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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 1, 1995
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number 1-5075
------
EG&G, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2052042
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 William Street, Wellesley, Massachusetts 02181
- ------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 237-5100
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------------------- -----------------------------------------
Common Stock, $1 Par Value New York Stock Exchange, Inc.
- -------------------------- -----------------------------
Preferred Share Purchase Rights New York Stock Exchange, Inc.
- ------------------------------- -----------------------------
Securities registered pursuant to Section 12 (g) of the Act: None
- -------------------------------------------------------------------
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the common stock, $1 par value, held
by nonaffiliates of the registrant on February 24, 1995, was
$782,014,706.
As of February 24, 1995, there were outstanding, exclusive of
treasury shares, 54,716,870 shares of common stock, $1 par value.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF EG&G, INC.'S
1995 PROXY STATEMENT......................PART III (Items 10, 11
and 12)
ITEM 1. BUSINESS
GENERAL BUSINESS DESCRIPTION
EG&G, Inc. was incorporated under the laws of the Commonwealth of
Massachusetts in 1947. EG&G, Inc. (hereinafter referred to as
"EG&G", the "Company", or the "Registrant", which includes the
Company's subsidiaries) is a diversified company which had annual
sales of $1.3 billion in 1994 from continuing operations.
The Company designs and manufactures analytical and clinical
instruments and optoelectronic and mechanical components for
manufacturers and end-users in industrial and government markets.
It also provides a variety of systems engineering, project
management and testing services to governmental and commercial
customers.
The Company's operations are classified into four industry
segments: Technical Services, Instruments, Mechanical Components
and Optoelectronics.
RECENT DEVELOPMENTS
In August 1994, the Company announced that the bid of Idaho Applied
Technologies, a joint venture comprised of EG&G, BNFL, Inc. and
Fluor Daniel Environmental Services, Inc., for the expanded
contract at the U.S. Department of Energy's ("DOE") Idaho National
Engineering Laboratory ("INEL") was unsuccessful.
Also in August 1994, the Company announced that it would not seek
renewal of its Rocky Flats and Nevada Test Site contracts and would
no longer pursue Management and Operations ("M&O") contracts with
the DOE. Its former DOE Support segment is now reported as
Discontinued Operations. The Company continues to meet its
obligations under current DOE contracts.
In September 1994, the Company acquired IC Sensors, Inc. located in
Milpitas, California. IC Sensors manufactures micromachined
pressure sensors, accelerometers and valves for industrial,
medical, automotive and aerospace applications.
Also in September 1994, the Company acquired NoVOCs, Inc. in
located Menlo Park, California. NoVOCs offers an innovative
process for restoring groundwater contaminated by gasoline,
solvents and other volatile organic compounds.
In October 1994, the Company announced a major restructuring of its
business operations and recorded a restructuring charge of $30.4
million and a write-down of goodwill of $40.3 million in the third
quarter.
In January 1995, the Company's Board of Directors authorized the
purchase of an additional 10 million shares of common stock. In
total, the Company has current authorization to purchase 13.3
million shares. The Company will finance these activities with a
combination of borrowings and cash flow from operations.
INDUSTRY SEGMENTS
The Company's continuing operations are organized into four
industry segments as set forth below.
TECHNICAL SERVICES
The Company provides a wide range of technical services including
engineering, scientific, environmental, and management support to a
number of industrial and governmental organizations. It also
provides analysis and testing services to the automotive industry.
The Company has been the base contractor for the National
Aeronautics and Space Administration's ("NASA") Kennedy Space
Center ("Center") in Florida since 1983. The Company is currently
in the second year of a four year contract that has two three year
renewal options at the election of the government. Under this
contract, the Company provides institutional, technical, and
maintenance support services at the Center. The Company manages
the Center's 600 buildings, structures, and facilities; tests new
astronaut rescue procedures and escape systems; fields a force of
200 uniformed security personnel together with a SWAT team;
provides fire protection and medical services; handles all
propellant substances; and manages the shuttle landing facility.
The Company also furnishes maintenance and support services to NASA
at its center for the development of aircraft and spacecraft
systems, the Langley Research Center ("Langley") in Hampton,
Virginia. At Langley, the Company maintains laboratories, research
equipment, and facilities including wind tunnels for aerodynamic
testing.
The Company provides a broad array of services to the Department of
Defense ("DoD"). The Company's DoD contracts fall into two
general categories, traditional defense activities and
decommissioning, including among others, the following:
1. Technical support services for the Army's Yuma Proving
Grounds in Arizona.
2. Operational and maintenance services for the Air Force
Radar Target Scatter facility, an electromagnetic
laboratory in New Mexico.
3. Planning and analysis, training, engineering and other
support services for the Navy in connection with
next-generation combat systems.
4. Operational and management services for the Army's
Chemical Decontamination Training Facility at Fort
McClellan, Alabama.
5. Management and operations services for the Army's
facility for the disposal of lethal chemical agents and
munitions in Tooele, Utah.
The Company also provides engineering and management services in a
variety of fields including transportation, physical security, and
property management for other government agencies. Government
clients include the U.S. Departments of Transportation, State, and
Treasury, as well as the Environmental Protection Agency.
The Company supports the DOE's focus on applied fossil energy
technology at the Morgantown Energy Technology Center in West
Virginia.
The Company develops and conducts vehicle performance, durability
and component testing for all major U.S. and a number of foreign
auto manufacturers. These services include vibration testing,
road performance simulation, fatigue and impact testing. The
Company also provides lubricant testing services that range from
the testing of fuels, various lubricants, and engine performance to
the measurement and analysis of engine emissions using advanced
computer simulation techniques, test fixtures and equipment.
In the environmental area, the Company is acquiring patents and
technology with a view towards expanding its presence in the public
and private sector remediation markets.
INSTRUMENTS
The Company manufactures instruments and systems for medical and
clinical diagnostics applications; biochemical, medical and life
science research; environmental monitoring; industrial process
measurement; gas and oil field applications; food inspections;
airport and industrial security; and marine and oceanographic
studies.
The Company manufactures medical diagnostic instruments and systems
based on time-resolved fluorescence which are used in hospitals and
medical laboratories to screen blood for thyroid dysfunction,
fertility-related disorders, fetal defects, diseases in newborns
and indicators of relapse in cancer patients. The systems are also
used in drug development, DNA research, and other basic biological
research. The Company manufactures a fully automatic fluorescence
immunoassay diagnostic system, AutoDelfia , which analyzes tumor
markers, hormone analytes and neonatal screen analytes. In
connection with a Prostate Specific Antigen test under development,
AutoDelfia is expected to improve confirmatory work on the
diagnosis of prostate cancer.
The Company also manufactures medical diagnostic devices that
utilize optical technology. Its luminometers analyze organic
material and are used in pharmaceutical drug research.
Many of the Company's instruments are based on its expertise in
nuclear radiation detection, characterization and measurement. The
Company offers alpha, beta and gamma counting systems that are used
in clinical and research laboratories and for environmental
analysis. The Company sells radiation-protection measuring
systems, equipped with built-in large-area proportional detectors,
to laboratories and nuclear and environmental monitoring
facilities.
Employing its radioisotopic measurement technology, the Company
offers industrial on-line level and density measuring instruments
for process control of liquids, slurries, or solids in containers,
tanks, and pipes.
The Company also manufactures security screening systems that employ
X-ray technology with various supporting image-enhancing techniques
and walk-through metal detector. The systems are used for non-intrusive
inspection of baggage and packages at airport portals, baggage processing
areas, mail rooms, courthouses, school and other buildings.
The Company's food inspection system is used in food-processing and
packaging plants to monitor raw and processed food on the
production line. When the system detects a foreign object, it
sends a signal that results in the removal of the item from the
line. The system combines the Company's X-ray detection
technology employed in security systems and its photodiode,
detector and analyzer imaging technology.
The Company's high-performance electrochemistry instruments, the
majority of which are computer controlled, are used by research
laboratories, universities and industrial and pharmaceutical
companies to detect, analyze, and characterize corrosion, trace
materials and neurological biochemicals.
The Company offers small high-precision turbine flow meters and
primary standard flow calibrators that are used in aerospace,
industrial and pharmaceutical applications.
For marine and oceanographic applications, the Company offers side-
scan sonar equipment, marine seismic instruments, and acoustic
equipment for recovery of ocean-floor moorings and instruments.
The Company provides instruments for use in the oil and gas
industry including high-temperature, high-pressure test chambers
that predict performance of cement slurries during drilling and
completion of oil and gas wells, viscometers for analyzing drilling
muds, pressure calibration standards, and chromatographs and
gravitometers for the analysis of natural gas.
MECHANICAL COMPONENTS
The Company offers high-reliability advanced seals, bellows
products, heat exchangers, fan and blowers and precision
components. Markets served include chemical, petrochemical, and
transportation, aerospace, environmental remediation and defense.
The Company's welded metal bellows devices in mechanical sealing
components and systems continue as the core of its advanced sealing
business. These products have applications in pharmaceutical, food
processing, oil refineries, chemical and petrochemical processing
facilities. The Company also supplies welded metal bellows seals,
dry gas seals, hydrodynamic gas seals, ready-to-install cartridge
seals for use in process plants, vehicles, commercial and domestic
water pumps, and home appliances; and face seals, hydrostatic and
hydrodynamic seals and brush seals for turbine engines, and other
high-pressure systems.
The Company manufactures high-reliability cooling fans and blowers
for electronics and electrical equipment and transportation
systems, and blowers and blower systems that produce both vacuum
and pressure using regeneration and multistage technology for
industrial applications.
The Company's Biocube Aerobic Biofilter treats volatile organic
compounds and odorous emissions with naturally occurring microbes.
The Company produces static metal seals for engines and ducting
joints and connectors for high-pressure and high-temperature air
systems, hydraulic valves for pressure and flow requirements,
pneumatic valves that control the flow of fluids and gases, and
precision solenoid, relief and check valves for hydraulic systems.
The Company manufactures aircraft engine exhaust and pneumatic
ducting assemblies and rocket engine components that utilize bulge
forming, drop hammer forming and fusion welding technologies.
The Company's metal printed circuit board retainers and extractors
are used in electronic enclosures for military, commercial
aircraft, telecommunications and computer applications.
OPTOELECTRONICS
The Company offers a broad variety of components that emit and
detect light in the spectrum from ultraviolet through visible to
the far infrared. These components range from simple photocells to
sophisticated imaging systems, light sources that include various
types of flashtubes and laser diodes, field instruments for
fiber-optics and complex devices for weapons' trigger systems.
Applications extend from simple light sensors used in automotive
and commercial electronics, sensors used in smoke detectors and in
medical imaging systems, to sophisticated systems for
communications, remote sensing of the earth, and deep-space
exploration.
The Company produces other detectors of visible and non-visible
light including high-performance silicon photodiodes to detect and
measure light and other optical radiation for space, military,
analytical and scientific instrumentation. Light detectors are
also used by the Company to produce a family of products for
fiber-optic cable manufacturing and field installation and
inspection. The Company also makes a wide variety of flashlamps
for use in photocopy and reprographic equipment, photo-typesetting
systems, beacons, indicators, and laser systems and accessories.
The Company also manufactures power supplies for military
high-reliability and high-frequency electronic applications that
are used primarily for precisely controlled switching of electric
current in electronic equipment.
The Company is continuing development of amorphous silicon imaging
systems. These X-ray systems incorporate amorphous silicon which
replaces film in X-ray systems and translates the rays directly
into digital pulses that then immediately produce the image on a
cathode ray tube.
The Company produces micromachined sensors which are small
silicon-wafer-based devices that combine a sensing function with
intelligent signal processing. The Company mass-produces these
micromachined infrared sensors for microwave ovens and toasters,
and also manufactures high-performance micromachined silicon
sensors for missile-guidance systems. In a joint venture, the
Company is developing micromachined electronic accelerometers for
consumer and industrial applications.
DISCONTINUED OPERATIONS
The Company, since its founding, has provided services to the DOE
related to nuclear energy research, weapons production and testing
under the M&O contracts.
During the third quarter of 1994, the Company announced a plan to
exit the DOE business and decided not to seek renewal of its
remaining four DOE contracts although it intends to continue to
meet its obligations under the terms and conditions of the present
contracts. The Company will not compete for management and
operations contracts at other DOE facilities. Accordingly, the
Company is reporting the former DOE Support segment as discontinued
operations. Future sales and income from discontinued operations
will decrease as the remaining DOE contracts expire in 1995 and
1996 and are dependent upon work scopes and fee pools negotiated
annually that are currently under review by the DOE.
The INEL contract expired in 1994; three contracts are scheduled to
expire in 1995 and one is scheduled to expire in 1996. Expiration
dates may be modified by the DOE in accordance with contract terms.
Under the Rocky Flats contract, the Company is the prime contractor
for the management and operation of the Rocky Flats Environmental
Technology Site near Golden, Colorado. The Company's
responsibilities lie in maintaining the security of the facility
and the environmental remediation of the site. It also provides
all support services to the site. The contract is scheduled to
expire on December 31, 1995; however, the DOE has notified the
Company of its intention to expedite the procurement and award of
the Rocky Flats contract, which may result in termination of the
Company's contract prior to the expiration date.
Under the Mound Applied Technologies contract, which is scheduled
to expire on September 30, 1996, the Company provides all support
services at the facility and is responsible for the assembly and
testing of radiosotopic thermionic generators for space and special
terrestrial power missions and for the transfer to other DOE
facilities of technology relating to the facility's former mission
involving the manufacturing of components for nuclear weapons.
Under the Reynolds Electrical and Engineering Co. contract, which
is scheduled to expire on December 31, 1995, the Company provides
support and maintenance services for the underground nuclear
weapons test program and its design laboratories at the Nevada Test
Site.
Under the Energy Measurements contract, which is scheduled to
expire on December 31, 1995, the Company provides scientific and
engineering services also relating to the Nevada Test Site. Much
of this work is done in cooperation with the Sandia, Los Alamos,
and Lawrence Livermore National Research Laboratories.
MARKETING
The services and products of the Company are marketed through its
own specialized sales forces as well as independent foreign and
domestic manufacturers' representatives and distributors. In
certain foreign countries, the Company has entered into joint
venture and license agreements with local firms to manufacture and
market its products.
