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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 27, 1998, for EG&G, Inc. (Note: The company name in the metadata "REVVITY, INC." is incorrect; the filing explicitly identifies the registrant as EG&G, Inc.). The company operates through four primary industry segments: Instruments, Mechanical Components, Optoelectronics, and Technical Services. The reporting period reflects significant strategic restructuring, including the divestiture of two major divisions and the initiation of a large-scale acquisition.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: Reported sales decreased 4% in the quarter and 2% year-to-date compared to 1997. However, base operations sales (excluding divested businesses) increased 9% in the quarter and 10% year-to-date.
• Profitability: Net income surged 6% in the quarter and 538% year-to-date. This dramatic increase is primarily driven by $125.8 million in pre-tax gains on dispositions of the Rotron and Sealol Industrial Seals divisions.
• Restructuring: The company recorded $54.5 million in pre-tax restructuring charges during the first nine months of 1998, aimed at consolidating operations and eliminating approximately 900 positions. This contrasts with no such charges in the comparable 1997 period.
• Asset Impairment: A $7.4 million noncash impairment charge was recorded in Q2 1998 related to an automotive testing facility, compared to a $28.2 million charge in 1997.
• Liquidity: Cash and cash equivalents increased by $120.7 million to $178.6 million, fueled by proceeds from business dispositions ($209.6 million) and reduced debt levels.

Guidance, Outlook, and Risks

• Acquisition: On October 21, 1998, EG&G announced a definitive agreement to acquire Lumen Technologies, Inc. for approximately $250 million in cash and assumed debt. Financing will utilize cash on hand and short-term debt.
• Restructuring Outlook: Management expects the restructuring plans to yield annualized pre-tax cost savings of $22–$24 million in 2000. Cash outlays for these plans are expected to total $39 million in the remainder of 1998 and into 1999.
• Segment Performance:
  • Mechanical Components: Base operating income increased significantly due to aerospace demand and the Belfab acquisition, offset by semiconductor softness.
  • Optoelectronics: Base operating income improved 146% year-to-date as IC Sensors approached break-even, though the segment still reported a loss on a reported basis due to restructuring charges.
  • Technical Services: Sales grew 8% due to new government contracts (DLA, Navy), partially offset by a failed bid for NASA/Air Force support services and a labor strike at General Motors.
• Risks and Contingencies:
  • Year 2000 Compliance: The company is actively remediating systems but notes potential disruption from third-party non-compliance.
  • Government Contracts: Operations are subject to termination for convenience by the government.
  • Market Conditions: Future performance depends on replacing lost sales from divestitures and navigating economic difficulties in international markets.

Investor Verification Checklist

• Verify the quality of earnings by analyzing the $125.8 million gain on dispositions versus the $54.5 million in restructuring charges to understand the core operating performance.
• Confirm the financing terms and closing conditions for the $250 million Lumen Technologies acquisition announced post-period.
• Monitor the cash burn rate associated with the $39 million in expected restructuring outlays and the Lumen acquisition.
• Assess the Year 2000 remediation progress and the potential operational impact of third-party failures.
• Review the performance of IC Sensors within the Optoelectronics segment to ensure it meets the revised break-even operating plan.