
lines and general cost reductions. The restructuring plan is expected to result
in the termination of the jobs of approximately 600 employees. The major
components of the restructuring charges were $20 million of employee separation
costs, $6 million of noncash charges to dispose of certain product lines and
assets through sale or abandonment and $5 million of charges to terminate lease
and other contractual obligations no longer required as a result of the
restructuring plan. The charges do not include additional costs associated with
the restructuring plan, such as voluntary early retirement programs, training,
consulting, purchase of equipment and relocation of employees and equipment.
These costs will be charged to operations or capitalized, as appropriate, when
incurred.
(3) Gains on Dispositions
- -------------------------
In early January 1998, the Company sold its Rotron division to Ametek, Inc. for
$103 million in cash, resulting in a pre-tax gain of $64.4 million. During the
first quarter of 1998, the Company also sold a small product line for $4 million
in cash, resulting in a pre-tax gain of $3.1 million. The after-tax gain on
these divestitures was $45.2 million, or $1.00 basic earnings per share. Rotron,
which manufactures fans, blowers and motors, had 1997 sales of $70 million and
operating income of $11.9 million ($.16 earnings per share).
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
-----------
(4) Other Income (Expense)
- ---------------------------
Other income (expense), net, consisted of the following:
(In Thousands)
--------------
Three Months Ended
------------------
MAR 29, MAR 30,
1998 1997
---- ----
Interest income.............. $ 995 $ 420
Interest expense............. (2,641) (2,870)
Other........................ 444 392
------- -------
$(1,202) $(2,058)
======= =======
(5) Discontinued Operations
- ----------------------------
The former Department of Energy (DOE) Support segment, which has provided
services under management and operations contracts, is presented as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30. The
Mound contract, which was the Company's last DOE management and operations
contract, expired on September 30, 1997.
Summary operating results of the discontinued operations were as follows:
(In Thousands)
--------------
Three Months Ended
------------------
MAR 30,
1997
----
Sales $24,640
Costs and expenses...................... 23,936
-------
Income from discontinued
operations before income taxes....... 704
Provision for income taxes 246
-------
Income from discontinued operations,
net of income taxes.................. $ 458
=======
The Company is in the process of negotiating contract closeouts and does not
anticipate incurring any material loss in excess of previously established
reserves.
(6) Accounts Receivable
- ------------------------
Accounts receivable as of March 29, 1998 and December 28, 1997 included unbilled
receivables of $43 million and $48 million, respectively, which were due
primarily from U.S. government agencies. Accounts receivable were net of
reserves for doubtful accounts of $4.4 million and $4.8 million as of March 29,
1998 and December 28, 1997, respectively.
(7) Inventories
- ----------------
Inventories consisted of the following:
(In Thousands)
--------------
MAR 29, DEC 28,
1998 1997
---- ----
Finished goods............... $ 32,859 $ 31,570
Work in process.............. 27,716 24,810
Raw Materials................ 56,153 56,495
-------- --------
$116,728 $112,875
======== ========
EG&G, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
-----------
(8) Property, Plant and Equipment
- ---------------------------------
Property, plant and equipment, at cost, consisted of the following:
(In Thousands)
--------------
MAR 29, DEC 28,
1998 1997
---- ----
Land ............................................... $ 12,178 $ 12,712
Buildings and leasehold improvements ............... 113,817 114,698
Machinery and equipment ............................ 336,930 354,972
-------- --------
$462,925 $482,382
======== ========
The decrease in property, plant and equipment resulted primarily from the sale
of the Rotron division in January 1998.
(9) Investments
- ---------------
Investments consisted of the following:
(In Thousands)
--------------
MAR 29, DEC 28,
1998 1997
---- ----
Marketable investments ............................. $ 11,874 $ 11,197
Joint venture investments .......................... 4,959 5,591
Other investments .................................. 115 343
-------- --------
16,948 17,131
Investments classified as other current assets (238) (401)
-------- --------
$ 16,710 $ 16,730
======== ========
At March 29, 1998, marketable investments, all classified as available for sale,
had an aggregate market value of $11.9 million and gross unrealized holding
gains of $1.3 million and gross unrealized holding losses of $0.2 million. The
net unrealized holding gain on marketable investments, net of deferred taxes,
reported as a component of accumulated other comprehensive loss in stockholders'
equity, was $0.7 million at March 29, 1998.