RAW MATERIALS AND SUPPLIES
Raw materials and supplies are generally readily available in
adequate quantities from domestic and foreign sources.
PATENTS AND TRADEMARKS
While the Company's patents, trademarks, and licenses are
cumulatively important to its business, the Company does not
believe that the loss of any one or group of related patents,
trademarks, or licenses would have a materially adverse effect on
the overall business of the Company or on any of its industry
segments.
BACKLOG
The approximate dollar value of unfilled orders of continuing
operations by industry segment as of January 1, 1995, and
January 2, 1994 is set forth in the table below.
(In Thousands) January 1, 1995 January 2, 1994
--------------- ---------------
Technical Services $247,380 $243,081
Instruments 46,474 47,452
Mechanical Components 87,879 92,691
Optoelectronics 111,402 83,459
-------- --------
Total $493,135 $466,683
======== ========
At January 1, 1995, 49% of the backlog represented orders received
from U.S. Government agencies, primarily the DoD and NASA. The
order backlog for each segment relates differently to future sales
based on different business characteristics, primarily order and
delivery lead times and customer demand requirements. The Company
estimates that approximately 90% of its backlog as of January 1,
1995, will be billed during 1995.
DOE Support backlog, which is not reflected above, represents
annual contract funding that has actually been appropriated, and
was $0.8 billion at January 1, 1995, and $1.2 billion at January 2,
1994.
GOVERNMENT CONTRACTS
In accordance with government regulations, all of the Company's
government contracts are subject to termination for the convenience
of the government.
Continuing Operations: Sales to U.S. Government agencies, which
were predominantly to the DoD and NASA, were $542 million, $560
million and $566 million in 1994, 1993, and 1992, respectively.
The Company's Kennedy Space Center award-fee contract with NASA
generated sales of $176 million in 1994. In October 1993, the
Company was selected by NASA to continue as the base operations
contractor at the Kennedy Space Center. The new contract has a
term of 4 years with two three year options, at the government's
election, and contains reductions in contract value and has
resulted in reductions in the annual fee from the prior contract.
Discontinued Operations: The Company's five major cost-plus-award-
fee contracts with the DOE contributed $1.3 billion of sales to
discontinued operations in 1994. During the third quarter of 1994,
the Company announced a plan to exit the DOE business and decided
not to seek renewal of its remaining four DOE contracts although it
intends to continue to meet its obligations under the terms and
conditions of the present contracts. The Company will not compete
for M&O contracts at other DOE facilities. The Company's contract
to manage the INEL expired September 30, 1994 and contributed $240
million of sales to discontinued operations in 1994.
The Company's remaining management and operations contracts with
the DOE expire as follows:
Reynolds Electrical and Engineering Co., Inc. - December 31, 1995
EG&G Energy Measurements, Inc. - December 31, 1995
EG&G Rocky Flats, Inc. - December 31, 1995
EG&G Mound Applied Technologies, Inc. - September 30, 1996
Expiration dates may be modified by the DOE in accordance with
contract terms. The DOE has notified the Company of its intention
to expedite the procurement and award of the Rocky Flats contract,
which may result in termination of the Company's contract prior to
the currently scheduled expiration date.
COMPETITION
Because of the wide range of its products and services, the Company
faces many different types of competition and competitors.
Competitors range from large foreign and domestic organizations
that produce a comprehensive array of goods and services, to small
concerns producing a few goods or services for specialized market
segments.
The Technical Services segment provides technical services to
several agencies of the federal government, including DoD and NASA.
This business is typically won through competition with a number of
large and small contractors, many of whom are as large or larger
than the Company and who, therefore, have resources and
capabilities that are comparable to or greater than those of the
Company. The primary bases for competition in these markets are
technical and management capabilities, current and past
performance, and price.
Competition is typically subject to mandated procurement and
competitive bidding requirements. Competition for automotive
testing services is primarily from a few specialized testing
companies and from customer-owned testing facilities. Automotive
and instruments testing competition is primarily based on quality,
service, and price.
In the Instruments segment, the Company competes with instrument
companies, some large, most small, that serve narrow segments of
markets in oceanographic equipment; X-ray security systems; and
nuclear, industrial, and diagnostic instrumentation for exploration
and development of oil and gas resources. The Company competes in
these markets on the basis of product performance, product
reliability, service and price. Consolidation of competitors
through acquisitions and mergers and the Company's increasing
activity in all selected diagnostics and industrial markets is
expected by the Company to increase the proportion of large
competitors in this segment.
In the Mechanical Components segment, the Company is a leading
supplier of selected precision aircraft exhaust components,
specialized fans and heat transfer devices, and mechanical seals
for industrial applications. Competition in these areas is
typically from small specialized manufacturing companies.
In the Optoelctronics segment, the Company is among the leading
suppliers of specialty flashtubes, silicon photodetectors,
avalanche photodiodes, cadmium sulfide and cadmium selenide
detectors, photodiode arrays and switched power supplies, all of
which are part of the Company's Optoelectronics segment.
Typically, competition is from small specialized manufacturing
companies.
Within the Mechanical Components, Optoelectronics and Instruments segments,
competition for governmental purchases is subject to mandated
procurement procedures and competitive bidding practices. In these segments,
the Company competes on the basis of product performance, quality, service
and price. In much of the Optoelectronics and Instruments segments and in
the specialized fan and aircraft and marine mechanical seal markets included
in the Mechanical Components segment, advancing technology and research and
development are important competitive factors.
RESEARCH AND DEVELOPMENT
During 1994, 1993 and 1992, Company-sponsored research and
development expenditures were approximately $38.6 million, $34.7
million and $32.1 million, respectively.
ENVIRONMENTAL COMPLIANCE
The Company is conducting a number of environmental investigations
and remedial actions at current and former Company locations and,
along with other companies, has been named a potentially
responsible party for certain waste disposal sites. The Company
accrues for environmental issues in the accounting period that the
Company's responsibility is established and when the cost can be
reasonably estimated. As of January 1, 1995, the Company had an
accrual of $2.4 million to reflect its estimated liability for
environmental remediation. As assessments and remediation
activities progress at each individual site, these liabilities are
reviewed to reflect additional information as it becomes available.
There have been no environmental problems to date that had or are
expected to have a material effect on the Company's financial
position or results of operations.
EMPLOYEES
As of March 7, 1995, the Company employed approximately 25,000
persons including 11,000 persons in the former DOE Support segment.
Certain of the Company's subsidiaries are parties to contracts with
labor unions. The Company considers its relations with employees
to be satisfactory.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Sales and Operating Income (Loss) From Continuing Operations by
Industry Segment
For the Five Years Ended January 1, 1995
(In thousands) 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
Sales:
Technical Services $ 613,588 $ 636,041 $ 608,864 $ 586,537 $ 522,724
Instruments 273,088 237,223 226,900 230,196 208,263
Mechanical Components 232,500 244,878 274,199 295,519 295,052
Optoelectronics 213,380 201,274 210,118 146,274 129,920
---------- ---------- ---------- ---------- ----------
$1,332,556 $1,319,416 $1,320,081 $1,258,526 $1,155,959
========== ========== ========== ========== ==========
Operating Income (Loss) From Continuing Operations:
Technical Services $ 46,075 $ 68,762 $ 56,924 $ 55,601 $ 46,981
Instruments (49,580) 10,413 16,016 21,954 5,756
Mechanical Components 18,766 24,408 21,835 28,426 27,175
Optoelectronics 8,674 11,474 3,905 7,140 11,116
General Corporate
Expenses (34,882) (27,573) (29,895) (27,456) (23,491)
---------- ---------- ---------- ---------- ----------
$ (10,947) $ 87,484 $ 68,785 $ 85,665 $ 67,537
========== ========== ========== ========== ==========
The operating income (loss) from continuing operations for 1994 included
a goodwill write-down of $40.3 million and restructuring charges of
$30.4 million. The impact of these nonrecurring charges on each segment
was as follows: Technical Services-$1.6 million, Instruments-$55.7
million, Mechanical Components-$2.7 million, Optoelectronics-$9.7
million and General Corporate Expenses-$1 million.
The Company's DOE Support segment is presented as discontinued
operations and, therefore, is not included above.
Additional information relating to the Company's operations in the
various industry segments follows:
Depreciation and Capital
(In thousands) Amortization Expense Expenditures
-------------------------- -------------------------
1994 1993 1992 1994 1993 1992
-------- ------- ------- ------- ------- -------
Technical Services $ 7,447 $ 8,422 $ 7,991 $ 7,314 $ 6,315 $ 5,650
Instruments 11,621 9,213 8,131 5,398 6,555 4,768
Mechanical Components 6,091 6,870 7,755 6,197 5,598 5,290
Optoelectronics 10,690 12,417 11,595 17,748 8,469 6,305
Corporate 941 920 820 620 923 433
-------- ------- ------- ------- ------- -------
$ 36,790 $37,842 $36,292 $37,277 $27,860 $22,446
======== ======= ======= ======= ======= =======
Identifiable
(In thousands) Assets
----------------------------
1994 1993 1992
-------- -------- --------
Technical Services $129,995 $127,917 $133,351
Instruments 220,232 256,117 217,792
Mechanical Components 93,721 97,317 112,272
Optoelectronics 193,302 142,630 142,543
Corporate and Other 155,879 140,906 140,619
-------- -------- --------
$793,129 $764,887 $746,577
======== ======== ========
Corporate assets consist primarily of cash and cash equivalents, prepaid
taxes and investments.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Information relating to geographic areas follows:
(In thousands) Operating Income (Loss)
Sales From Continuing Operations
---------------------------------- -----------------------------
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- --------- -------- --------
U.S. $1,026,970 $1,049,131 $1,063,753 $ 57,679 $ 96,495 $ 87,899
Non-U.S. 305,586 270,285 256,328 (33,744) 18,562 10,781
Corporate --- --- --- (34,882) (27,573) (29,895)
---------- ---------- ---------- --------- -------- --------
$1,332,556 $1,319,416 $1,320,081 $ (10,947) $ 87,484 $ 68,785
========== ========== ========== ========= ======== ========
(In thousands)
Identifiable Assets
----------------------------------
1994 1993 1992
---------- ---------- ----------
U.S. $ 341,725 $ 305,344 $ 333,533
Non-U.S. 295,525 318,637 272,425
Corporate
and Other 155,879 140,906 140,619
---------- ---------- ----------
$ 793,129 $ 764,887 $ 746,577
========== ========== ==========
Over 75% of the identifiable assets of the non-U.S. operations are located in
European Union countries. Transfers between geographic areas were not
material.
ITEM 2. PROPERTIES
As of March 24, 1995, the Company occupied approximately 4,945,300 square
feet of building area, of which approximately 1,764,900 square feet is owned
and the balance leased. The Company's headquarters occupies 53,350 square
feet of leased space in Wellesley, Massachusetts. The Company's other
operations are conducted in manufacturing and assembly plants, research
laboratories, administrative offices and other facilities located in 26
states, Washington, D.C., Puerto Rico, the Virgin Islands and 15 foreign
countries.
Non-U.S. facilities account for approximately 1,297,500 square feet of owned
and leased property, or approximately 26% of the Company's total occupied
space.
The Company's leases on property are both short-term and long-term. In
management's opinion, the Company's properties are well-maintained and are
adequate for its present requirements.
At certain government facilities, the Company occupies government furnished
space. A majority of this space is occupied by the Discontinued Operations.
In addition, a substantial part of the equipment and machinery used by the
Company in the performance of its government contracts has been furnished by
the government. Substantially all of the machinery and equipment used by the
Company in its other activities is owned by the Company and the balance is
leased or furnished by contractors or customers.
The following table indicates the approximate square footage of real property
owned and leased attributable to each of the Company's industry segments.
Owned Leased Total
(Sq. Feet) (Sq. Feet) (Sq. Feet)
---------- ---------- ----------
Continuing Operations
Technical Services 163,400 1,036,000 1,199,400
Instruments 563,700 444,500 1,008,200
Mechanical Components 576,900 543,900 1,120,800
Optoelectronics 460,900 564,900 1,025,800
Corporate Offices 0 62,300 62,300
---------- ---------- ----------
Total Continuing
Operations 1,764,900 2,651,600 4,416,500
Discontinued Operations 0 528,800 528,800
---------- ---------- ----------
Total 1,764,900 3,180,400 4,945,300
========== ========== ==========
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various investigations, claims, and legal
proceedings covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to
various uncertainties, and it is possible that some of these matters may be
resolved unfavorably to the Company. The Company has established accruals
for matters that are probable and reasonably estimable. Management believes
that any liability that may ultimately result from the resolution of these
matters in excess of amounts provided will not have a material adverse effect
on the financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
Listed below are the executive officers as of March 31, 1995. No family
relationship exists between any of the officers.
Name Position Age
- -------------------------------------------------------------------------------
John M. Kucharski Chairman of the Board, 59
President and Chief Executive Officer
Thomas J. Sauser Senior Vice President 51
Chief Financial Officer
Fred B. Parks Senior Vice President 47
Louis P. Valente Senior Vice President 64
James O. Zane Senior Vice President 61
Murray Gross Vice President, 58
General Counsel and Clerk
John F. Alexander, II Corporate Controller 38
Angelo D. Castellana Vice President 53
James R. Dubay Vice President 58
Dale L. Fraser Vice President 59
Earl M. Fray Vice President 61
Deborah S. Lorenz Vice President 45
Donald E. Michel Vice President 59
Donald H. Peters Vice President 54
Luciano S. Rossi Vice President 49
Edward H. Snow Vice President 58
C. Michael Williams Vice President 58
Peter H. Zavattaro Vice President 57
Mr. Kucharski joined the Company in 1972. He was elected a Vice President
in 1979, a Senior Vice President in 1982 and Executive Vice President in
1985. In 1986 he was elected President and Chief Operating Officer, in 1987
Chief Executive Officer and was elected Chairman of the Board of Directors in
1988.
Mr. Sauser joined the Company in 1994 as Senior Vice President and Chief
Financial Officer. From December 1991 to January 1994, Mr. Sauser held the
position of Chief Financial Officer and Vice President, Assistant General
Manager for IBM Latin America, and from 1989 to 1991 he held a similar
position with IBM Microelectronics.
