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 30, 1997 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 April 27, 1997 ----- ----------------------------- Common Stock, $1 par value 46,032,000 (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 30, 1997 and March 31, 1996 (Unaudited) ----------- <TABLE> <CAPTION> (In Thousands Except -------------------- Per Share Data) --------------- Three Months Ended ------------------ MAR 30, MAR 31, 1997 1996 <S> <C> <C> -------- -------- Sales: Products $202,513 $208,001 Services 144,493 138,790 -------- -------- Total Sales 347,006 346,791 -------- -------- Costs and Expenses: Cost of sales: Products 131,371 131,925 Services 128,268 124,456 -------- -------- Total cost of sales 259,639 256,381 Research and development expenses 11,154 10,961 Selling, general and administrative expenses 59,658 59,524 -------- -------- Total Costs and Expenses 330,451 326,866 -------- -------- Operating Income From Continuing Operations 16,555 19,925 Other Income (Expense), Net (Note 2) (2,058) (1,895) -------- -------- Income From Continuing Operations Before Income Taxes 14,497 18,030 Provision for Income Taxes 4,929 6,148 -------- -------- Income From Continuing Operations 9,568 11,882 Income From Discontinued Operations, Net of Income Taxes (Note 3) 458 900 -------- -------- Net Income $ 10,026 $ 12,782 ======== ======== Earnings Per Share: Continuing Operations $ .21 $ .25 Discontinued Operations .01 .02 -------- -------- Net Income $ .22 $ .27 ======== ======== Cash Dividends Per Common Share $ .14 $ .14 ======== ======== Weighted Average Shares of Common Stock Outstanding 46,220 47,630 </TABLE> The accompanying unaudited notes are an integral part of these consolidated financial statements. - 2 -
EG&G, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET As of March 30, 1997 and December 29, 1996 (Dollars in Thousands Except Per Share Data) <TABLE> <CAPTION> MAR 30, DEC 29, 1997 1996 -------- -------- (Unaudited) ----------- <S> <C> <C> Current Assets: Cash and cash equivalents $ 42,381 $ 47,846 Accounts receivable (Note 4) 212,206 222,856 Inventories (Note 5) 121,484 119,558 Other current assets 69,414 64,451 -------- -------- Total Current Assets 445,485 454,711 -------- -------- Property, Plant and Equipment: At cost (Note 6) 478,372 480,858 Accumulated depreciation and amortization (287,259) (288,808) -------- -------- Net Property, Plant and Equipment 191,113 192,050 -------- -------- Investments (Note 7) 16,028 16,839 Intangible Assets (Note 8) 104,211 110,368 Other Assets 49,964 48,932 -------- -------- Total Assets $806,801 $822,900 ======== ======== Current Liabilities: Short-term debt $ 41,394 $ 21,499 Accounts payable 68,261 75,749 Accrued expenses (Note 9) 147,758 157,558 Net liabilities of discontinued operations (Note 3) 4,989 4,990 -------- -------- Total Current Liabilities 262,402 259,796 -------- -------- Long-Term Debt 115,176 115,104 Long-Term Liabilities 78,669 82,894 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 535,279 532,043 Cumulative translation adjustments 7,417 18,228 Net unrealized gain on marketable investments (Note 7) 1,266 1,204 Cost of shares held in treasury; 14,071,000 shares at March 30, 1997 and 13,792,000 shares at December 29, 1996 (253,510) (246,471) -------- -------- Total Stockholders' Equity 350,554 365,106 -------- -------- Total Liabilities and Stockholders' Equity $806,801 $822,900 ======== ======== </TABLE> The accompanying unaudited notes are an integral part of these consolidated financial statements. - 3 -
EG&G, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Three Months Ended March 30, 1997 and March 31, 1996 (Unaudited) ----------- <TABLE> <CAPTION> (In Thousands) -------------- Three Months Ended ------------------ MAR 30, MAR 31, 1997 1996 ------- ------- <S> <C> <C> Cash Flows Provided by (Used in) Operating Activities: Net income $10,026 $12,782 Deduct net income from discontinued operations (458) (900) ------- ------- Income from continuing operations 9,568 11,882 Adjustments to reconcile income from continuing operations to net cash provided by (used in) continuing operations: Depreciation and amortization 10,785 9,062 Changes in assets and liabilities, net of effects from companies divested: Decrease (increase) in accounts receivable 6,481 (8,836) Increase in inventories (5,253) (7,935) Increase (decrease) in accounts payable (6,120) 7,886 Decrease in accrued expenses (7,610) (7,949) Change in prepaid expenses and other (9,660) (8,625) ------- ------- Net Cash Provided by (Used in) Continuing Operations (1,809) (4,515) Net Cash Provided by Discontinued Operations 457 3,403 ------- ------- Net Cash Provided by (Used in) Operating Activities (1,352) (1,112) ------- ------- Cash Flows Used In Investing Activities: Capital expenditures (14,066) (26,982) Proceeds from dispositions of businesses and sales of property, plant and equipment 5,233 851 Proceeds from sales of investment securities 336 4,459 Other (443) -- ------- ------- Net Cash Used in Investing Activities (8,940) (21,672) ------- ------- Cash Flows Provided by Financing Activities: Increase in commercial paper 18,961 28,894 Proceeds from issuance of common stock 4,210 3,472 Purchases of common stock (11,551) (7,045) Cash dividends (6,488) (6,674) Other 1,120 (990) ------- ------- Net Cash Provided by Financing Activities 6,252 17,657 ------- ------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (1,425) (1,475) ------- ------- Net Decrease in Cash and Cash Equivalents (5,465) (6,602) Cash and cash equivalents at beginning of period 47,846 76,204 ------- ------- Cash and cash equivalents at end of period $42,381 $69,602 ======= ======= </TABLE> The accompanying unaudited notes are an integral part of these consolidated financial statements. - 4 -
