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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED OCTOBER 2, 1993
COMMISSION FILE NO. 1-8045
___________________
GENRAD, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1360950
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
300 BAKER AVENUE
CONCORD, MASSACHUSETTS 01742
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 369-4400
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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
18,320,000 SHARES OF COMMON STOCK, $1 PAR VALUE, OUTSTANDING OCTOBER 29, 1993
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<TABLE>
GENRAD, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet Assets 1
Consolidated Balance Sheet Liabilities 2
Consolidated Statement of Operations 3
Condensed Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial Condition and Operating Results 8
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 10
Letter dated October 8, 1993 from Foothill Capital Corporation relating to certain
loan terms 10.1
Signatures 11
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
GENRAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
Assets
(In thousands)
<CAPTION>
October 2, January 2,
1993 1993
-------------- -------------
- - (Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 10,446 $ 8,621
Accounts receivable, net 28,254 33,568
Inventories:
Raw materials 8,234 6,998
Work in process 4,280 2,710
Finished goods 4,166 5,811
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16,680 15,519
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Other current assets 3,240 5,671
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Total current assets 58,620 63,379
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Property, plant and equipment:"
Land 518 1,414
Buildings 25,707 46,638
Machinery and equipment 68,003 75,390
Service parts 17,122 17,182
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111,350 140,624
Less: Accumulated depreciation 92,806 105,915
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18,544 34,709
Other assets 1,258 2,063
Assets held for sale 5,100 -
------------- ------------
$ 83,522 $ 100,151
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</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
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<TABLE>
GENRAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
(In thousands)
<CAPTION>
October 2, January 2,
1993 1993
------------- -----------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable to banks $ 3,189 $ 4,713
Trade accounts payable 5,828 8,681
Accrued liabilities 30,652 16,078
Accrued compensation and
employee benefits 13,281 6,696
Income taxes payable (57) -
------------- -----------
Total current liabilities 52,893 36,168
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Long-term Liabilities:
Long-term debt 48,834 48,785
Accrued pensions and benefits 12,717 11,851
Future lease costs of unused facilities 14,440 8,126
Other long-term liabilities 509 501
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Total long-term liabilities 76,500 69,263
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Stockholders' Equity (deficit):
Common stock, $1 par value"
Authorized 60,000,000 shares; issued and
outstanding 18,297,000 and 17,843,000 18,297 17,843
Additional paid-in capital 105,057 101,897
Accumulated deficit (166,932) (122,695)
Equity adjustment from foreign
currency translation (2,293) (2,325)
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Total stockholders' equity (deficit) (45,871) (5,280)
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$ 83,522 $ 100,151
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</TABLE>
Certain reclassifications have been made to January 2, 1993 to conform to the
October 2, 1993 presentation.
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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<TABLE>
GENRAD, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
October 2, September 26, October 2, September 26,
1993 1992 1993 1992
------------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Revenues
Sales of products $ 26,755 $ 23,222 $ 95,760 $ 71,990
Sales of services 9,082 9,505 25,015 26,431
------------- ------------ ------------ -------------
35,837 32,727 120,775 98,421
------------- ------------ ------------ -------------
Cost and expenses:
Cost of products sold 15,056 13,134 55,633 40,612
Cost of services sold 5,978 4,563 14,535 13,514
------------- ------------ ------------ -------------
21,034 17,697 70,168 54,126
------------- ------------ ------------ -------------
Gross margin 14,803 15,030 50,607 44,295
Operating expenses:
Selling, general and administrative 12,556 11,589 37,404 33,756
Research and development 4,331 5,066 12,084 15,892
Reorganizational charges 41,876 - 41,876 -
------------- ------------ ------------ -------------
58,763 16,655 91,364 49,648
------------- ------------ ------------ -------------
Operating loss (43,960) (1,625) (40,757) (5,353)
Other income (expense):
Interest income 74 202 208 488
Interest expense (1,069) (1,188) (3,281) (3,589)
Other-net (279) 218 (307) 1,144
------------- ------------ ------------ -------------
(1,274) (768) (3,380) (1,957)
------------- ------------ ------------ -------------
Loss before income taxes (45,234) (2,393) (44,137) (7,310)
Income taxes (benefit) (460) 110 100 210
------------- ------------ ------------ -------------
Net loss $ (44,774) $ (2,503) $ (44,237) $ (7,520)
============= ============ ============ =============
Net loss per share $ (2.46) $ (0.14) $ (2.45) $ (0.42)
Average common shares outstanding 18,170,000 17,805,000 18,049,000 17,793,000
</TABLE>
Certain reclassifications have been made for 1992 to conform to the 1993
presentation.