Dr. Parks joined the Company in 1976. He was elected a Vice President in
1988 and a Senior Vice President in 1991.
Mr. Valente joined the Company in 1968. He was elected Treasurer in 1979, a
Vice President in 1983, and a Senior Vice President in 1991 and is Director
of Acquisitions, Dispositions and Investments.
Mr. Zane joined the Company in 1976. He was elected a Vice President in 1986
and a Senior Vice President in 1991 and is Group Executive of the DOE Support
segment.
Mr. Gross joined the Company in 1971. He was elected Assistant General
Counsel and Assistant Clerk in 1978 and Vice President and General Counsel in
1990.
Mr. Alexander joined the Company in 1982. He was elected Corporate
Controller in 1991.
Mr. Castellana joined the Company in 1965. He was elected a Vice President
in 1991 and is Chief Operating Officer of the Instruments segment.
Mr. Dubay joined the Company in 1971. He was elected a Vice President in
1988 and is General Manager of EG&G Florida.
Mr. Fraser joined the Company in 1961. He was elected a Vice President in
1990 and is General Manager of Reynolds Electrical and Engineering Company.
Mr. Fray joined the Company in 1977. He was elected a Vice President in 1994
and is General Manager of EG&G Mound.
Ms. Lorenz joined the Company in 1990. She was elected a Vice President in
1992. From 1980 to 1990 Ms. Lorenz was Assistant Director of Investor
Relations at British Petroleum, plc.
Mr. Michel joined the Company in 1985. In 1994, he was elected a Vice
President and is General Manager of Washington Analytical Services Center
Dr. Peters joined the Company in 1968. He was elected a Vice President in
1987 and is Director of Planning.
Mr. Rossi joined the Company in 1967. He was elected a Vice President in
1988 and is Group Executive of the Mechanical Components segment.
Dr. Snow joined the Company in 1977. He was elected a Vice President in
1992 and is Group Executive of the Optoelectronics segment.
Mr. Williams joined the Company in 1972. He was elected a Vice President in
1984 and is Group Executive of the Technical Services segment.
Mr. Zavattaro joined the Company in 1959. He was elected a Vice President
in 1985 and is General Manager of Energy Measurements.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Quarterly Common Stock Market Price Range
1993 Quarters
-----------------------------
First Second Third Fourth
------ ------ ------ ------
High $24.00 $24.50 $20.25 $18.38
Low 19.38 18.88 15.75 16.75
1994 Quarters
-----------------------------
First Second Third Fourth
------ ------ ------ ------
High $19.00 $16.50 $15.88 $17.00
Low 16.38 14.13 14.63 13.75
Dividends
1993 Quarters
-----------------------------
First Second Third Fourth
------ ------ ------ ------
Cash Dividends
Per Common Share $ .13 $ .13 $ .13 $ .13
1994 Quarters
-----------------------------
First Second Third Fourth
------ ------ ------ ------
Cash Dividends
Per Common Share $ .14 $ .14 $ .14 $ .14
The Company's common stock is listed and traded on the New York Stock
Exchange. The number of holders of record of the Company's Common Stock as
of February 24, 1995, was approximately 14,140.
In October 1994, the Board of Directors of the Company declared a regular
quarterly cash dividend of fourteen cents per share of common stock. The
quarterly cash dividend was paid on February 10, 1995, to stockholders of
record at the close of business on January 20, 1995.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL INFORMATION
For the Five Years Ended January 1, 1995
(In thousands
where applicable) 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
Operations:
Sales $1,332,556 $1,319,416 $1,320,081 $1,258,526 $1,155,959
Operating income
(loss) from
continuing
operations (10,947)a 87,484 68,785 85,665 67,537
Income (loss)
from continuing
operations (32,107) 54,622 48,765 51,936 45,980
Income from
discontinued
operations, net
of income taxes 26,452 24,949 39,014 29,306 27,986
Income (loss) before
cumulative effect
of accounting
changes (5,655) 79,571 87,779 81,242 73,966
Net income (loss) (5,655) 59,071b 87,779 81,242 73,966
Earnings (loss) per share:
Income (loss)
from continuing
operations (.58) .97 .87 .93 .81
Income from dis-
continued operations,
net of income taxes .48 .44 .69 .52 .49
Income (loss) before
cumulative effect of
accounting changes (.10) 1.41 1.56 1.45 1.30
Net income (loss) (.10) 1.05b 1.56 1.45 1.30
Return on equity (1.2)% 12.4%d 19.6% 20.6% 20.6%
Weighted average common
shares outstanding 55,271 56,504 56,385 55,901 56,989
Financial Position:
Working capital $ 199,656 $ 227,935 $ 247,518 $ 214,495 $ 149,674
Current ratio 1.71:1 1.98:1 2.07:1 1.90:1 1.58:1
Total assets 793,129 764,887 746,577 694,024 674,507
Total debt 60,800 45,039 42,223 59,635 95,551
Stockholders' equity 445,366 477,534 473,636 420,711 369,631
-Per share 8.08 8.51 8.34 7.45 6.58
Total debt/total
capital 12% 9% 8% 12% 21%
Common shares
outstanding 55,124 56,131 56,812 56,495 56,175
SELECTED FINANCIAL INFORMATION (continued)
For the Five Years Ended January 1, 1995
(In thousands
where applicable) 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
Other Data:
Cash flows
from continuing
operations $ 70,341 $ 76,217 $ 94,554 $ 77,720 $ 93,900
Cash flows from
discontinued
operations 25,542 35,920 33,253 26,709 35,308
Cash flows from
operating
activities 95,883 112,137 127,807 104,429 129,208
Capital
expenditures 37,277 27,860 22,446 26,617 19,848
Depreciation and
amortization 36,790 37,842 36,292 33,726 29,944
Cash dividends
per common share .56 .52 .49 .42 .38
a) Includes a goodwill write-down of $40.3 million and restructuring charges of
$30.4 million.
b) Includes one-time after-tax charges of $20.5 million, or $.36 per share, due
to the Company's adoption of SFAS No. 106 and 109.
c) Return on equity before effect of nonrecurring items described in a) was
11.8%.
d) Return on equity before cumulative effect of accounting changes was 16.4%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The discussion that follows is a summary analysis of the major changes by
industry segment.
1994 Compared to 1993
During the third quarter of 1994, three significant events occurred that have a
material effect on both the current financial results and the expected future
performance of the Company. First, the Company decided not to seek renewal of
its remaining four DOE contracts although it intends to continue to meet its
obligations under the terms and conditions of the present contracts. The
Company will not compete for management and operations contracts at other DOE
facilities. Accordingly, the Company is reporting the former DOE Support
segment as discontinued operations for all periods presented in the consolidated
financial statements. Second, management completed its review of the remaining
operating segments' performance and developed a plan to reposition these
businesses to attain the Company's business goals. The plan resulted in
restructuring charges of $30.4 million in the third quarter. Finally, the
decline in the financial results of certain operating elements within the
Instruments segment, together with a strategic and operational review of these
operations, resulted in an evaluation of the related goodwill for possible
impairment. This evaluation resulted in a write-down of goodwill of $39.2
million and a reduction in the estimated remaining useful life of unamortized
goodwill from 36 to 16 years. The Company also wrote off $1.1 million of a
small Optoelectronics unit's goodwill. Additional information related to these
events is discussed below and in Notes 5, 8, and 10 to the consolidated
financial statements.
Sales
Sales from continuing operations for 1994 were $1,333 million, $13 million
higher than 1993 sales.
Technical Services: The $22 million decline resulted primarily from the $32
million reduction in program expenditures under the new base operations contract
at the Kennedy Space Center. In addition, automotive testing sales declined $8
million to more normal levels following increases in 1993 caused by the
introduction of new testing protocols. Partially offsetting these decreases
were increased billings of $21 million from the chemical weapons disposal
contract as it moves into its testing phase.
Instruments: The $36 million increase resulted primarily from $31 million of
sales of Wallac, acquired late in the second quarter of 1993, and a $12 million
increase in airport security product sales. These increases were partially
offset by a $4 million sales decrease in other businesses. These businesses are
being sold under the repositioning plan and contributed sales of $16 million in
1994.
Mechanical Components: The $12 million decrease was primarily due to the
absence of sales of an operation divested late in 1993.
Optoelectronics: The $12 million increase was due primarily to higher shipments
of flash products of $20 million, and $5 million of sales of IC Sensors,
acquired at the end of the third quarter. Partially offsetting the increases
was the absence of $5 million of sales from an operation divested late in 1993
and a $4 million decrease in sales on a government contract that ended in
September 1994.
Operating Income (Loss) From Continuing Operations
The operating loss from continuing operations in 1994 was $10.9 million compared
to income of $87.5 million in 1993. The loss from continuing operations
included the $40.3 million write-down of goodwill and restructuring charges of
$30.4 million resulting from management's repositioning plan. The Wallac and IC
Sensors acquisitions were the main contributors to the $3.9 million increase in
research and development expenses. The $13.4 million increase in selling,
general and administrative expenses resulted mainly from Wallac and increased
corporate expenses, offset by cost reductions in the Instruments segment and the
absence of expenses of operations divested in 1993.
Restructuring Charges: During the third quarter of 1994, management completed
its review of the operating segments and developed a plan to reposition these
businesses to attain the Company's business goals. The plan resulted in pre-tax
restructuring charges of $30.4 million. The principal actions in the
repositioning plan include reduction of excess manufacturing capacity, changes
in distribution channels, consolidation and reengineering of support
infrastructure, disposal of under-utilized assets, withdrawal from certain
unprofitable product lines, disposal of excess property and general cost
reductions. The repositioning plan will result in the termination of the jobs
of approximately 1,000 non-DOE employees; the net work force reduction will be
approximately 800 non-DOE employees. The reduction through January 1, 1995 was
200 employees. These combined actions are expected to result in pre-tax savings
of approximately $17 million in 1995 and annualized pre-tax savings of
approximately $30 million starting in 1996. The major components of the
restructuring charges were $21 million of employee separation costs, $4.9
million of noncash charges to dispose of certain product lines and assets
through sale or abandonment and $4.5 million of charges to terminate lease and
other contractual obligations no longer required as a result of the
repositioning plan. The charges do not include additional costs associated with
the repositioning plan, such as voluntary early retirement programs, training,
consulting, purchases of equipment and relocation of employees and equipment.
These costs will be charged to operations or capitalized, as appropriate, when
incurred. The implementation of this plan commenced during the second half of
1994 with a cash outlay of $4 million for termination costs; $21.5 million of
cash outlays will occur mainly in 1995.
Technical Services: The $22.7 million decrease resulted primarily from
reductions in the automotive testing business due to the $4.7 million impact of
lower sales and, to a lesser extent, from increased costs. A reduction at the
Kennedy Space Center of $5.1 million was due to the lower fee on the new base
operations contract. In addition, a $3.3 million decrease resulted from
unfavorable 1994 contract adjustments compared to favorable 1993 contract
settlements. Restructuring charges of $1.6 million and early retirement costs
also contributed to the decrease. The repositioning plan is not expected to
have a significant, direct impact on future results in this segment since cost
reductions primarily relate to operations with cost reimbursable contracts.
However, the Company does expect to be more competitive in bidding for future
procurements as a result of cost reductions.
Instruments: The Instruments loss of $49.6 million resulted primarily from a
goodwill write-down of $39.2 million related to the Berthold business acquired
in 1989, and restructuring charges of $16.5 million. The remainder of the
decrease resulted from costs associated with delays in the introduction of new
diagnostic products, the impact that the strengthening of the Finnish Markka had
on Wallac's results, higher royalty expense and expenses related to the
closedown of a research and development project. Partially offsetting these
decreases were $2.5 million of cost reductions in the nuclear business. The
repositioning plan is expected to result in annualized cost reductions of
approximately $13 million starting in 1996.
Mechanical Components: The decrease resulted from $2.7 million of restructuring
charges, a provision for environmental remediation costs of $1.3 million and
increased start-up costs for the transportation element of the electromechanical
business. The repositioning plan is expected to result in annualized cost
savings of approximately $3 million starting in 1996.
Optoelectronics: Profits resulting from higher flash product shipments and the
continued benefit of cost reductions implemented in 1993 were offset by $8.6
million of restructuring charges and, to a lesser extent, the impact of lower
sales on a government contract. In addition, the results reflected a $1.1
million write-off of a small unit's goodwill. The repositioning plan is
expected to result in annual cost savings of approximately $7 million starting
in 1996. However, the Company anticipates future increases in research and
development expenses and capital expenditures to support product development
initiatives in this segment.
General Corporate Expenses: The increase was due to $1 million of restructuring
charges, $1 million of consulting costs that were associated with the
repositioning plan, $1 million of separation costs incurred during the first
six months of the year plus general cost increases. The repositioning plan is
expected to result in annual savings of $7 million in Corporate and other
expenses starting in 1996.
Other: The net change in other income (expense) was due to the write-down in
the third quarter of certain investments by $1.8 million to their realizable
value as the result of the decision to restructure associated operations and to
liquidate the Company's position in investments no longer consistent with its
strategic direction. During the fourth quarter, the Company wrote down certain
investments by $2.7 million due to a reduction in their expected realizable
value based upon the deterioration in the financial condition of the
company/partnership.
The 1994 tax provision and effective rate for continuing operations were
significantly impacted by the goodwill write-down and the restructuring charges.
The Company has not recorded any tax benefit from the goodwill write-down and
approximately $11 million of the restructuring charges because these charges,
while tax deductible, will be incurred in tax jurisdictions where the Company
has existing operating loss carryforwards. At the present time, the Company
believes that it is more likely than not that these benefits will not be
realized.
In 1994, the Company increased its discount rates for employee benefit plans as
a result of the increase in long-term interest rates. The effects of the higher
discount rates were partially offset by an increase in the assumption for
compensation increases. The net result of these changes will not materially
affect the Company's results of operations.
Effective January 2, 1995, the Company will change its method of depreciation
for certain classes of plant and equipment from an accelerated method to the
straight-line method. The Company believes that the straight-line method will
more appropriately reflect the timing of the future economic benefits to be
received from these assets, which consist mainly of manufacturing equipment.