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 29, 1996 in this report were extracted from the Company's audited 1996 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 30, 1997 and the results of operations for the three months ended March 30, 1997 and March 31, 1996 and the cash flows for the three months then ended. The results of operations for the three months ended March 30, 1997 are not necessarily to be considered indicative of the results for the entire year. In the fourth quarter of 1997, the Company will adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which is effective for financial statements for periods ending after December 15, 1997. SFAS No. 128 requires replacement of primary earnings per share (EPS) with basic EPS, which is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS, which gives effect to all dilutive potential common shares outstanding, is also required. All prior-period EPS data presented will be restated. The EPS amounts shown on the Company's consolidated statement of operations for the three months ended March 30, 1997 and March 31, 1996 are the equivalents of basic EPS and diluted EPS because the number of shares issuable upon the exercise of stock options is immaterial. (2) Other Income (Expense) - --------------------------- Other income (expense), net, consisted of the following: <TABLE> <CAPTION> (In Thousands) -------------- Three Months Ended ------------------ MAR 30, MAR 31, 1997 1996 ------- ------- <S> <C> <C> Interest income 420 955 Interest expense (2,870) (3,184) Other 392 334 ------- ------- $(2,058) $(1,895) ======= ======= </TABLE> - 5 -
EG&G, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) ----------- (3) 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. Summary operating results of the discontinued operations were as follows: <TABLE> <CAPTION> (In Thousands) -------------- Three Months Ended ------------------ MAR 30, MAR 31, 1997 1996 ------- ------- <S> <C> <C> Sales $24,640 $32,289 Costs and expenses 23,936 30,905 ------- ------- Income from discontinued operations before income taxes 704 1,384 Provision for income taxes 246 484 ------- ------- Income from discontinued operations, net of income taxes $ 458 $ 900 ======= ======= </TABLE> Net assets (liabilities) of discontinued operations consisted of the following: <TABLE> <CAPTION> (In Thousands) -------------- MAR 30, DEC 29, 1997 1996 ------- ------- <S> <C> <C> Accounts receivable, primarily unbilled $ 2,196 $ 2,050 Operating current liabilities (7,185) (7,040) ------- ------- $(4,989) $(4,990) ======= ======= </TABLE> (4) Accounts Receivable - ------------------------ Accounts receivable as of March 30, 1997 and December 29, 1996 included unbilled receivables of $40 million and $44 million, respectively, which were due primarily from U.S. government agencies. Accounts receivable were net of reserves for doubtful accounts of $4.6 million and $4.2 million as of March 30, 1997 and December 29, 1996, respectively. (5) Inventories - ---------------- Inventories consisted of the following: <TABLE> <CAPTION> (In Thousands) -------------- MAR 30, DEC 29, 1997 1996 -------- -------- <S> <C> <C> Finished goods $ 31,202 $ 31,436 Work in process 30,459 28,536 Raw materials 59,823 59,586 -------- -------- $121,484 $119,558 ======== ======== </TABLE> - 6 -
EG&G INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) ----------- (6) Property, Plant and Equipment - ---------------------------------- Property, plant and equipment, at cost, consisted of the following: <TABLE> <CAPTION> (In Thousands) -------------- MAR 30, DEC 29, 1997 1996 -------- -------- <S> <C> <C> Land $ 12,716 $ 12,324 Buildings and leasehold improvements 120,443 123,575 Machinery and equipment 345,213 344,959 -------- -------- $478,372 $480,858 ======== ======== </TABLE> (7) Investments - ---------------- Investments consisted of the following: <TABLE> <CAPTION> (In Thousands) -------------- MAR 30, DEC 29, 1997 1996 -------- -------- <S> <C> <C> Marketable investments $12,739 $12,294 Other investments 673 558 Joint venture investments 5,224 4,363 -------- -------- 18,636 17,215 Investments classified as other current assets (2,608) (376) -------- -------- $16,028 $16,839 ======== ======== </TABLE> At March 30, 1997, marketable investments, all classified as available for sale, had an aggregate market value of $12.7 million and gross unrealized holding gains of $1.9 million. The net unrealized holding gain on marketable investments, net of deferred taxes, reported as a separate component of stockholders' equity, was $1.3 million at March 30, 1997. (8) Intangible Assets - ---------------------- The decrease in intangible assets resulted primarily from the effect of translating goodwill denominated in non-U.S. currencies at current exchange rates and from current year amortization. (9) Accrued Expenses - --------------------- Accrued expenses consisted of the following: <TABLE> <CAPTION> (In Thousands) -------------- MAR 30, DEC 29, 1997 1996 -------- -------- <S> <C> <C> Payroll and incentives $ 18,889 $ 29,732 Employee benefits 49,535 44,845 Federal, non-U.S. & state income taxes 24,861 24,186 Other accrued operating expenses 54,473 58,795 -------- -------- $147,758 $157,558 ======== ======== </TABLE> - 7 -