(10) Accrued Expenses
- ----------------------
Accrued expenses consisted of the following:
(In Thousands)
--------------
MAR 29, DEC 28,
1998 1997
---- ----
Payroll and incentives ............................. $ 18,794 $ 24,473
Employee benefits .................................. 50,305 48,936
Federal, non-U.S. and state income taxes ........... 39,963 22,352
Other accrued operating expenses ................... 83,174 70,327
-------- --------
$192,236 $166,088
======== ========
EG&G INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
-----------
(11) Comprehensive Income
- -------------------------
In the first quarter of 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. The statement established standards for
reporting and display of comprehensive income and its components.
Comprehensive income (loss) consisted of the following:
(In Thousands)
--------------
Three Months Ended
------------------
MAR 29, MAR 30,
1998 1997
---- ----
Net income ........................................ $ 34,483 $ 10,026
-------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments .......... (3,178) (10,811)
Unrealized gains on securities
213 62
-------- --------
Other comprehensive income (loss) ................. (2,965) (10,749)
-------- --------
Comprehensive income (loss) ....................... $ 31,518 $ (723)
======== ========
The components of accumulated other comprehensive income (loss) were as follows:
(In Thousands)
--------------
MAR 29, DEC 28,
1998 1997
---- ----
Foreign currency translation adjustments .......... $ (7,558) $ (4,380)
Unrealized gains on securities .................... 736 523
-------- --------
Accumulated other comprehensive income (loss) ..... $ (6,822) $ (3,857)
-------- --------
(12) Subsequent Events
- ----------------------
In early April 1998, the Company sold its Sealol Industrial Seals division to
the TI Group plc for cash of $100 million, resulting in an estimated after-tax
gain of approximately $33 million. Sealol Industrial Seals, which manufactures
mechanical seals, had 1997 sales of $88 million and operating income of $11.4
million ($.21 earnings per share).
In connection with the above transaction, the Company purchased the Belfab
division of John Crane Inc., a unit of the TI Group, for $45 million in cash.
The acquisition will be accounted for using the purchase method; the purchase
price allocation has not yet been finalized. The acquisition's results of
operations, which will be included in the consolidated results of the Company
from the date of the acquisition, are not material to the consolidated results
of operations.
Item 2. Management's Discussion and Analysis of Results
-----------------------------------------------
of Operations and Financial Condition
-------------------------------------
EG&G, INC. AND SUBSIDIARIES
Results of Operations
---------------------
The following industry segment information is presented as an aid to better
understand the Company's operating results:
(In Thousands)
--------------
Three Months Ended
------------------
MAR 29, MAR 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Instruments
Sales ................................... $ 76,882 $ 71,674 $ 5,208
Operating Income (Loss) ................. (1,278) 6,135 (7,413)
Mechanical Components
Sales ................................... $ 59,855 $ 71,734 $(11,879)
Operating Income ........................ 65,448 7,615 57,833
Optoelectronics
Sales ................................... $ 63,665 $ 59,105 $ 4,560
Operating Income (Loss) ................. (6,293) 291 (6,584)
Technical Services
Sales ................................... $155,534 $144,493 $ 11,041
Operating Income ........................ 7,964 8,321 (357)
General Corporate Expenses ................. $(10,944) $ (5,807) $ (5,137)
Continuing Operations
Sales ................................... $355,936 $347,006 $ 8,930
Operating Income ........................ 54,897 16,555 38,342
The operating income from continuing operations for the three months ended March
29, 1998 included restructuring charges of $31.4 million. The impact of these
charges on each segment was as follows: Instruments-$7.1 million, Mechanical
Components-$8.5 million, Optoelectronics- $8.6 million, Technical Services-$4.2
million and General Corporate Expenses-$3 million. The operating income from
continuing operations for the three months ended March 29, 1998 also included
$67.5 million of gains on dispositions of businesses in the Mechanical
Components segment.
The discussion that follows is a summary analysis of the major changes in
operating results by industry segment that occurred for the three months ended
March 29, 1998 compared to the three months ended March 30, 1997.
Overview
The Company continues the realignment of its operating organization to position
the Company for sustained long-term growth. The realignment includes the
divestiture of businesses serving markets that do not meet our growth criteria
or strategic direction. The Company divested the Rotron division in the first
quarter of 1998 and the Sealol Industrial Seals division in the second quarter
of 1998. The Company entered 1998 with fifteen operating divisions and plans to
exit 1998 with five strategic business units. The Company intends to use the
proceeds from recent divestitures to accelerate certain consolidation programs
and to invest in acquisitions in strategic
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
growth areas. The Company is emphasizing the ongoing program to reduce costs and
to improve its overall operating processes.