Discontinued Operations: During the third quarter of 1994, the Company announced
a plan to exit the DOE business and decided not to seek renewal of its remaining
four DOE contracts although it intends to continue to meet its obligations
under the terms and conditions of the present contracts. The Company will not
compete for management and operations contracts at other DOE facilities.
Accordingly, the Company is reporting the former DOE Support segment as
discontinued operations for all periods presented in the consolidated financial
statements. The Company's contract to manage the Idaho National Engineering
Laboratory expired September 30, 1994 and contributed $240 million of sales and
$7.3 million of operating income to discontinued operations in 1994.
The Company's remaining management and operations contracts with the DOE expire
as follows:
Reynolds Electrical and Engineering Co., Inc. - December 31, 1995
EG&G Energy Measurements, Inc. - December 31, 1995
EG&G Rocky Flats, Inc. - December 31, 1995
EG&G Mound Applied Technologies, Inc. - September 30, 1996
Expiration dates may be modified by the DOE in accordance with contract terms.
The DOE has notified the Company of its intention to expedite the procurement
and award of the Rocky Flats contract, which may result in termination of the
Company's contract prior to the expiration date.
Income from discontinued operations, net of income taxes, was $1.5 million
above the 1993 level. The increase resulted from a cost/productivity
improvement fee of $7.3 million earned at Rocky Flats offset partially by the
reduction in fee reflecting the expiration of the Idaho contract in September
1994. Future sales and income from discontinued operations will decrease as the
remaining DOE contracts expire in 1995 and 1996 and are dependent upon work
scopes and fee pools negotiated annually that are currently under review by the
DOE.
Environmental: The Company is conducting a number of environmental
investigations and remedial actions at current and former Company locations and,
along with other companies, has been named a potentially responsible party for
certain waste disposal sites. The Company accrues for environmental issues in
the accounting period that the Company's responsibility is established and when
the cost can be reasonably estimated. As of January 1, 1995, the Company had an
accrual of $2.4 million to reflect its estimated liability for environmental
remediation. As assessments and remediation activities progress at each
individual site, these liabilities are reviewed to reflect additional
information as it becomes available. There have been no environmental problems
to date that had or are expected to have a material effect on the Company's
financial position or results of operations. While it is reasonably possible
that a material loss exceeding the amounts recorded may have been incurred, the
preliminary stages of the investigations make it impossible for the Company to
reasonably estimate the range of potential exposure.
1993 Compared to 1992
Sales
Sales of $1,319 million for 1993 were level with 1992 sales.
Technical Services: The $27 million increase resulted from an increase of $24
million in automotive testing services caused primarily by the introduction of
new industry testing protocols, partially offset by a $10 million reduction in
contract billings at the Kennedy Space Center.
Instruments: The $10 million increase resulted from the $43 million of sales
of Wallac, acquired in June 1993, partially offset by reduced scientific,
industrial and security instruments sales reflecting sluggish market conditions,
lower foreign exchange rates and large orders shipped in 1992.
Mechanical Components: The $29 million decrease was attributable to a $21
million reduction in aerospace sales due primarily to continued softness in this
market and, to a lesser extent, the divestiture of two operations.
Optoelectronics: The $9 million decrease was due mainly to the completion of
several programs in 1992, partially offset by the sales of Heimann
Optoelectronics, which was acquired early in the second quarter of 1992.
Operating Income From Continuing Operations
Operating income from continuing operations was $87.5 million in 1993, a 27%
increase over 1992.
Technical Services: The $11.8 million increase was due primarily to higher
sales and improved margins in the automotive testing services business. In
October 1993, the Company was selected by NASA to continue as the base
operations contractor at the Kennedy Space Center. The contract has a potential
term of 10 years, including options, contains reductions in contract value and
has resulted in reductions in the annual fee.
Instruments: The $5.6 million decrease resulted from lower sales of scientific,
industrial and security instruments partially offset by the income associated
with the Wallac acquisition.
Mechanical Components: Improved profitability resulting from cost reduction
programs in the industrial sealing and electromechanical businesses more than
offset the impact of lower aerospace sales, generating a $2.6 million increase.
Optoelectronics: The $7.6 million increase was due to improved profitability as
a result of cost reductions at Heimann Optoelectronics. The 1992 results
included a charge of $6.3 million for the write-down of the net assets of two
businesses to their estimated disposal value.
General Corporate Expenses: The $2.3 million decrease was due to the absence of
corporate management incentives in 1993.
Other: The net change in other income (expense) was an increase in income of
$3.1 million. This was primarily due to gains on investments. The 1993
effective tax rate of 38.3% for continuing operations was higher than the 26.9%
in 1992 primarily because the 1992 rate reflected a favorable adjustment of
prior estimated tax liabilities and the tax benefit resulting from the sale of
an investment in a hydroelectric power plant.
The Company reduced its discount rate for employee benefit plans in 1993 as a
result of the decrease in long-term interest rates. The effects of the lower
discount rates were partially offset by corresponding reductions in assumptions
for compensation increases and health care cost trend rates.
Discontinued Operations: The $14.1 million decrease in income from discontinued
operations, net of income taxes, was primarily attributable to Rocky Flats'
lower grades and a reduction of available fee pool. In addition, 1992 results
included a favorable profit adjustment due to higher than anticipated
performance grades at year-end 1991. Lower grades on the Idaho contract also
contributed, to a lesser extent, to the decrease.
Accounting Changes: During the first quarter of 1993, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 106 on accounting for
postretirement benefits other than pensions for its U.S. retiree health benefits
and SFAS No. 109 on accounting for income taxes. The adoption of SFAS No. 106
resulted in an after-tax charge of $13.2 million ($.23 per share) while the
charge for SFAS No. 109 was $7.3 million ($.13 per share). See Notes 12 and 13
for additional disclosures.
Financial Condition
The Company's cash and cash equivalents decreased $5.8 million in 1994 while
commercial paper borrowings increased $14.9 million. Net cash provided by
operating activities was $95.9 million in 1994, $112.1 million in 1993 and
$127.8 million in 1992. The net cash provided by discontinued operations in
1994 was lower than in 1993 due to a $10.1 million reduction in receivables in
1993, which did not occur in 1994. The net cash provided by continuing
operations was lower in 1994 reflecting lower earnings, partially offset by a
net reduction in working capital. The net cash provided was principally used
for capital expenditures, acquisitions, cash dividends and in 1994 and 1993, for
stock repurchases in excess of proceeds from issuing stock. In 1994, lower
purchases of common stock and proceeds from issuing common stock were due to the
termination of an employee stock purchase plan in 1993.
The implementation of the repositioning plan commenced during 1994 with a cash
outlay of $4 million for termination costs with future cash outlays of $21.5
million, mainly in 1995. Additional cash outlays of approximately $10 million
will be required to support the repositioning plan in 1995. Proceeds from asset
dispositions, the liquidation of certain investments and pre-tax repositioning
savings in 1995 are anticipated to result in neutral or slightly positive net
cash flows from the repositioning plan by the end of 1995. The repositioning
plan is expected to improve annual cash flow by an estimated $20 million
starting in 1996. In addition, the Company has implemented an aggressive
working capital reduction program.
Discontinued operations generated cash of $25.5 million in 1994. Future cash
flows from discontinued operations will decrease due to the expiration of the
Idaho contract in 1994 and the expiration of the remaining DOE contracts in 1995
and 1996.
Capital expenditures were $37.3 million in 1994, an increase of $9.4 million
over the 1993 level, and are expected to exceed $80 million in 1995. These
increases support new product development initiatives primarily 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 at a cost of $19.1 million. No
shares were purchased under the program during the last nine months of the year.
In January 1995, the Board of Directors authorized the purchase of an additional
10 million shares. In total, the Company has current authorization to purchase
13.3 million shares. The Company will finance these activities with a
combination of short-term and long-term debt and cash flows from operations.
The Company believes it can take these actions and maintain its product
development and growth strategies.
In 1994, the Company concluded the renegotiation 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, which expires March
1995, and a $75 million, three-year facility. These agreements serve as backup
facilities for the commercial paper borrowing. The Company did not draw down
either of these credit facilities during 1994. The Company is currently in the
process of obtaining extensions on these agreements. Commercial paper, the
Company's principal source of borrowing, is rated "A-1" by Standard & Poor's,
and "Prime-2" by Moody's. Moody's has placed its rating under review for
downgrading following the Company's announcement of a major common stock
purchase program. In January 1995, Duff & Phelps assigned an initial rating of
"Duff-1" to commercial paper. As of March 31, 1995, Moody's downgraded the
Company's rating to "Prime-3."
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. The Company uses forward exchange
contracts to hedge certain foreign commitments and transactions denominated in
foreign currencies. The contract amount of forward exchange contracts was $24.5
million as of January 1, 1995. The terms range from one to three months,
corresponding with expected collections or payments. There are no cash
requirements until maturity. Credit risk is minimal as the contracts are with
very large banks; any market risk is offset by the exposure on the underlying
hedged items. Gains and losses on forward contracts are deferred and offset
against foreign exchange gains and losses on the underlying hedged items.
Dividends
In January 1995, the Board of Directors declared a regular quarterly cash
dividend of 14 cents per share, resulting in an annual rate of 56 cents per
share for 1995. EG&G has paid cash dividends, without interruption, for 30 years
and continues to retain what management believes to be sufficient earnings to
support the funding requirements of its planned growth.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEET
As of January 1, 1995 and January 2, 1994
(Dollars in thousands except per share data) 1994 1993
--------- ---------
Current Assets:
Cash and cash equivalents $ 66,424 $ 72,185
Accounts receivable (Note 3) 226,268 225,643
Inventories (Note 4) 123,299 121,581
Other (Notes 7 and 13) 56,635 33,760
Net assets of discontinued operations (Note 5) 8,852 7,942
--------- ---------
Total Current Assets 481,478 461,111
--------- ---------
Property, Plant and Equipment:
At cost (Note 6) 364,801 327,416
Accumulated depreciation and amortization (243,139) (221,320)
--------- ---------
Net Property, Plant and Equipment 121,662 106,096
--------- ---------
Investments (Note 7) 16,515 25,920
Intangible Assets (Note 8) 127,312 139,205
Other Assets (Notes 12 and 13) 46,162 32,555
--------- ---------
Total Assets $ 793,129 $ 764,887
========= =========
Current Liabilities:
Short-term debt (Note 9) $ 59,988 $ 43,589
Accounts payable 66,132 60,787
Accrued restructuring costs (Note 10) 21,532 ---
Accrued expenses (Note 11) 134,170 128,800
--------- ---------
Total Current Liabilities 281,822 233,176
--------- ---------
Long-Term Liabilities (Notes 9, 12 and 13) 65,941 54,177
--------- ---------
CONSOLIDATED BALANCE SHEET (continued)
As of January 1, 1995 and January 2, 1994
(Dollars in thousands except per share data) 1994 1993
--------- ---------
Contingencies (Note 14)
Stockholders' Equity (Note 15):
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 459,738 496,063
Cumulative translation adjustments 10,785 (8,287)
Unrealized gain on marketable
investments (Note 7) 3,337 ---
Cost of shares held in treasury;
4,978,000 shares in 1994 and
3,970,000 shares in 1993 (88,596) (70,344)
--------- ---------
Total Stockholders' Equity 445,366 477,534
--------- ---------
Total Liabilities and Stockholders' Equity $ 793,129 $ 764,887
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Years Ended January 1, 1995
(Dollars in thousands
except per share data) 1994 1993 1992
---------- ----------- ----------
Sales:
Products $ 750,649 $ 725,627 $ 750,878
Services 581,907 593,789 569,203
---------- ----------- ----------
Total Sales 1,332,556 1,319,416 1,320,081
---------- ----------- ----------
Costs and Expenses (Note 12):
Cost of sales:
Products 486,564 472,262 499,292
Services 508,045 498,791 483,875
---------- ----------- ----------
Total cost of sales 994,609 971,053 983,167
Research and development
expenses 38,585 34,664 32,088
Selling, general and
administrative expenses 239,609 226,215 236,041
Goodwill write-down (Note 8) 40,300 --- ---
Restructuring charges (Note 10) 30,400 --- ---
---------- ----------- ----------
Total Costs and Expenses 1,343,503 1,231,932 1,251,296
---------- ----------- ----------
Operating Income (Loss) From
Continuing Operations (10,947) 87,484 68,785
Other Income (Expense),
Net (Note 18) (6,176) 1,008 (2,083)
---------- ----------- ----------
Income (Loss) From Continuing
Operations Before Income Taxes (17,123) 88,492 66,702
Provision for Income Taxes (Note 13) 14,984 33,870 17,937
---------- ----------- ----------
Income (Loss) From Continuing
Operations (32,107) 54,622 48,765
Income From Discontinued Operations,
Net of Income Taxes (Note 5) 26,452 24,949 39,014
---------- ----------- ----------
Income (Loss) Before Cumulative
Effect of Accounting Changes (5,655) 79,571 87,779
Cumulative Effect of Accounting Changes:
Income taxes (Note 13) --- (7,300) ---
Postretirement benefits other
than pensions (Note 12) --- (13,200) ---
---------- ----------- ----------
Net Income (Loss) $ (5,655) $ 59,071 $ 87,779
========== =========== ==========
CONSOLIDATED STATEMENT OF OPERATIONS (continued)
For the Three Years Ended January 1, 1995
(Dollars in thousands
except per share data) 1994 1993 1992
---------- ----------- ----------
Earnings (Loss) Per Share (Note 19):
Income (Loss) From
Continuing Operations $ (.58) $ .97 $ .87
Income From Discontinued Operations,
Net of Income Taxes .48 .44 .69
---------- ----------- ----------
Income (Loss) Before Cumulative Effect
of Accounting Changes (.10) 1.41 1.56
Cumulative Effect of Accounting Changes:
Income taxes --- (.13) ---
Postretirement benefits
other than pensions --- (.23) ---
---------- ----------- ----------
Net Income (Loss) $ (.10) $ 1.05 $ 1.56
========== =========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Years Ended January 1, 1995