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 a better understanding of the Company's operating results: <TABLE> <CAPTION> (In Thousands) -------------- Three Months Ended ------------------ MAR 30, MAR 31, Increase 1997 1996 (Decrease) -------- -------- ---------- <S> <C> <C> <C> Instruments Sales $ 71,674 $ 73,581 $(1,907) Operating Income 6,135 6,808 (673) Mechanical Components Sales $ 71,734 $ 68,541 $ 3,193 Operating Income 7,615 7,227 388 Optoelectronics Sales $ 59,105 $ 65,879 $(6,774) Operating Income 291 4,115 (3,824) Technical Services Sales $144,493 $138,790 $ 5,703 Operating Income 8,321 8,450 (129) General Corporate Expenses $ (5,807) $ (6,675) $ 868 Continuing Operations Sales $347,006 $346,791 $ 215 Operating Income 16,555 19,925 (3,370) </TABLE> 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 30, 1997 compared to the three months ended March 31, 1996. Overview - -------- Sales from continuing operations in the first quarter of 1997 were approximately the same as in the first quarter of 1996, reflecting growth in Technical Services sales and a decrease in product sales. Operating income decreased 17% mainly as a result of the decreases in the Optoelectronics segment. The first quarter's income included a planned $1.6 million gain on the divestiture of a non-core Instruments business, offset partially by planned integration costs of $1.1 million incurred by the three product segments in connection with the consolidation initiative announced in the third quarter of 1996. The Company has divested and continues to consider divesting businesses not essential to its future, which could result in material nonrecurring gains. The Company will continue to incur integration costs as it moves forward with the consolidation initiative. - 8 -
Instruments - ----------- Sales decreased $1.9 million from last year. Sales increased as a result of introduction of a new medical research instrument and higher sales of advanced and conventional explosives-detection systems. These increases were offset by lower sales resulting from changes in foreign exchange rates, the divestiture of a non-core business in early 1997 and lower demand for nuclear, industrial and research instruments mainly in Germany. The $0.7 million income decrease resulted mainly from lower sales, price reductions due to competitive pressures and royalty payments associated with a 1996 settlement agreement resulting from patent litigation concerning the explosives-detection systems business. The 1997 results reflect the $1.6 million gain on the divestiture of a non-core business, partially offset by $0.6 million of integration costs incurred as part of the Company's consolidation initiative. During the quarter, the Company signed an exclusive license agreement to manufacture a high throughput bulk-cargo security scanning device, which management believes positions the Instruments segment for quick entry into this growing market. Mechanical Components - --------------------- The 5% sales growth was due to higher demand for aerospace products as a result of the continuing resurgence of the aerospace market. The margin on these sales was the main contributor to the income increase but was partially offset by continuing cost overruns on two development programs. Optoelectronics - --------------- The $6.8 million sales decrease was caused by a number of operational issues, including product contamination and slow introduction of new products, lower demand for power supply, medical and analytical products and shifts in demand to new lower-cost accelerometers in the automotive market. Operating income decreased $3.8 million as a result of the sales decreases and the continuing significant operational problems at IC Sensors, which continues to operate at a loss. This operation is failing to achieve the improvements specified in the 1996 corrective action plan due to its inability to generate new product orders, improve manufacturing yields, implement cost reductions and attract and retain critical personnel. Management is developing a revised corrective action plan for this business and is assessing its future contribution to the overall micromachined sensors strategy. As a matter of policy, management conducts an evaluation of the recoverability of an operation's assets, including goodwill, whenever an operation is performing substantially below expectations. Based on the development and progress on the revised corrective action plan and the results of the strategic assessment, this review will be performed for the micromachined sensors business. The 1997 operating results of the Optoelectronics segment include $2.1 million of planned development costs for the amorphous silicon project and components for the next micromachined sensors technology platform. This represents an increase of $0.6 million over the 1996 expenditures. Technical Services - ------------------ The 4% sales increase resulted from follow-on shipments under a contract for communication systems development, cost increases under a government contract and start-up of the light-truck testing facility. These increases were partially offset by decreases due to the completion of a lubricant testing contract in 1996 and lower demand for sedan testing. The operating income reduction was mainly the result of the completion of a lubricant testing contract, partially offset by the income earned on the higher sales level. General Corporate Expenses - -------------------------- The $0.9 million decrease was primarily due to lower management incentive accruals. - 9 -