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
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<TABLE>
GENRAD, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
-----------------------------
October 2, September 26,
1993 1992
------------ -------------
<S> <C> <C>
Operating activities:
Net loss $(44,237) $ (7,520)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 15,610 8,958
Stock option compensation expense 2,602 149
(Gain) loss on sale and write-off of assets 1,434 (201)
Increase (decrease) resulting from changes
in operating assets and liabilities:
Accounts receivable 5,048 3,064
Inventories (2,092) 2,023
Prepaids 2,396 (1,188)
Trade accounts payable (2,814) 163
Income taxes (61) 336
Accrued liabilities 14,611 217
Accrued compensation and employee benefits 7,604 (4,200)
Reserve for future lease costs of unused facilities 6,314 (1,956)
Other, net 751 277
-------- -------
Net cash provided by operating activities 7,166 122
-------- -------
Investing activities:
Purchases of property, plant and equipment (5,053) (3,182)
Proceeds from sale of property, plant and equipment 78 428
Sale of product line - 145
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Net cash provided (used) by investing activities (4,975) (2,609)
-------- -------
Financing activities:
Net change in notes payable (1,490) 1,255
Proceeds from employee stock plan 833 116
-------- -------
Net cash provided (used) by financing activities (657) 1,371
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Effects of exchange rates on cash 291 10
-------- -------
Increase (decrease) in cash and equivalents 1,825 (1,106)
Cash and equivalents at beginning of period 8,621 15,510
-------- -------
Cash and equivalents at end of period $ 10,446 $14,404
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</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
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GENRAD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING COMMENTS
Reference is made to the registrant's 1992 annual report to stockholders,
which contains, at pages 18 through 30, financial statements and the notes
thereto, including a summary of significant accounting policies.
With respect to the financial information for the interim periods included
in this report, which is unaudited, the management of the company believes
that all adjustments necessary to a fair presentation of the results for
such interim periods have been included. All adjustments are of a normal
and recurring nature.
The results for any interim period are not necessarily indicative of the
results for the entire year.
2. CHANGE IN ACCOUNTING PRINCIPLES:
Postretirement Benefits
Effective January 3, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 106 (SFAS #106), "Employer's
Accounting for Postretirement Benefits Other Than Pensions", for its
postretirement benefit plan. The Company provides certain health care and
life insurance benefits for retired United States employees. Employees
become eligible for these benefits when they reach normal retirement age
while working for the Company. Prior to the adoption of this Standard, the
cost was recognized as claims were paid.
The Company's postretirement benefit plans have been modified and include a
limit on the cost of the Company's contribution for all retirees and
increased contributions for future retirees. The plan is not funded.
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<TABLE>
The following table sets forth the plan's projected funded status at December
31, 1993.
Accumulated postretirement benefit obligation (in thousands):
<S> <C>
Retired employees $10,962
Active employees 2,125
-------
Total $13,087
Plan assets at fair value $ 0
Unfunded accumulated benefit obligation in
excess of plan assets $13,087
Unrecognized net gain $ 0
Unrecognized prior service cost $ 0
Unrecognized transition obligation $13,087
(Accrued) prepaid postretirement benefit cost $ 0
</TABLE>
The Company will recognize the actuarial present value of the accumulated
postretirement benefit obligation of $13,087,000 on the delayed recognition
method over a period of 20 years. SFAS #106 will result in an increase in the
annual expense of $498,000 based on current actuarial estimates.
<TABLE>
Net periodic postretirement benefit cost for fiscal 1993 will include the
following components (in thousands):
<S> <C>
Service cost $ 104
Interest cost 1,065
Actual return on assets 0
Amortization of transition obligation 654
------
Net periodic postretirement benefit cost $1,823
======
</TABLE>
For measurement purposes, a 15% annual rate of increase in the per capita cost
of covered health care benefits was assumed for fiscal 1993. The Company's
per capita cost commitment for retiree medical care is capped at 1994 levels.
As a result, the health care cost trend rate assumption does not have a
significant effect on the amounts reported.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.5%. As the plan is unfunded, no
assumption was needed as to the long-term rate of return on assets.
Income Taxes
Effective January 3, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS #109), "Accounting for Income
Taxes". This standard determines deferred 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 the currently enacted tax laws.