Cumula- Unrealized
Capital tive Gain on
in Trans- Cost of Market- Total
(Dollars in Excess lation Shares able Stock-
thousands except Common of Par Retained Adjust- Held in Invest- holders'
per share data) Stock Value Earnings ments Treasury ments Equity
------- ------ -------- -------- -------- ------- --------
Balance,
December 29,
1991 $30,051 $4,079 $444,239 $ 5,950 $(63,608) $ --- $420,711
Net income --- --- 87,779 --- --- --- 87,779
Cash dividends
($.49 per share) --- --- (27,575) --- --- --- (27,575)
Exercise of
employee stock
options and related
income tax benefits --- (422) (43) --- 8,901 --- 8,436
Translation
adjustments --- --- --- (7,273) --- --- (7,273)
Issuance of common
stock for employee
benefit plans --- --- (4,744) --- 24,907 --- 20,163
Purchase of
common stock
for treasury --- --- --- --- (28,605) --- (28,605)
Effect of 2-for-1
stock split 30,051 (3,657) (26,394) --- --- --- ---
------- ------ -------- ------- -------- ------- --------
Balance,
January 3, 1993 60,102 --- 473,262 (1,323) (58,405) --- 473,636
Net income --- --- 59,071 --- --- --- 59,071
Cash dividends
($.52 per share) --- --- (29,358) --- --- --- (29,358)
Exercise of
employee stock
options and related
income tax benefits --- --- (298) --- 7,356 --- 7,058
Translation
adjustments --- --- --- (6,964) --- --- (6,964)
Issuance of common
stock for employee
benefit plans --- --- (6,614) --- 25,724 --- 19,110
Purchase of
common stock for
treasury --- --- --- --- (45,019) --- (45,019)
------- ------ -------- -------- -------- ------- --------
Balance,
January 2, 1994 60,102 --- 496,063 (8,287) (70,344) --- 477,534
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (continued)
For the Three Years Ended January 1, 1995
Cumula- Unrealized
Capital tive Gain on
in Trans- Cost of Market- Total
(Dollars in Excess lation Shares able Stock-
thousands except Common of Par Retained Adjust- Held in Invest- holders'
per share data) Stock Value Earnings ments Treasury ments Equity
------- ------ -------- -------- -------- ------- --------
Net loss --- --- (5,655) --- --- --- (5,655)
Cash dividends
($.56 per share) --- --- (31,012) --- --- --- (31,012)
Exercise of
employee stock
options and related
income tax benefits --- --- 342 --- 887 --- 1,229
Translation
adjustments --- --- --- 19,072 --- --- 19,072
Purchase of
common stock for
treasury --- --- --- --- (19,139) --- (19,139)
Unrealized gain
on marketable
investments --- --- --- --- --- 3,337 3,337
------- ------ -------- -------- -------- ------- --------
Balance,
January 1, 1995 $60,102 $ --- $459,738 $ 10,785 $(88,596) $ 3,337 $445,366
======= ====== ======== ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Years Ended January 1, 1995
(Dollars in thousands) 1994 1993 1992
--------- -------- --------
Cash Flows Provided by Operating Activities:
Net income (loss) $ (5,655) $ 59,071 $ 87,779
Deduct net income from discontinued operations (26,452) (24,949) (39,014)
Add cumulative effect of accounting changes --- 20,500 ---
--------- -------- --------
Income (loss) from continuing operations (32,107) 54,622 48,765
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided by continuing operations:
Goodwill write-down 40,300 --- ---
Noncash portion of restructuring charges 4,902 --- ---
Restructuring charges to be paid in
future periods 21,532 --- ---
Depreciation and amortization 36,790 37,842 36,292
Losses (gains) on dispositions and
investments, net 5,322 (3,176) (169)
Changes in assets and other liabilities, net of
effects from companies purchased and divested:
Decrease in accounts receivable 6,284 20,054 4,369
Decrease (increase) in inventories 1,643 (1,971) 11,179
Increase (decrease) in accounts payable 2,124 (12,146) 3,273
Increase (decrease) in accrued expenses 2,904 (5,410) 169
Change in prepaid and deferred taxes (5,163) (3,514) (11,070)
Change in prepaid expenses and other (14,190) (10,084) 1,746
--------- -------- --------
Net Cash Provided by Continuing Operations 70,341 76,217 94,554
Net Cash Provided by Discontinued Operations 25,542 35,920 33,253
--------- -------- --------
Net Cash Provided by Operating Activities 95,883 112,137 127,807
--------- -------- --------
Cash Flows Used in Investing Activities:
Capital expenditures (37,277) (27,860) (22,446)
Proceeds from dispositions of businesses and
sales of property, plant and equipment 2,872 9,503 2,593
Cost of acquisitions, net of cash and
cash equivalents acquired (32,841) (32,186) (58,070)
Purchases of investment securities (2,730) (2,503) (1,111)
Proceeds from sales of investment securities 5,092 7,813 5,275
--------- -------- --------
Net Cash Used in Investing Activities (64,884) (45,233) (73,759)
--------- -------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
For the Three Years Ended January 1, 1995
(Dollars in thousands) 1994 1993 1992
--------- -------- --------
Cash Flows Used in Financing Activities:
Changes in commercial paper 14,873 2,977 (10,428)
Other debt payments (3,939) (17,752) (7,396)
Proceeds from issuing common stock 1,229 26,168 28,599
Purchases of common stock (19,139) (45,019) (28,605)
Cash dividends (31,012) (29,358) (27,575)
--------- -------- --------
Net Cash Used in Financing Activities (37,988) (62,984) (45,405)
--------- -------- --------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 1,228 (1,487) (1,916)
--------- -------- --------
Net Increase (Decrease) in Cash
and Cash Equivalents (5,761) 2,433 6,727
Cash and Cash Equivalents at Beginning of Year 72,185 69,752 63,025
--------- -------- --------
Cash and Cash Equivalents at End of Year $ 66,424 $ 72,185 $ 69,752
========= ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 5,063 $ 6,819 $ 7,486
Income taxes 41,353 41,256 49,338
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts of EG&G, Inc. and its subsidiaries (the Company). All material
intercompany balances and transactions have been eliminated in consolidation.
Reclassifications: The former DOE Support segment is presented as
discontinued operations in accordance with Accounting Principles Board
(APB) Opinion No. 30. (See Note 5 for further discussion). In addition,
research and development expenses, which had previously been included in
cost of sales, are now presented separately on the Consolidated Statement
of Operations. State income taxes, which had previously been included in
selling, general and administrative expenses, are now included in the
provision for income taxes.
Sales: Cost-reimbursement sales are recorded as costs are incurred and
include applicable income in the proportion that costs incurred bear to
total estimated costs. Sales and income are recorded at the time of
shipment for products, at the end of a contract phase for service contracts
and at the completion of the contract for fixed-priced contracts. If a
loss is anticipated on any contract, provision for the entire loss is made
immediately.
Inventories: Inventories, which include material, labor and manufacturing
overhead, are valued at the lower of cost or market. The majority of
inventories is accounted for using the first-in, first-out method. All
other inventories are accounted for using the last-in, first-out method.
Property, Plant and Equipment: The Company depreciates plant and equipment
over their estimated useful lives using accelerated methods for both
financial statement and income tax purposes. For financial statement
purposes, the estimated useful lives generally fall within the following
ranges: buildings and special-purpose structures-10 to 25 years;
leasehold improvements-estimated useful life or remaining term of lease,
whichever is shorter; machinery and equipment-3 to 7 years;
special-purpose equipment-expensed or depreciated over the life of the
initial related contract. Nonrecurring tooling costs are capitalized while
recurring costs are expensed.
Effective January 2, 1995, the Company will change its method of
depreciation for certain classes of plant and equipment from an accelerated
method to the straight-line method for financial statement purposes. The
Company believes that the straight-line method will more appropriately
reflect the timing of the future economic benefits to be received from
these assets, which consist mainly of manufacturing equipment.
Pension Plans: The Company's funding policy provides that payments to the
U.S. pension trusts shall at least be equal to the minimum funding
requirements of the Employee Retirement Income Security Act of 1974.
Non-U.S. plans are accrued for but generally not funded, and benefits are
paid from operating funds.
Translation of Foreign Currencies: The balance sheet accounts of non-U.S.
operations, exclusive of stockholders' equity, are translated at year-end
exchange rates, and income statement accounts are translated at weighted
average rates in effect during the year; any translation adjustments are
made directly to a component of stockholders' equity. The after-tax
aggregate net transaction gains (losses) were not material for the years
presented.
Intangible Assets: Intangible assets result from acquisitions accounted for
using the purchase method of accounting and include the excess of cost over
the fair market value of the net assets of the acquired businesses. As of
January 1, 1995, substantially all of these intangible assets are being
amortized over periods of up to 20 years. Subsequent to the acquisition,
the Company continually evaluates whether later events and circumstances
have occurred that indicate the remaining estimated useful life of goodwill
may warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related business
segment's discounted future cash flows over the remaining life of the
goodwill in measuring whether the goodwill is recoverable. (See Note 8 for
discussion of the goodwill write-down occurring during 1994.)
Cash Flows: For purposes of the Consolidated Statement of Cash Flows, the
Company considers all highly liquid instruments with a purchased maturity
of three months or less to be cash equivalents. The carrying amount of
cash and cash equivalents approximates fair value due to the short
maturities.
Environmental Matters: The Company accrues for costs associated with the
remediation of environmental pollution when it is probable that a liability
has been incurred and the Company's proportionate share of the amount can
be reasonably estimated. Any recorded liabilities have not been
discounted.
2. Acquisitions
In September 1994, the Company acquired IC Sensors, a leading supplier of
micromachined sensing and control components used in the automotive,
medical, industrial and consumer product markets, for cash of $30 million.
While the Company has not yet finalized the purchase price allocation, the
excess of the cost over the fair market value of the net assets acquired is
estimated to be $22 million, which is being amortized over 15 years using a
straight-line method. The Company does not expect that any differences in
the final allocation will have a material effect on the consolidated
financial statements. In September 1994, the Company also acquired NoVOCs,
Inc., which offers a process for restoring groundwater contaminated by
gasoline and other volatile organic compounds, for cash of $3.3 million and
contingent payments based on future sales. These acquisitions were
accounted for using the purchase method, and their results of operations
were included in the consolidated results of the Company from the date of
acquisition.
In June 1993, the Company acquired The Wallac Group (Wallac), a unit of
Procordia AB, for a total purchase price of approximately $46 million,
including related expenses, consisting of $41 million cash and a one-year
note for $5 million. This acquisition was accounted for using the purchase
method. The excess of the cost over the fair market value of the net
assets acquired was $24 million, which is being amortized over 20 years
using a straight-line method. Wallac's results of operations were included
in the consolidated results of the Company from the date of acquisition.
The effect of these acquisitions was not material to the consolidated
results of operations. The products of the acquired companies are described
elsewhere in the Annual Report.
3. Accounts Receivable
Accounts receivable as of January 1, 1995 and January 2, 1994 included
unbilled receivables of $57 million and $56 million, respectively, which
were due primarily from U.S. Government agencies. Accounts receivable were
net of reserves for doubtful accounts of $5.8 million and $6.1 million,
respectively.
4. Inventories
Inventories as of January 1, 1995 and January 2, 1994 consisted of the
following:
(In thousands) 1994 1993
-------- --------
Finished goods $ 35,304 $ 30,864
Work in process 28,551 30,393
Raw materials 59,444 60,324
-------- --------
$123,299 $121,581
======== ========
The portion of inventories accounted for using the last-in, first-out
(LIFO) method of determining inventory costs in 1994 and 1993 approximated
25% and 24%, respectively, of total inventories. The excess of current cost
of inventories over the LIFO value was approximately $10 million at
January 1, 1995 and January 2, 1994.
5. Discontinued Operations
During the third quarter of 1994, the Company announced a plan to exit the
DOE business and decided not to seek renewal of its four remaining
contracts with the DOE although it intends to continue to meet its
obligations under the terms and conditions of the present contracts. The
Company will not compete for management and operations contracts at other
DOE facilities. Accordingly, the Company is reporting the results of the
former DOE Support segment as discontinued operations for all periods
presented in the consolidated financial statements.
The Company's remaining management and operations contracts with the DOE
expire as follows:
Reynolds Electrical and Engineering Co., Inc. - December 31, 1995
EG&G Energy Measurements, Inc. - December 31, 1995
EG&G Rocky Flats, Inc. - December 31, 1995
EG&G Mound Applied Technologies, Inc. - September 30, 1996
Expiration dates may be modified by the DOE in accordance with contract
terms. The DOE has notified the Company of its intention to expedite the
procurement and award of the Rocky Flats contract, which may result in
termination of the Company's contract prior to the expiration date.
Summary operating results of the discontinued operations were as follows:
(In thousands) 1994 1993 1992
---------- ---------- ----------
Sales $1,300,064 $1,378,532 $1,468,741
Costs and expenses 1,259,369 1,340,149 1,409,629
---------- ---------- ----------
Income from discontinued
operations before income taxes 40,695 38,383 59,112
Provision for income taxes 14,243 13,434 20,098
---------- ---------- ----------
Income from discontinued
operations, net of income taxes $ 26,452 $ 24,949 $ 39,014
========== ========== ==========
Given the nature of the government contracts, the Company does not
anticipate incurring any material loss on the ultimate completion of the
contracts.
Net assets of discontinued operations consisted primarily of unbilled
accounts receivable, $15.7 million at January 1, 1995 and $12 million at
January 2, 1994, net of operating liabilities.
6. Property, Plant and Equipment, at Cost
Property, plant and equipment as of January 1, 1995 and January 2, 1994
consisted of the following:
(In thousands) 1994 1993
-------- --------
Land $ 13,977 $ 14,327
Buildings and leasehold improvements 92,538 91,280
Machinery and equipment 258,286 221,809
-------- --------
$364,801 $327,416
======== ========
7. Investments
Investments as of January 1, 1995 and January 2, 1994 consisted of the
following:
(In thousands) 1994 1993
-------- --------
Marketable investments $14,187 $ 6,838
Other investments 6,330 13,426
Joint venture investments 5,314 5,656
-------- --------
25,831 25,920
Less investments classified
as other current assets (9,316) ---
-------- --------
$16,515 $25,920
======== ========
Marketable investments consisted of common stocks, and trust assets which
were invested in money market funds, fixed income securities and common
stocks to meet the supplemental executive retirement plan obligation. (See
Note 12.)