Sales Operating Income
-------------------- --------------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
As Reported .......................... $355,936 $347,006 $ 54,897 $ 16,555
Restructuring Charges ................ -- -- 31,400 --
Gains on Dispositions ................ -- -- (67,478) --
1997 Gains, Net of Integration Costs.. -- -- -- (1,024)
Results of Divested Operations ....... -- (21,209) -- (3,418)
-------- -------- -------- --------
Base Operations ...................... $355,936 $325,797 $ 18,819 $ 12,113
======== ======== ======== ========
Sales from continuing operations increased 3% in the first quarter 1998 compared
to 1997 while base operations sales (which excludes results of operations
divested in 1997 and the first quarter of 1998) increased 9% in the first
quarter of 1998. All four segments contributed to the increase in base
operations sales. Income from continuing operations was $54.9 million in the
first quarter of 1998. It included a $67.5 million pre-tax gain mainly from the
sale of the Rotron division and a pre-tax restructuring charge of $31.4 million.
The after-tax gain was $45.2 million ($1.00 basic earnings per share) while the
after-tax restructuring charge was $22 million ($.49 basic earnings per share).
Base operating income, excluding these two nonrecurring items, was $18.8 million
compared to $12.1 million in 1997 for an increase of 55%.
Instruments
Sales Operating Income
-------------------- --------------------
(Loss)
------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
As Reported .......................... $ 76,882 $ 71,674 $ (1,278) $ 6,135
Restructuring Charges ................ -- -- 7,100 --
1997 Gains, Net of Integration Costs.. -- -- -- (1,024)
Results of Divested Operations ....... -- (2,898) -- (409)
-------- -------- -------- --------
Base Operations ...................... $ 76,882 $ 68,776 $ 5,822 $ 4,702
======== ======== ======== ========
Sales increased 7% from last year while base operations sales increased 12%. All
operations contributed to the sales increase, with the majority of it due to
higher sales of medical diagnostics and research instruments. An operating loss
was experienced for the quarter due to restructuring charges of $7.1 million.
The restructuring plan is expected to result in annualized cost reductions of
approximately $3 million which will be fully realized in the year 2000.
Excluding the restructuring charges and results of divested operations, base
operating income increased $1.1 million as the income earned on the higher sales
level was partially offset by a nonrecurring charge for a litigation issue.
Mechanical Components
Sales Operating Income
-------------------- --------------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
As Reported .......................... $ 59,855 $ 71,734 $ 65,448 $ 7,615
Restructuring Charges ................ -- -- 8,500 --
Gains on Dispositions ................ -- -- (67,478) --
Results of Divested Operations........ -- (18,311) -- (3,009)
-------- -------- -------- --------
Base Operations ...................... $ 59,855 $ 53,423 $ 6,470 $ 4,606
======== ======== ======== ========
Sales decreased compared to last year due to the absence of the sales of the two
divested divisions. Comparing base operations, sales increased $6.4 million due
to higher demand for aerospace products, reflecting continuing strength in that
market. Operating income increased
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
$57.8 million and included gains on dispositions of $67.5 million, mainly as a
result of the divestiture of the Rotron division in early 1998. Restructuring
charges of $8.5 million were recorded during the quarter. On a base operations
basis, operating income increased $1.9 million as a result of the higher sales
in the aerospace business.
The Company sold the Rotron division in January 1998, for $103 million. In April
1998, the Company sold the Sealol Industrial Seals division to TI Group, plc for
$100 million, while simultaneously purchasing TI Group's Belfab division for $45
million. Belfab's 1997 sales were $30 million. Sealol Industrial Seals
division's 1998 first quarter sales were $23 million and its operating income
was $2.1 million ($.04 basic earnings per share). The Company expects to realize
an after tax gain in the range of $30-35 million from this divestiture.
Optoelectronics
Sales Operating Income
-------------------- --------------------
(Loss)
------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
As Reported .......................... $ 63,665 $ 59,105 $ (6,293) $ 291
Restructuring Charges................. -- -- 8,600 --
-------- -------- -------- -------
Base Operations ...................... $ 63,665 $ 59,105 $ 2,307 $ 291
======== ======== ======== =======
Sales increased 8% due mainly to the growth in thermopile products introduced in
1997. An operating loss was incurred during the quarter as a result of
restructuring charges of $8.6 million. The restructuring plan is expected to
result in annualized cost reductions of $3 million which will by fully realized
in the year 2000. Excluding the restructuring charges, base operating income
increased $2 million over 1997 as a result of the sales increases and lower
depreciation and amortization at IC Sensors due to a 1997 impairment charge. IC
Sensors continued to operate at a loss. These increases were partially offset by
a reimbursement to a government agency under a research and development
agreement. The 1998 cost of the development effort for the Amorphous Silicon
project continued at the $1.4 million level, while the development effort for
the advanced micromachined sensor technology was $1.2 million. Approximately,
the same amounts were spent on these projects in 1997.