Discontinued Operations - ----------------------- The Mound contract, the Company's remaining management and operations contract with the DOE, is scheduled to expire on June 30, 1997 and could be extended by the DOE for up to an additional three months under existing terms and conditions. Sales and income from the Mound contract are dependent upon the negotiated work scope and fee pools. Financial Condition ------------------- The Company's cash and cash equivalents decreased $5.5 million in the first quarter of 1997 while commercial paper borrowings increased $19 million, mainly due to the level of capital expenditures. Net cash used in continuing operations was $1.8 million in 1997 compared to $4.5 million used in 1996. In the first quarter of 1997, receivables decreased due to lower product sales, and payables declined due to the timing of payments. Capital expenditures were $14.1 million in the first quarter of 1997, a decrease of $12.9 million from the same period in 1996. Capital expenditures for 1997 are expected to be approximately $80 million. These expenditures support new product development initiatives primarily in the Optoelectronics segment. During the first quarter of 1997, the Company purchased 530,000 shares of its common stock through periodic purchases on the open market at a cost of $11.6 million. As of March 30, 1997, the Company had authorization to purchases 3.6 million additional shares and, subject to operational cash flows, cash utilization alternatives and market conditions, plans to maintain the 1996 level of 1.6 million shares purchased annually. The Company has two revolving credit agreements totaling $200 million. During the first quarter of 1997, the 364-day facility was extended to March 1998, and the five-year facility was extended to March 2002. The Company did not draw down either of these credit facilities during the first quarter of 1997. Forward-Looking Information --------------------------- All statements contained herein that refer to a time after March 30, 1997, including the words expect, believe 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. It is important to note that actual results could differ materially from those in the forward-looking statements. Factors Affecting Future Performance ------------------------------------ Future performance of the Company's three product segments will be highly dependent on the technological success, market acceptance and competitive position of new program initiatives, including the amorphous silicon project and the advanced micromachined sensors technology platform. Continued success in improving operational efficiency will be required to offset increasing price pressure in most of the Company's product offerings. Other factors affecting future performance include the ability to operate with reducing backlogs due to shorter customer order cycles, resolve pricing issues with selected customers and attract and retain key personnel in a number of areas. The results of the Optoelectronics segment are dependent on management's ability to restore IC Sensors to profitability, requiring introduction of new products, improvement in manufacturing yields and implementation of cost reductions. In the Technical Services segment, future performance will continue to be impacted by a highly competitive procurement environment, continuing changes in federal budget priorities and rapidly changing customer requirements. The NASA contract expires on October 31, 1997 and has three 2-year renewal options at the discretion of the government. While it is possible that the Company's contract could be absorbed by the single Space Flight Operations contract, management believes that the contract will be renewed by NASA. 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 net operating loss carry-forwards, repatriation costs and resolution of outstanding tax audit issues. - 10 -
Exhibits EG&G, INC. AND SUBSIDIARIES Exhibit 27 - Financial data schedule - 11-
PART II. OTHER INFORMATION EG&G, INC. AND SUBSIDIARIES Item 4. Results of Votes of Security Holders ------------------------------------ (a) The Company's annual meeting of stockholders was held on April 22, 1997. (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 ten. (c) The stockholders voted 40,925,095 shares for and 1,232,268 shares against, with 309,856 shares abstaining, on a proposal to approve the EG&G, Inc. 1992 Stock Option Plan, as amended. 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 A report on Form 8-K/A was filed with the Commission on January 3, 1997 regarding a settlement agreement relating to litigation concerning dual energy baggage security scanners. A report on Form 8-K was filed with the Commission on January 14, 1997 regarding the resignation of Dr. Fred B. Parks as President and Chief Operating Officer. - 12-
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/ John F. Alexander, II ------------------------- John F. Alexander, II Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date May 13, 1997 ------------ - 13 -