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 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 January 1, 1995, $3.3 million was reported as a separate component of
stockholders' equity, representing the unrealized holding gains, net of
deferred income taxes. At January 2, 1994, marketable investments had an
aggregate market value of $13.1 million and gross unrealized gains of $6.3
million.
At January 1, 1995, marketable investments classified as available for sale
included the following:
(In thousands) Gross
Unrealized
Market Value Cost Holding Gains
------------ ------ -------------
Common stocks $11,994 $6,860 $5,134
Fixed income securities 1,987 1,987 ---
Money market funds 206 206 ---
------- ------ ------
$14,187 $9,053 $5,134
======= ====== ======
The market values were based on quoted market prices. The fixed income
securities, on average, have maturities of approximately 5.3 years.
Other investments consisted of nonmarketable investments in private
companies and venture capital partnerships, which are carried at the lower
of cost or net realizable value. The estimated aggregate fair value of
other investments approximated the carrying amount at January 1, 1995 and
January 2, 1994. The fair values of other investments were estimated based
primarily on the most recent rounds of financing and securities
transactions and, to a lesser extent, on other pertinent information,
including financial condition and operating results.
During the third quarter of 1994, the Company wrote down certain
investments by $1.8 million to their estimated realizable value as the
result of the decision to restructure associated operations and to
liquidate the Company's position in investments no longer consistent with
its strategic direction. In conjunction with the decision to liquidate
certain investments, marketable investments of $8.3 million and other
investments of $1 million were classified as other current assets at
January 1, 1995. During the fourth quarter, the Company wrote down certain
investments by $2.7 million due to a reduction in their estimated
realizable value based upon the deterioration in the financial condition of
the company/partnership.
Joint venture investments are accounted for using the equity method.
8. Intangible Assets
Intangible assets were shown net of accumulated amortization of $31.6
million and $25.5 million at January 1, 1995 and January 2, 1994,
respectively. The $11.9 million net decrease in intangible assets resulted
primarily from the $40.3 million write-down of goodwill and current year
amortization partially offset by increases due to the IC Sensors and NoVOCs
acquisitions and by the effect of translating goodwill denominated in non-
U.S. currencies at current exchange rates.
The continued decline in the financial results of the operating elements of
the Company's Berthold business acquired in 1989, the resultant strategic
and operational review and the application of the Company's objective
measurement tests resulted in an evaluation of goodwill for possible
impairment. The underlying factors contributing to the decline in
financial results included changes in the marketplace, delays in customer
acceptance of new technologies and worldwide economic conditions. The
Company calculated the present value of expected cash flows to determine
the fair value of the business, using a discount rate of 12% which
represents the Company's weighted average cost of capital. The evaluation
resulted in a $39.2 million write-down in the third quarter of 1994 of
Berthold's goodwill balance of $76 million. The evaluation also led the
Company to determine that the remaining amortization period for the
goodwill should be reduced from 36 years to 16 years based on the factors
identified above. In the third quarter of 1994, the Company also wrote off
$1.1 million of a small Optoelectronics unit's goodwill.
9. Debt
Short-term debt at January 1, 1995 and January 2, 1994 consisted primarily
of commercial paper in the amounts of $49.8 million and $34.9 million,
respectively, which had maturities of less than 90 days. The weighted
average interest rate on commercial paper borrowings was 6.1% at January 1,
1995 and 3.4% at January 2, 1994. Commercial paper borrowings averaged
$42.3 million during 1994 at an average interest rate of 4.7% compared to
average borrowings of $42.7 million during 1993 at an average interest rate
of 3.2%. Current maturities of long-term debt are also included in this
account.
During 1994, the Company concluded the renegotiation 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, which expires March 1995, and a $75 million, three-year facility.
These agreements serve as backup facilities for the commercial paper
borrowing. The Company did not draw down either of these credit facilities
during 1994. The Company is in the process of obtaining extensions on
these agreements.
At January 1, 1995 and January 2, 1994, long-term debt amounts of $0.8
million and $1.5 million, respectively, were included in long-term
liabilities. The carrying amount of the Company's long-term debt
approximated fair value.
10. Restructuring Charges
During the third quarter of 1994, management completed its review of
various operating elements and developed a plan to reposition these
businesses to attain the Company's business goals. The plan resulted in
pre-tax restructuring charges of $30.4 million. The principal actions in
the repositioning plan include reduction of excess manufacturing capacity,
changes in distribution channels, consolidation and reengineering of
support infrastructure, disposal of under-utilized assets, withdrawal from
certain unprofitable product lines, disposal of excess property and general
cost reductions. The repositioning plan will result in the termination of
the jobs of approximately 1,000 non-DOE employees; the net work force
reduction will be approximately 800 non-DOE employees. The reduction
through January 1, 1995 was 200 employees.
The major components of the restructuring charges were $21 million of
employee separation costs, $4.9 million of noncash charges to dispose of
certain product lines and assets through sale or abandonment and $4.5
million of charges to terminate lease and other contractual obligations no
longer required as a result of the repositioning plan. The charges do not
include additional costs associated with the repositioning plan such as
voluntary early retirement programs, training, consulting, purchases of
equipment and relocation of employees and equipment. These costs will be
charged to operations or capitalized, as appropriate, when incurred. The
implementation of this plan commenced during the second half of 1994 with a
cash outlay of $4 million for termination costs; $21.5 million of cash
outlays will occur mainly in 1995.
11. Accrued Expenses
Accrued expenses as of January 1, 1995 and January 2, 1994 consisted of the
following:
(In thousands) 1994 1993
-------- --------
Payroll $ 12,789 $ 13,375
Employee benefits 48,535 46,121
Federal, non-U.S. and
state income taxes 17,243 26,119
Other 55,603 43,185
-------- --------
$134,170 $128,800
======== ========
12. Employee Benefit Plans
Savings Plan: The Company has a savings plan for the benefit of qualified
U.S. employees. Under this plan, the Company contributes an amount equal
to the lesser of 55% of the amount of the employee's voluntary contribution
or 3.3% of the employee's annual compensation. In prior years, the
contribution was the lesser of 50% or 3% of the same items. Savings plan
expense was $6.2 million in 1994, $5.7 million in 1993 and $5.4 million in
1992.
Pension Plans: The Company has defined benefit pension plans covering
substantially all U.S. employees and non-U.S. pension plans for non-U.S.
employees. The plans provide benefits that are based on an employee's years
of service and compensation near retirement. Assets of the U.S. plan are
composed primarily of corporate equity and debt securities.
Net periodic pension cost included the following components:
(In thousands) 1994 1993 1992
------- ------- -------
Service cost-benefits earned
during the period $ 9,822 $ 8,398 $ 8,164
Interest cost on projected
benefit obligations 15,070 14,030 12,824
Actual return on plan assets (461) (18,316) (11,005)
Net amortization and deferral (15,442) 3,852 (1,914)
------- ------- -------
$ 8,989 $ 7,964 $ 8,069
======= ======= =======
The following table sets forth the funded status of the principal U.S. plan
and the principal non-U.S. plans and the amounts recognized in the
Company's Consolidated Balance Sheet at January 1, 1995 and January 2,
1994:
(In thousands) 1994 1993
------------------- -------------------
Non-U.S. U.S. Non-U.S. U.S.
-------- -------- -------- --------
Actuarial present value of
benefit obligations:
Vested benefit obligations $18,832 $137,490 $18,143 $141,325
======== ======== ======== ========
Accumulated benefit obligations $20,329 $144,729 $20,176 $148,295
======== ======== ======== ========
Projected benefit obligations
for service provided to date $27,050 $170,286 $25,673 $173,379
Plan assets at fair value --- 173,947 --- 164,593
-------- -------- -------- --------
Plan assets less (greater) than
projected benefit obligations 27,050 (3,661) 25,673 8,786
Unrecognized net transition asset --- 5,259 --- 6,010
Unrecognized prior service costs (987) 924 (1,459) 1,041
Unrecognized net gain (loss) 2,101 (22,948) (635) (25,213)
-------- -------- -------- --------
Accrued pension liability (asset) $28,164 $(20,426) $23,579 $ (9,376)
======== ======== ======== ========
Assumptions of the principal plans were:
Discount rate 8.00% 8.25% 7.00% 7.40%
Rate of compensation increase 5.50% 5.50% 4.50% 5.00%
Long-term rate of return on assets --- 9.75% --- 9.75%
The non-U.S. accrued pension liability included $27.8 million and $22.7
million classified as long-term liabilities as of January 1, 1995 and
January 2, 1994, respectively. The U.S. pension asset was classified as
other noncurrent assets.
The Company also sponsors a supplemental executive retirement plan to
provide senior management with benefits in excess of normal pension
benefits. At January 1, 1995 and January 2, 1994, the projected benefit
obligations were $9.7 million and $10.2 million, respectively. Assets of $6
million and $4.7 million, segregated in a trust, were available to meet
this obligation as of January 1, 1995 and January 2, 1994. Pension expense
for this plan was approximately $1.5 million in 1994, $1 million in 1993
and $0.9 million in 1992.
Postretirement Medical Plans: The Company provides health care benefits
for eligible retired U.S. employees under a comprehensive major medical
plan or under health maintenance organizations where available. The
majority of the Company's U.S. employees become eligible for retiree health
benefits if they retire directly from the Company and have at least 10
years of service. Generally, the major medical plan pays stated
percentages of covered expenses after a deductible is met, and takes into
consideration payments by other group coverages and by Medicare. The Plan
requires retiree contributions under most circumstances and has provisions
for cost sharing changes. For employees retiring after 1991, the Company
has capped its medical premium contribution based on employees' years of
service. The Company funds the amount allowable under a 401(h) provision
in the Company's defined benefit pension plan. Assets of the plan are
composed primarily of corporate equity and debt securities.
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 described above. This statement requires the expected cost of
postretirement benefits to be charged to expense during the years in which
employees render service. This is a change from the prior policy of
recognizing these costs as paid. As part of adopting the new standard, the
Company recorded a one-time, noncash charge against earnings of $20 million
before taxes, or $13.2 million after income taxes ($.23 per share). This
cumulative adjustment represented the discounted present value of expected
future retiree health benefits attributed to employees' service rendered
prior to January 4, 1993.
Net periodic postretirement medical benefit cost for 1994 and 1993 included
the following components:
(In thousands) 1994 1993
------ ------
Service cost - benefits earned during the period $ 426 $ 360
Interest cost on accumulated benefit obligation 1,620 1,686
Actual return on plan assets (70) (3)
Net amortization and deferral (237) 3
------ ------
$1,739 $2,046
====== ======
The amount included in expense for 1992 prior to the adoption of SFAS No.
106 was $0.8 million. If the 1993 expense had been determined under the
cash method of accounting, the amount recognized would have been $1 million.
The following table sets forth the plan's funded status and the amounts
recognized in the Company's Consolidated Balance Sheet at January 1, 1995
and January 2, 1994:
(In thousands) 1994 1993
------- -------
Accumulated benefit obligation:
Current retirees $16,128 $15,638
Active employees eligible to retire 2,809 3,134
Other active employees 2,912 3,217
------- -------
21,849 21,989
Plan assets at fair value 4,165 2,003
------- -------
Plan assets less than accumulated benefit obligation 17,684 19,986
Unrecognized net gain (loss) 251 (993)
------- -------
Accrued postretirement medical liability $17,935 $18,993
======= =======
Assumptions of the plan are:
Discount rate 8.25% 7.4%
Health care cost trend rate:
First year 14.0% 15.0%
Ultimate 6.5% 6.0%
Years to reach ultimate 9 years 10 years
Long-term rate of return on assets 9.75% 9.75%
The accrued postretirement medical benefit obligation included $16.9
million and $18 million classified as long-term liabilities as of
January 1, 1995 and January 2, 1994, respectively.
If the health care cost trend rate was increased 1%, the accumulated
postretirement benefit obligation would have increased by approximately
$1.4 million at January 1, 1995. The effect of this increase on the annual
cost for 1994 would have been approximately $0.1 million.
Other: The Company also has an incentive compensation plan for certain
officers and key employees. Awards under this plan are approved annually by
the Board of Directors and are limited by certain predetermined criteria.
Effective January 3, 1994, the Company adopted 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 was
not material to the Company's financial position or results of operations.
The above information does not include amounts related to benefit plans
applicable to employees associated with contracts with the DOE and NASA
because the Company is not responsible for the current or future funded
status of the plans.
13. Income Taxes
Effective January 4, 1993, the Company adopted SFAS No. 109 on accounting
for income taxes. This standard determines deferred income taxes based on
the estimated future tax effects of differences between the financial
statement and tax basis of assets and liabilities, given the provisions of
enacted tax laws. Prior to the implementation of this statement, the
Company accounted for income taxes under APB Opinion No. 11. As part of
adopting the new standard, the Company recorded a one-time, noncash charge
against earnings of $7.3 million ($.13 per share).
The components of income (loss) from continuing operations before income
taxes for financial reporting purposes were as follows:
(In thousands) U.S. Non-U.S. Total
------- --------- --------
1994 $15,986 $(33,109) $(17,123)
======= ======== ========
1993 $70,449 $ 18,043 $ 88,492
======= ======== ========
1992 $56,406 $ 10,296 $ 66,702
======= ======== ========
The components of the provision for income taxes for continuing operations
were as follows:
(In thousands) 1994 1993
--------------------------- ---------------------------
Deferred Deferred
Current (Prepaid) Total Current (Prepaid) Total
------- --------- ------- ------- --------- -------
Federal $10,735 $(2,569) $ 8,166 $19,495 $ 3,454 $22,949
State 3,670 157 3,827 5,275 (255) 5,020
Non-U.S. 2,834 157 2,991 6,398 (497) 5,901
------- ------- ------- ------- ------ -------
$17,239 $(2,255) $14,984 $31,168 $2,702 $33,870
======= ======= ======= ======= ====== =======
1992
---------------------------
Deferred
Current (Prepaid) Total
------- --------- -------
Federal $14,855 $(4,567) $10,288
State 4,343 396 4,739
Non-U.S. 4,491 (1,581) 2,910
------- -------- -------
$23,689 $(5,752) $17,937
======= ======= =======
The total provision for income taxes included in the consolidated financial
statements was as follows:
(In thousands) 1994 1993 1992
------- ------- -------
Continuing operations $14,984 $33,870 $17,937
Discontinued operations 14,243 13,434 20,098
------- ------- -------
$29,227 $47,304 $38,035
======= ======= =======
The major differences between the Company's effective tax rate for continuing
operations and the Federal statutory rate were as follows:
1994 1993 1992
------ ------ ------
Federal statutory rate (35.0)% 35.0% 34.0%
Non-U.S. rate differential, net (18.2) (2.5) (3.2)
Adjustment of prior estimated
tax liabilities --- --- (8.2)
State income taxes, net 14.5 3.7 4.7
Sale of an investment --- --- (3.1)
Goodwill amortization 10.0 1.7 1.6
Increase in valuation allowance 117.0 1.0 1.6
Other, net (0.8) (0.6) (0.5)
----- ----- -----
Effective tax rate 87.5% 38.3% 26.9%
===== ===== =====
The 1994 tax provision and effective rate for continuing operations were
significantly impacted by the goodwill write-down and the restructuring
charges. The Company has not recorded any tax benefit from the goodwill
write-down and approximately $11 million of the restructuring charges
because these charges, while tax deductible, will be incurred in tax
jurisdictions where the Company has existing operating loss carryforwards
and, therefore, are offset by a valuation allowance. At the present time,
the Company believes that it is more likely than not that these benefits
will not be realized.