Technical Services
Sales Operating Income
-------------------- --------------------
(In Thousands) 1998 1997 1998 1997
- -------------- ---- ---- ---- ----
As Reported .......................... $155,534 $144,493 $ 7,964 $ 8,321
Restructuring Charges................. -- -- 4,200 --
-------- -------- -------- --------
Base Operations ...................... $155,534 $144,493 $ 12,164 $ 8,321
======== ======== ======== ========
Sales increased 8% in 1998 as a result of the new Defense Logistics Agency
contract, higher automotive testing sales and additional billings under our
Services division's contracts. These increases were partially offset by the
effect of a communication systems development contract which concluded last
year. Operating income decreased as a result of $4.2 million of restructuring
charges. The restructuring plan is expected to result in annualized cost
reductions of $2 million which will be fully realized in the year 2000.
Excluding the restructuring charge, base operating income increased 46% due to
the higher sales levels and improved grades at Defense Materials and the 1997
close-down of the environmental division which incurred a loss last year.
Future performance could be affected by the NASA and Air Force decision to
consolidate and recompete the base operations contracts at the Kennedy Space
Center, Cape Canaveral Air Station and certain functions at Patrick Air Force
Base in an effort to eliminate duplication and reduce costs. It is anticipated
that the resultant contract would be effective October 1, 1998. The Company is
participating in the recompetition for the new contract as part of a joint
venture.
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
General Corporate Expenses
The $5.1 million increase was primarily due to $3 million of restructuring
charges, higher management incentive accruals and management transition costs.
The restructuring plan is expected to result in annualized cost reductions of $2
million which will be fully realized in the year 2000.
Other
The $0.9 million net decrease in other expenses was mainly due to higher
interest income resulting from the proceeds on dispositions. The 1998 effective
tax rate of 35.8% was higher as compared to 34.1% in 1997, primarily due to
changes in the geographical distribution of income.
Restructuring Charges
During the first quarter of 1998, management developed a plan to restructure
certain businesses to attain the Company's business goals. The plan resulted in
pre-tax restructuring charges of $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 under-utilized assets, withdrawal from certain product
lines and general cost reductions. The restructuring plan is expected to result
in the elimination of approximately 600 jobs. These actions are expected to
result in pre-tax savings of approximately $3-4 million in 1998. As the plan
will be completely implemented in 1999, the pre-tax savings are expected to be
$10-12 million in the year 2000. The major components of the restructuring
charges were $20 million of employee separation costs, $6 million of noncash
charges to dispose of certain product lines and assets through sale or
abandonment and $5 million of charges to terminate lease and other contractual
obligations no longer required as a result of the restructuring plan. The
charges do not include additional costs associated with the restructuring plan,
such as voluntary early retirement programs, training, consulting, purchase of
equipment and relocation of employees and equipment. These costs will be charged
to operations or capitalized, as appropriate, when incurred.
Discontinued Operations
Income from discontinued operations, net of income taxes, in 1997 reflected the
Mound contract which expired in September 1997. The Company is in the process of
negotiating contract closeouts and does not anticipate incurring a material loss
in excess of previously established reserves.
Financial Condition
-------------------
The Company's cash and cash equivalents increased $45 million in 1998 while
commercial paper borrowings of $46 million at year end 1997 were eliminated. The
main reason for these changes were the proceeds from the sale of the Rotron
division. Net cash provided by continuing operations was $9.9 million compared
to $1.8 million net cash used in 1997. The favorable change was mainly due to
increased earnings.
Capital expenditures were $9.2 million in the first quarter of 1998, a decrease
of $4.8 million from the 1997 level and are expected to be at a level of $50-60
million for the year 1998. The implementation of the restructuring plan is
expected to result in after-tax cash outlays of $16 million in the remainder of
1998 and into the first half of 1999. In April 1998, the Company realized gross
proceeds of $100 million from the sale of the Sealol Industrial Seals division
and used $45 million to purchase TI Group's Belfab division. The Company plans
to use these proceeds along with proceeds from the sale of other businesses to
accelerate certain consolidation programs and to invest in acquisitions in
strategic growth areas.