Prior to the implementation of this statement, the Company accounted for income
taxes under SFAS No. 96. The adoption of SFAS No. 109 had no impact on the
results of operations for the nine months ended October 2, 1993.
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<TABLE>
The temporary differences and carryforwards which gave rise to the significant deferred tax assets and liabilities as of January 3,
1993, as adjusted for the adoption of SFAS No. 109 and as reported at January 2, 1993, were as follows (in thousands):
<CAPTION>
Deferred Tax Assets: January 3, 1993
---------------
<S> <C>
Domestic net operating losses not yet benefited $48,280
Foreign net operating losses not yet benefited 4,032
Inventory valuation reserves 3,823
Pension accruals 3,372
Restructuring reserves, including lease costs of unused facilities 1,841
Other reserves 1,740
-------
Total deferred tax assets 63,087
Valuation allowance (58,991)
-------
Net deferred tax assets $ 4,096
-------
Deferred Tax Liabilities:
Depreciation $(2,584)
Other (1,512)
-------
Total deferred tax liabilities (4,096)
-------
Net deferred taxes recorded $ 0
=======
</TABLE>
The valuation allowance relates to uncertainty surrounding the realization of
the deferred tax assets, principally tax loss carryforwards. Certain
reclassifications have been made to the January 2, 1993 balance sheet to
conform to the October 2, 1993 presentation.
7
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GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Results:
- ------------------
Orders for the Company's products and services were $30 million for the three
months and $114 million for the nine months ended October 2, 1993 as compared to
$34 million and $101 million, respectively, for the comparable periods in 1992.
The nine month 1993 increase reflects orders for the Company's FDS 2000
automotive electronics diagnostic system from Ford Europe as well as orders for
in-circuit testers, including the current GR2283 and GR2284 combinational
testers. The decline in orders during the 1993 quarter in relation to the 1992
quarter is attributed to the Company's receipt in the 1992 quarter of an order
from the U.S. Marine Corps in the amount of $14.2 million for specialty board
test products.
The Company's sales increased to $36 million for the three months and $121
million for the nine months ended October 2, 1993 as compared to $33 million and
$98 million, respectively, for the same periods in 1992. Sales of automotive
test products increased significantly for both periods due to shipments to Ford
Europe which were initiated in November 1992. Sales of board-test systems
increased slightly for the nine month period while structural test and design
automation products continued to decline. Sales to the international market
accounted for 57% and 55% of sales for the three months and nine months ended
October 2, 1993, respectively, as compared to 54% and 58% for the similar
periods in 1992.
Backlog at the end of the quarter was $29 million as compared to $26 million at
the end of the 1992 third quarter and $35 million at year-end. Backlog as of
the end of 1992 included $12.6 million relating to the U.S. Marine Corps order.
Gross margin as a percent of sales decreased to 41% for the three months and 42%
for the nine months ended October 2, 1993 from 46% and 45%, respectively, in the
comparable periods in 1992. Gross margin has continued to be adversely impacted
by competitive pricing pressures and generally lower margins on sales into the
automotive and government segments, which to date in 1993 have represented an
increased portion of the Company's revenues in relation to prior periods.
Selling, general and administrative expenses increased for the three and nine
month periods of 1993, due to increased staffing and incentive costs in support
of higher sales volume, a $1.6 million charge in a previous quarter for
severance and related costs associated with the realignment of certain members
of senior corporate and international management and compensation related to
employee stock options. As a percentage of sales, these expenses were 35% and
31% for the three and nine months ended October 2, 1993 as compared to 35% and
34% for the similar periods in 1992. Research and development expenses declined
during the respective periods by $.7 million and $3.8 million, due to a decrease
in expenses as a result of previous restructuring which began in 1991, a
reduction in the number of engineers for design automation products and the
temporary assignment of engineers to the Marine Corps contract. Research and
development expenses declined as a percentage of sales, reflecting higher sales
volume.
The Company is in the process of realigning its operations and expense base on
a worldwide basis. As a result, restructuring charges of $41.8 million ($41.4
million after tax) are included in the current quarter. The restructuring
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charges include severance and out placement costs associated with a 12 percent
Company-wide reduction in workforce, charges for excess facilities and
productive capacity, the reorganization and optimization of the European sales,
support and administrative functions, compensation expense associated with the
acceleration of certain stock options, and product discontinuances.