The effect of SFAS No. 109 on the consolidated effective tax rate was
minimal in 1993. If SFAS No. 109 had been in effect for 1992, the
consolidated effective tax rate would not have changed.
The tax effects of temporary differences and carryforwards which gave rise
to prepaid (deferred) income taxes as of January 1, 1995 and January 2,
1994 were as follows:
(In thousands) 1994 1993
-------- --------
Deferred tax assets:
Inventory reserves $ 5,266 $ 5,588
Other reserves 6,058 3,748
Depreciation 5,647 7,913
Vacation pay 6,080 5,107
Net operating loss carryforwards 34,831 9,939
Postretirement health benefits 6,123 7,000
Restructuring reserve 4,494 ---
All other, net 23,608 24,146
-------- --------
Total deferred tax assets 92,107 63,441
-------- --------
Deferred tax liabilities:
Award and holdback fees (4,193) (5,619)
Pension contribution (5,092) (2,327)
All other, net (12,423) (13,322)
-------- --------
Total deferred tax liabilities (21,708) (21,268)
-------- --------
Valuation allowance (37,460) (9,939)
-------- --------
Net prepaid taxes $ 32,939 $ 32,234
======== ========
At January 1, 1995, the Company had non-U.S. (primarily from Germany and
France) net operating loss carryforwards of approximately $71.7 million, of
which $10.2 million expire in years 1995 through 2004 and $61.5 million of
which carryforward indefinitely. The $37.5 million valuation allowance
results primarily from these carryforwards, for which the Company currently
believes it is more likely than not that they will not be realized.
Current prepaid income taxes of $26.7 million and $18.7 million at
January 1, 1995 and January 2, 1994, respectively, were included in other
current assets. Long-term prepaid income taxes of $11.6 million and $13.6
million were included in other long-term assets at January 1, 1995 and
January 2, 1994, respectively. Long-term deferred income taxes of $5.3
million were included in long-term liabilities at January 1, 1995.
In general, it is the practice and intention of the Company to reinvest the
earnings of its non-U.S. subsidiaries in those operations. Repatriation of
retained earnings is done only when it is advantageous. Applicable Federal
taxes are provided only on amounts planned to be remitted. Accumulated net
earnings of non-U.S. subsidiaries for which no Federal taxes have been
provided as of January 1, 1995 were $74.8 million, which does not include
amounts that if remitted would result in little or no additional tax due to
the availability of non-U.S. tax credits. Federal taxes that would be
payable upon remittance of these earnings are estimated to be $21.2 million
at January 1, 1995.
14. Contingencies
The Company is subject to various investigations, claims and legal
proceedings covering a wide range of matters that arise in the ordinary
course of its business activities. Each of these matters is subject to
various uncertainties, and it is possible that some of these matters may be
resolved unfavorably to the Company. The Company has established accruals
for matters that are probable and reasonably estimable. Management
believes that any liability that may ultimately result from the resolution
of these matters in excess of amounts provided will not have a material
adverse effect on the financial position or results of operations of the
Company.
In addition, the Company is conducting a number of environmental
investigations and remedial actions at current and former Company locations
and, along with other companies, has been named a potentially responsible
party for certain waste disposal sites. The Company accrues for
environmental issues in the accounting period that the Company's
responsibility is established and when the cost can be reasonably
estimated. The Company has accrued $2.4 million to reflect its estimated
liability for environmental remediation. As assessments and remediation
activities progress at each individual site, these liabilities are reviewed
to reflect additional information as it becomes available. There have been
no environmental problems to date that had or are expected to have a
material effect on the Company's financial position or results of
operations. While it is reasonably possible that a material loss exceeding
the amounts recorded may have been incurred, the preliminary stages of the
investigations make it impossible for the Company to reasonably estimate
the range of potential exposure.
During 1994, the Company received notices from the Internal Revenue Service
(IRS) asserting deficiencies in Federal corporate income taxes for the
Company's 1985-1990 taxable years. The total of the adjustments proposed
by the IRS amounts to $35 million plus interest. The Company is in the
process of filing petitions in the United States Tax Court to challenge
most of the IRS asserted deficiencies. The Company believes it has
meritorious legal defenses to those deficiencies and believes the ultimate
outcome of the case will not result in a material impact on the Company's
consolidated results of operations or financial position.
15. Stockholders' Equity
At January 1, 1995, five million shares of the Company's common stock were
reserved for employee benefit plans.
The Company has nonqualified and incentive stock option plans for officers
and key employees. Under these plans, options may be granted at prices not
less than 100% of the fair market value on the date of grant. All options
expire 10 years from the date of grant. Options granted in 1994 become
exercisable, in ratable installments, over a period of five years from the
date of grant. In prior years, options became exercisable at the date of
grant. The Stock Option Committee of the Board of Directors, at its sole
discretion, may also include stock appreciation rights in any option
granted. There are no stock appreciation rights outstanding under these
plans.
A summary of certain stock option information is as follows:
(In thousands) 1994 1993
------------------------ ------------------------
Number Number
of Shares Price Range of Shares Price Range
--------- ------------ --------- ------------
Outstanding at
beginning of year 3,260 $14.44-22.88 2,902 $14.44-22.88
Granted 736 14.25-15.38 726 21.63
Exercised (54) 14.44-17.25 (355) 14.44-22.88
Lapsed (331) 14.44-22.88 (13) 15.50-22.88
--------- ------------ --------- ------------
Outstanding at
end of year 3,611 $14.25-22.88 3,260 $14.44-22.88
========= ============ ========= ============
Exercisable at
end of year 2,895 3,260
========= =========
Available for grant
at end of year 1,354 1,144
========= =========
(In thousands) 1992
------------------------
Number
of Shares Price Range
--------- ------------
Outstanding at
beginning of year 2,754 $ 7.25-22.88
Granted 678 20.13
Exercised (510) 7.25-22.88
Lapsed (20) 7.25-22.88
--------- ------------
Outstanding at
end of year 2,902 $14.44-22.88
========= ============
Exercisable at
end of year 2,902
=========
Available for grant
at end of year 1,021
=========
On January 25, 1995, the Board of Directors adopted a new Shareholder
Rights Plan. Under the Plan, preferred stock purchase rights were
distributed on February 8, 1995 as a dividend at the rate of one right for
each share of common stock outstanding. Each right, when exercisable,
entitles a stockholder to purchase one one-thousandth of a share of a new
series of junior participating preferred stock at a price of $60. The
rights become exercisable only if a person or group acquires 20% or more or
announces a tender or exchange offer for 30% or more of the Company's
common stock. This preferred stock is nonredeemable and will have 1,000
votes per share. The rights are nonvoting, expire in 2005 and may be
redeemed prior to becoming exercisable. The Company has reserved 70,000
shares of preferred stock, designated as Series C Junior Participating
Preferred Stock, for issuance upon exercise of such rights. If a person
(an "Acquiring Person") acquires or obtains the right to acquire 20% or
more of the Company's outstanding common stock (other than pursuant to
certain approved offers), each right (other than rights held by the
Acquiring Person) will entitle the holder to purchase shares of common
stock of the Company at one-half of the current market price at the date of
occurrence of the event. In addition, in the event that the Company is
involved in a merger or other business combination in which it is not the
surviving corporation or in connection with which the Company's common
stock is changed or converted, or it sells or transfers 50% or more of its
assets or earning power to another person, each right that has not
previously been exercised will entitle its holder to purchase shares of
common stock of such other person at one-half of the current market price
of such common stock at the date of the occurrence of the event. In
connection with the adoption of the new Plan, the Company announced that it
was redeeming the rights issued pursuant to the Company's January 28, 1987
Rights Agreement at a redemption price of $.01 per right to shareholders of
record as of February 8, 1995.
The Company's Employees Stock Purchase Plan was terminated as of October
31, 1993. During 1993, the Company issued 1.2 million shares under this
plan.
16. Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and accounts receivable. At January 1, 1995, the Company had
no significant concentrations of credit risk.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company uses
forward exchange contracts to hedge certain foreign commitments and
transactions denominated in foreign currencies. The contract amount of
forward exchange contracts was $24.5 million as of January 1, 1995. The
carrying value as of January 1, 1995 and January 2, 1994, which
approximated fair value, was not significant. The terms range from one to
three months, corresponding with expected collections or payments. There
are no cash requirements until maturity. Credit risk is minimal as the
contracts are with very large banks; any market risk is offset by the
exposure on the underlying hedged items. When forward contracts are
closed, the Company enters into spot transactions to fulfill the contract
obligations. Gains and losses on forward contracts are deferred and offset
against foreign exchange gains and losses on the underlying hedged items.
Transactions covered by hedge contracts include collection of receivables
from third-party customers, collection of intercompany receivables,
payments to third-party suppliers and payment of intercompany payables.
See Notes 1, 7 and 9 for disclosures about fair values, including methods
and assumptions, of other financial instruments.
17. Leases
The Company leases certain property and equipment under operating leases.
Rental expense charged to earnings for 1994, 1993 and 1992 amounted to
$19.3 million, $18.7 million and $20.6 million, respectively. Minimum
rental commitments under noncancelable operating leases are as follows:
$17.5 million in 1995, $12.7 million in 1996, $8 million in 1997, $4.4
million in 1998, $2.6 million in 1999 and $4.6 million after 1999. The
above information does not include amounts related to leases covered by
contracts with the DOE and NASA because the costs are reimbursable under
the contracts.
18. Other income (expense), net, consisted of the following:
(In thousands) 1994 1993 1992
------- ------- -------
Interest and dividend income $ 3,167 $ 4,043 $ 3,380
Gains (losses) on investments, net (Note 7) (4,682) 2,975 (338)
Interest expense (5,419) (6,264) (7,241)
Other 758 254 2,116
------- ------- -------
$(6,176) $ 1,008 $(2,083)
======= ======= =======
19. Earnings (Loss) Per Share
Earnings (loss) per common share was computed by dividing net income (loss)
by the weighted average number of common shares outstanding. The number of
shares issuable upon the exercise of stock options had no material effect
on earnings (loss) per share. The weighted average number of shares used in
the earnings (loss) per share computations were 55,271,000 for 1994,
56,504,000 for 1993 and 56,385,000 for 1992.
20. Industry Segment and Geographic Area Information
The Company's continuing operations are classified into four industry
segments: Technical Services, Instruments, Mechanical Components and
Optoelectronics. The products and services of the segments are described
elsewhere in the Annual Report. Sales and operating income (loss) from
continuing operations by industry segment are shown in the Segment Sales
and Income section of this report; such information with respect to 1994,
1993 and 1992 is considered an integral part of this note.
Sales to U.S. Government agencies, which were predominantly to the
Department of Defense and NASA, were $542 million, $560 million and $566
million in 1994, 1993 and 1992, respectively. In October 1993, the Company
was selected by NASA to continue as the base operations contractor at the
Kennedy Space Center. The contract has a potential term of 10 years,
including options, contains reductions in contract value and has resulted
in reductions in the annual fee.
Additional information relating to the Company's operations in the various
industry segments follows:
Depreciation and Capital
(In thousands) Amortization Expense Expenditures
-------------------------- -----------------------
1994 1993 1992 1994 1993 1992
-------- -------- -------- ------- ------- -------
Technical Services $ 7,447 $ 8,422 $ 7,991 $ 7,314 $ 6,315 $ 5,650
Instruments 11,621 9,213 8,131 5,398 6,555 4,768
Mechanical Components 6,091 6,870 7,755 6,197 5,598 5,290
Optoelectronics 10,690 12,417 11,595 17,748 8,469 6,305
Corporate 941 920 820 620 923 433
-------- -------- -------- ------- ------- -------
$ 36,790 $ 37,842 $ 36,292 $37,277 $27,860 $22,446
======== ======== ======== ======= ======= =======
Identifiable
(In thousands) Assets
--------------------------
1994 1993 1992
-------- -------- --------
Technical Services $129,995 $127,917 $133,351
Instruments 220,232 256,117 217,792
Mechanical Components 93,721 97,317 112,272
Optoelectronics 193,302 142,630 142,543
Corporate and Other 155,879 140,906 140,619
-------- -------- --------
$793,129 $764,887 $746,577
======== ======== ========
Corporate assets consist primarily of cash and cash equivalents, prepaid
taxes and investments.
Information relating to geographic areas follows:
(In thousands) Operating Income (Loss)
Sales From Continuing Operations
---------------------------------- -----------------------------
1994 1993 1992 1994 1993 1992
---------- ---------- ---------- --------- -------- --------
U.S. $1,026,970 $1,049,131 $1,063,753 $ 57,679 $ 96,495 $ 87,899
Non-U.S. 305,586 270,285 256,328 (33,744) 18,562 10,781
Corporate --- --- --- (34,882) (27,573) (29,895)
---------- ---------- ---------- --------- -------- --------
$1,332,556 $1,319,416 $1,320,081 $ (10,947) $ 87,484 $ 68,785
========== ========== ========== ========= ======== ========
(In thousands) Identifiable Assets
----------------------------------
1994 1993 1992
---------- ---------- ----------
U.S. $ 341,725 $ 305,344 $ 333,533
Non-U.S. 295,525 318,637 272,425
Corporate
and Other 155,879 140,906 140,619
---------- ---------- ----------
$ 793,129 $ 764,887 $ 746,577
========== ========== ==========
Over 75% of the identifiable assets of the non-U.S. operations are
located in European Union countries. Transfers between geographic
areas were not material.