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
During the first quarter of 1998, the Company purchased 447,000 shares of its
common stock through periodic purchases on the open market at a cost of $11.4
million.
The Company has two revolving credit agreements totaling $200 million. During
the first quarter of 1998, the Company's $100 million 364-day credit facility
was extended to March 1999. The Company did not draw down its credit facilities
during the first quarter of 1998.
Other Matters
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The Company utilizes software and related technologies throughout its business
that will be affected by the Year 2000 problem, which is common to most
corporations. The problem relates to the inability of microprocessors and data
dependent software to correctly handle the year 2000 and beyond. The Company is
addressing the effect of the Year 2000 problem on all of its critical systems
and believes it will be able to modify or replace its affected systems in time
to minimize any detrimental effects on its operations. Based on current plans,
the Company expects that such costs will not be material to the Company's
results of operations in any year and will not have a material adverse impact on
the liquidity or financial position of the Company.
Forward-Looking Information
---------------------------
All statements contained herein that refer to a time after March 29, 1998,
including the words will, will be, estimated to be, could be, expect, believe,
will continue, expected to, and plan, or statements referring to goals, the
future or future actions, continuing actions, trends, strategies, initiatives,
challenges or opportunities, or which otherwise are not purely historical, are
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve risks and uncertainties. There are a
number of important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements, including the factors
set forth below.
Factors Affecting Future Performance
------------------------------------
In the Instruments, Mechanical Components, and Optoelectronics industry
segments, future performance will be highly dependent on the technological
success, market acceptance, competitive position of our businesses, product
performance and ability to reach cost targets of new and continuing program
initiatives. Improved operational efficiency will be required to offset
increasing price pressure in many of the Company's product offerings. Other
factors that may impact future earnings performance include the ability to
replace sales and earnings lost through divestitures, potential issues related
to economic and financial difficulties arising in Asia, unanticipated issues
associated with the Year 2000 dating problem, and difficulty in attracting and
retaining key personnel in certain areas. The future results of Optoelectronics
segment are also dependent on management's ability to restore IC Sensors to
break-even in the near term, the successful introduction of new products,
improvement in manufacturing yields and implementation of cost reductions,
including the successful transfer of assembly activities to lower-cost
geographic locations.
In the Technical Services segment, the Company operates in a highly competitive
procurement environment in the automotive testing and government services
businesses. The income generated by many of our government contracts is
dependent on meeting certain performance criteria. In accordance with government
regulations, all of the Company's government contracts are subject to
termination for the convenience of the government. NASA and the Air Force have
decided to consolidate and recompete the base operations contract at the Kennedy
Space
EG&G, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
Center, Cape Canaveral Air Station and certain functions at Patrick Air Force
Base in an effort to eliminate duplication and reduce costs. It is anticipated
that any resultant contract would be effective October 1, 1998. The Company is
participating in the recompetition for the new contract as part of a joint
venture.
Movements in foreign exchange rates could affect operating results. Effective
tax rates in the future could be affected by changes in the geographical
distribution of income, utilization of non-U.S. net operating loss
carry-forwards, repatriation costs, resolution of outstanding tax audit issues
and changes in the portfolio of businesses.
Exhibits
EG&G, INC. AND SUBSIDIARIES
Exhibit 27 - Financial data schedule
PART II. OTHER INFORMATION
EG&G, INC. AND SUBSIDIARIES
Item 4. Results of Votes of Security Holders
------------------------------------
(a) The Company' annual meeting of stockholders was held on April 28, 1998.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A, and
there were no solicitations in opposition to management's nominees for
Directors. All such nominees were elected for terms of one year each,
and the number of Directors was fixed at eleven.
(c) The Stockholders voted 3,149,239 shares for and 32,233,003 shares
against, with 1,070,361 shares abstaining and 4,308,640 shares not
voting, on a proposal to urge the EG&G Directors to arrange for the
prompt sale of the Company to the highest bidder.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits incorporated by reference from Part I herein
Exhibit 27 - Financial data schedule (submitted in electronic format
only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on January 5, 1998 regarding an
agreement to sell the Company's Rotron division to Ametek, Inc.
The Company filed a report on Form 8-K on January 23, 1998 regarding
the appointment of Gregory L. Summe as President and Chief Operating
Officer.
The Company filed a report on Form 8-K on February 3, 1998, which
included a copy of a press release containing the Company's financial
results for the quarter ended December 28, 1997.
EG&G, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EG&G, Inc.
By: /s/ John F. Alexander, II
---------------------------
John F. Alexander, II
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date May 11, 1998
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