Interest income decreased for the three and nine months ended October 2, 1993,
in relation to the comparable periods in 1992 as a result of an overall
reduction in cash balances available for investing and a general decline in
interest rates. During the same periods, interest expense decreased due to
lower short-term borrowings and lower interest rates. Other net in 1992
included the receipt of a customs rebate, royalty income and a payment on the
sale of a product line, much of which was of a non-recurring nature.
The tax benefit recognized during the 1993 quarter reflects the impact of the
restructuring. The remaining provision for taxes represents primarily foreign
and state income taxes. The Company has significant operating loss and tax
credit carryforwards available to reduce foreseeable future United States
federal income taxes.
As a result of the above, the Company had a net loss of $44,474,000 for the
third quarter and $44,237,000 for the nine months ended October 2, 1993 as
compared to net losses of $2,503,000 and $7,520,000, respectively, for the
similar periods last year.
Liquidity and Capital Resources:
- --------------------------------
Cash and equivalents increased by $1.8 million for the nine months ended October
2, 1993. The increase reflects the Company's generation of $7.2 million in cash
from operations offset by, among other things, the Company's investment in
productive equipment of $5.1 million and repayment of notes payable of $1.5
million. During the next few quarters, the Company expects to utilize its cash
reserves and borrowings to fund certain costs associated with the restructuring.
The Company has identified certain assets in the United Sates and the United
Kingdom to be sold and have been written down to estimated realizable levels.
These assets have been identified as "Assets held for sale" on the Balance
Sheet.
The Company has existing available lines of credit of up to $16.3 million,
subject to limitations in accordance with a formula ($15.8 million secured and
$.5 million unsecured), against which $3.2 million of borrowings was outstanding
at October 2, 1993. The maximum credit lines consist of a $12 million, two-year
credit facility entered into in June 1992, and an aggregate $4.3 million in
other credit facilities which are on a demand basis. At October 2, 1993, the
Company had an available borrowing capacity of $8.5 million, including, as a
result of the operation of certain borrowing formulas, $7.4 million under the
two-year credit facility, and $1.1 million under other facilities. Borrowings
under the two-year credit facility are secured by all of the Company's domestic
assets and are subject to compliance test and restrictions. Borrowings of $3.2
million are secured by all of the Company's U.K. assets. The Company's
principal lender has agreed subject to execution of definitive documentation to
extend the two-year credit facility to January 1, 1995 and to reset certain
financial covenants in recognition of the changes to the operating profile
resulting from the Company's restructuring.
The Company's ability to fund its working capital and capital expenditure
requirements and to make interest payments on its convertible debentures and
other borrowings will depend, among other things, on the continued availability
of credit lines. Management believes that its available credit lines together
with internally generated funds will be sufficient to satisfy its anticipated
requirements in 1993 and 1994. However, if revenues or margins decrease
significantly, thereby reducing internally generated funds, the Company would
require significant funds from outside financing sources. In such event, there
can be no assurance that the Company would be able to obtain such funding as
and when required or on acceptable terms.
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PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) 10.1 Letter dated October 8, 1993 from Foothill Capital
Corporation relating to certain loan terms.
(b) There were no reports on Form 8-K filed during the Quarter
ended October 2, 1993.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENRAD, INC.
BY: /S/ ROBERT C. ALDWORTH
---------------------------
ROBERT C. ALDWORTH
CHIEF FINANCIAL OFFICER
Date: November 15, 1993
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EXHIBIT 10.1
FOOTHILL
October 8, 1993
Mr. Robert C. Aldworth
Chief Financial Officer
GenRad, Inc.
300 Baker Avenue
Concord, MA 01742-2174
Dear Bob:
I am pleased to inform you that the Senior Credit Committee at Foothill Capital
Corporation has granted approval for the following amended terms:
1. The maturity date of the initial term of the General Loan and
Security Agreement (GLSA) will be extended from June 23, 1994 to
January 1, 1995.
2. The financial covenants in the GLSA will be amended to reflect
the projected changes in GenRad's financial statements due to the
reorganization reserves totalling approximately $40 million. The
covenants will allow for an approximate cushion of 30% against
quarterly projections.
3. Foothill Capital Corporation will charge a total fee of $75,000
for the extension and the covenant amendment.
This approval expires on November 30, 1993, if its terms are not legally
documented and accepted by both parties prior to this date.
We value our relationship with GenRad, Inc. and look forward to working with
you in the future. If we can provide any further assistance regarding this
matter, please let us know.
Sincerely,
/s/ BETH A. PEASE
- ------------------
Beth A. Pease
Account Executive