21. Quarterly Financial Information (Unaudited)
Selected quarterly financial information follows:
(In thousands except per share data)
Quarters
--------------------------------------
First Second Third Fourth Year
-------- -------- -------- -------- ----------
1994
- ----
Sales $325,747 $329,880 $336,860 $340,069 $1,332,556
Operating income (loss)
from continuing operations 12,675 15,012 (54,961) 16,327 (10,947)
Income (loss) from
continuing operations
before income taxes 12,654 14,579 (58,343)a 13,987b (17,123)
Income (loss) from continuing
operations 7,813 8,977 (56,940) 8,043 (32,107)
Net income (loss) 14,353 16,423 (48,294) 11,863 (5,655)
Earnings (loss) per share:
Income (loss) from continuing
operations .14 .16 (1.03) .15 (.58)
Net income (loss) .26 .30 (.88) .22 (.10)
Cash dividends per common share .14 .14 .14 .14 .56
Common stock market price range:
High 19.00 16.50 15.88 17.00
Low 16.38 14.13 14.63 13.75
Close 16.38 15.00 15.25 14.13
1993
- ----
Sales $319,564 $327,348 $332,254 $340,250 $1,319,416
Operating income from
continuing operations 16,227 19,736 18,695 32,826 87,484
Income from continuing
operations before
income taxes 15,577 20,064 17,585 35,266 88,492
Income from continuing
operations 9,844 12,798 10,266 21,714 54,622
Income before cumulative
effect of accounting
changes 19,107 21,068 15,213 24,183 79,571
Net income (loss) (1,393)c 21,068 15,213 24,183 59,071
Earnings (loss) per share:
Income from continuing
operations .18 .22 .18 .39 .97
Income before cumulative effect
of accounting changes .34 .37 .27 .43 1.41
Net income (loss) (.02)c .37 .27 .43 1.05
Cash dividends per common share .13 .13 .13 .13 .52
Common stock market price range:
High 24.00 24.50 20.25 18.38
Low 19.38 18.88 15.75 16.75
Close 22.50 18.88 16.63 18.38
a) Includes a goodwill write-down of $40.3 million, restructuring charges
of $30.4 million, a $1.8 million write-down of certain investments and a
$1.8 million unfavorable contract adjustment.
b) Includes inventory provisions of $2 million, a $1.3 million provision
for environmental remediation costs and a $2.7 million write-down of
certain investments.
c) Includes one-time after-tax charges of $20.5 million, or $.36 per share,
due to the Company's adoption of SFAS Nos. 106 and 109.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of EG&G, Inc.:
We have audited the accompanying consolidated balance sheets of EG&G,
Inc. (a Massachusetts corporation) and subsidiaries as of January 1,
1995 and January 2, 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended
January 1, 1995, January 2, 1994 and January 3, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
EG&G, Inc. and subsidiaries as of January 1, 1995 and January 2, 1994,
and the results of their operations and their cash flows for the years
ended January 1, 1995, January 2, 1994 and January 3, 1993, in
conformity with generally accepted accounting principles.
As explained in Notes 12 and 13 to the consolidated financial
statements, effective January 4, 1993, the Company changed its method
of accounting for postretirement benefits other than pensions and for
income taxes. As explained in Note 7 to the consolidated financial
statements, effective January 3, 1994, the Company changed its method of
accounting for marketable investments.
Boston, Massachusetts /s/ Arthur Andersen LLP
-----------------------
January 25, 1995 Arthur Andersen LLP
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
a) DIRECTORS
The information required by this Item with respect to Directors is
contained on Pages 3 through 9 of the Company's 1995 Proxy Statement
under the captions "Election of Directors" and "Information Relative to
the Board of Directors and Certain of its Committees" and is herein
incorporated by reference.
b) EXECUTIVE OFFICERS
The information required by this item with respect to Executive Officers
is contained in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be disclosed by this Item is contained in
Pages 15 - 21 of the Company's 1995 Proxy Statement from under the
caption "Summary Compensation Table" up to and including "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Value Option
Table" and Notes thereto, and is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained on Pages 9 -10 of the
Company's 1995 Proxy Statement under the captions "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" and is
herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Included in Part II, Item 8:
Consolidated Balance Sheet as of January 1, 1995 and
January 2, 1994
Consolidated Statement of Operations for the Three Years
Ended January 1, 1995
Consolidated Statement of Stockholders' Equity for the
Three Years Ended January 1, 1995
Consolidated Statement of Cash Flows for the Three Years
Ended January 1, 1995
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Financial
Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Financial statement schedules, other than those above, are
omitted because of the absence of conditions under which they
are required or because the required information is given in
the financial statements or notes thereto.
Separate financial statements of the Registrant are omitted
since it is primarily an operating company, and since all
subsidiaries included in the consolidated financial statements
being filed, in the aggregate, do not have minority equity
interests and/or indebtedness to any person other than the
Registrant or its consolidated subsidiaries in amounts which
together exceed five percent of total consolidated assets.
3. EXHIBITS
(i) The Company's Restated Articles of Organization, as
amended to date, including all Certificates of Vote of
Directors Establishing a Series of a Class of Stock were filed
with the Commission on July 16, 1992, as an Exhibit to Form-8
Amendment No. 1 to EG&G's Annual Report on Form 10-K for the
fiscal year ended December 29, 1991, are herein incorporated
by reference.
(ii) The Company's By-Laws as amended by the Board of
Directors on April 23, 1991 and on January 22, 1992, were
filed with the Commission as Exhibit 14 (a)(3).(ii) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1991.
(iii) The form of certificate used to evidence ownership
of EG&G Common Stock, $1 par value, was filed as Exhibit 4(a)
to EG&G's Registration Statement on Form S-3, File No. 2-69642
and is herein incorporated by reference.
*(iv) The EG&G, INC. 1978 NON-QUALIFIED STOCK OPTION PLAN
as amended by the Board of Directors on January 26, 1988, was
filed with the Commission as Exhibit 14(a)3.(v) to EG&G's
Annual Report on Form 10-K for the fiscal year ending January
3, 1988, and is herein incorporated by reference.
*(v) The EG&G, INC. 1982 INCENTIVE STOCK OPTION PLAN as
amended by the Board of Directors on January 24, 1990, was
filed with the Commission as Exhibit B on pages 37-42 of the
Company's 1990 Proxy Statement and is herein incorporated by
reference.
*(vi) The EG&G, Inc. 1992 STOCK OPTION PLAN was filed as
Exhibit 4(v) to EG&G's Registration Statement on Form S-8,
File No. 33-49898 and is herein incorporated by reference.
*(vii) Employment Contracts:
(1) Employment contract between John M. Kucharski and EG&G
dated November 1, 1993.
(2) Employment contract between Murray Gross and EG&G dated
November 1, 1993.
(3) Employment contract between John F. Alexander, II and
EG&G dated November 1, 1993.
(4) Employment contract between Angelo Castellana and EG&G
dated November 1, 1993.
(5) Employment contract between James R. Dubay and EG&G
dated November 1, 1993.
(6) Employment contract between Dale L. Fraser and EG&G
dated November 1, 1993.
(7) Employment contract between Earl M. Fray and EG&G dated
June 20, 1994.
(8) Employment contract between Deborah S. Lorenz and EG&G
dated November 1, 1993.
(9) Employment contract between Donald E. Michel and EG&G
dated June 20, 1994.
(10) Employment contract between Fred B. Parks and EG&G
dated November 1, 1993.
(11) Employment contract between Donald H. Peters and EG&G
dated November 1, 1993.
(12) Employment contract between Luciano Rossi and EG&G
dated November 1, 1993.
(13) Employment contract between Thomas Sauser and EG&G
dated June 20, 1994.
(14) Employment contract between Edward H. Snow and EG&G
dated November 1, 1993.
(15) Employment contract between Louis P. Valente and EG&G
dated November 1, 1993.
(16) Employment contract between C. Michael Williams and
EG&G dated November 1, 1993.
(17) Employment contract between James O. Zane and EG&G
dated November 1, 1993.
(18) Employment contract between Peter H. Zavattaro and EG&G
dated November 1, 1993.
Except for the name of the officer in the employment contracts
identified by numbers 3 through and including 18, the form of said
employment contracts is identical in all respects. The employment
contracts identified by numbers 1 and 2 are identical to each other and
are virtually identical to the contracts identified by numbers 3 through
18 except that they provide for a longer contract term. The employment
contract between John F. Alexander, II and EG&G is representative of the
employment contracts of the executive officers and is attached hereto as
Exhibit 10.
*(viii) Remunerative Plans:
(1) EG&G, Inc. Supplemental Executive Retirement Plan.
Information with respect to this item is found
following the Notes to Table II on Pages 17-19 of the
Company's 1995 Proxy Statement, and such information is
herein incorporated by reference.
(2) EG&G, Inc. Management Incentive Plan. Information
with respect to this item is found on Page 13 of the
Company's 1995 Proxy Statement under the caption
"Annual Incentive Plan", and such information is herein
incorporated by reference.
(ix) Power of Attorney (appears on signature page)
(x) Subsidiaries of the Registrant
(xi) Financial Data Schedule
*This exhibit is a management contract or compensatory plan or
arrangement required to be filed as an Exhibit pursuant to Item 14(c) of
Form 10-K.
(b) REPORTS ON FORM 8-K
There have been no reports on Form 8-K filed during the last
quarter of the fiscal year ended January 1, 1995.
(c) PROXY STATEMENT
EG&G's 1995 Proxy Statement, in definitive form, was filed
electronically on March 7, 1995, with the Securities and
Exchange Commission in Washington, D.C. pursuant to the
Commission's Rule 14a-6.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
To EG&G, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of EG&G, Inc. included
in this Form 10-K and have issued our report thereon dated January 25,
1995. Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule II is the
responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation
to the basic financial statements taken as a whole.
Boston, Massachusetts /s/ Arthur Andersen LLP
-----------------------
January 25, 1995 Arthur Andersen LLP
SCHEDULE II
EG&G, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED JANUARY 1, 1995
(In thousands) Balance Additions Accounts Balance
at Beginning Charged Charged at End
Description of Year to Income Off Other of Year
- ----------- ------------ --------- -------- -------- ---------
Reserve for
Doubtful Accounts
- -----------------
Year Ended
January 3, 1993 $5,525 $ 254 $ (920) $ 762(A) $5,621
Year Ended
January 2, 1994 $5,621 $ 737 $ (755) $ 523(B) $6,126
Year Ended
January 1, 1995 $6,126 $1,255 $ (1,868) $ 307(C) $5,820
(A) Includes reserves of $1,378 related to a company acquired in 1992.
(B) Includes reserves of $705 related to a company acquired in 1993.
(C) Includes reserves of $222 related to a company acquired in 1994.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated January 25, 1995, included in this Form 10-K,
into Registration Statements previously filed by EG&G, Inc. on,
respectively, Form S-8, File No. 2-61241; Form S-8, File No. 2-98168; Form
S-8, File No. 33-17466; Form S-8, File No. 33-36082; Form S-8, File No.
33-35379; Form S-8, File No. 33-43582; Form S-8, File No. 33-49898; Form S-8,
File No. 33-57606; and Form S-8, File No. 33-54785.
Boston, Massachusetts /s/Arthur Andersen LLP
----------------------
March 31, 1995 ARTHUR ANDERSEN LLP
POWER OF ATTORNEY
We, the undersigned officers and directors of EG&G, Inc., hereby severally
constitute John M. Kucharski, and Murray Gross, and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly,
to sign for us and in our names, in the capacities indicated below, this
Annual Report on Form 10-K and any and all amendments to said Annual Report
on Form 10-K, and generally to do all such things in our name and behalf in
our capacities as officers and directors to enable EG&G, Inc. to comply with
the provisions of the Securities Exchange Act of 1934, and all requirements
of the Securities and Exchange Commission, hereby rectifying and confirming
signed by our said attorneys, and any and all amendments thereto.
Witness our hands on the date set forth below.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
March 31, 1995 By:/s/John M. Kucharski
-----------------------
John M. Kucharski
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
March 31, 1995 By:/s/Thomas J. Sauser
----------------------
Thomas J. Sauser
Vice President and
Chief Financial Officer
(Principal Financial Officer)
March 31, 1995 By:/s/John F. Alexander, II
----------------------------
John F. Alexander, II
Corporate Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
By: /s/John M. Kucharski
------------------------------
John M. Kucharski, Director
Date: March 31, 1995
By: /s/Dean W. Freed
------------------------------
Dean W. Freed, Director
Date: March 25, 1995
By: /s/Robert F. Goldhammer
------------------------------
Robert F. Goldhammer, Director
Date: March 31, 1995
By: /s/John B. Gray
------------------------------
John B. Gray, Director
Date: March 31, 1995
By: /s/Kent F. Hansen
------------------------------
Kent F. Hansen, Director
Date: March 27, 1995
By: /s/Greta Marshall
------------------------------
Greta Marshall, Director
Date: March 24, 1995
By: /s/William F. Pounds
------------------------------
William F. Pounds, Director
Date: March 31, 1995
By: /s/Samuel Rubinovitz
------------------------------
Samuel Rubinovitz, Director
Date: March 31, 1995
By: /s/John Larkin Thompson
------------------------------
John Larkin Thompson, Director
Date: March 31, 1995
By: /s/G. Robert Tod
------------------------------
G. Robert Tod, Director
Date: March 31, 1995
By: /s/Joseph F. Turley
------------------------------
Joseph F. Turley, Director
Date: March 24, 1995
EXHIBIT INDEX
(1) Employment Contract between John F. Alexander, II and EG&G, Inc. is
filed herein as Exhibit 10.
(2) Subsidiaries of the Registrant is filed herein as Exhibit 21.
(3) Financial Data Schedule is filed herein as Exhibit 27.