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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File No.
April 2, 1994 1-8045
GenRad, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-1360950
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(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
300 Baker Avenue, Concord, Massachusetts 01742
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of each class
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Common stock, $1 par value
Shares outstanding April 29, 1994. . . . . . . . . . . . . . . 18,910,801
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<TABLE>
GenRad, Inc. and Subsidiaries
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Table of Contents
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<CAPTION>
Page No.
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Part I. Financial Information:
Consolidated Balance Sheet 1
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 6
Part II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K 8
Signatures 9
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1.
PART I. FINANCIAL INFORMATION
<TABLE>
GenRad, Inc. and Subsidiaries
Consolidated Balance Sheet
Assets
(In thousands)
<CAPTION>
April 2, January 1,
1994 1994
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(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $10,871 $ 8,418
Accounts receivable, net 31,829 30,994
Inventories:
Raw materials 7,418 6,480
Work in process 2,549 3,068
Finished goods 3,828 3,757
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13,795 13,305
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Other current assets 2,771 2,846
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Total current assets 59,266 55,563
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Property, plant and equipment:
Land 515 512
Buildings 24,882 25,591
Machinery and equipment 68,030 67,896
Service parts 17,070 16,640
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110,497 110,639
Less: Accumulated depreciation 95,545 94,566
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14,952 16,073
Other assets 1,308 1,380
Assets held for sale 4,100 4,100
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$79,626 $ 77,116
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</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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2.
<TABLE>
GenRad, Inc. and Subsidiaries
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
(In thousands)
<CAPTION>
April 2, January 1,
1994 1994
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(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable to banks $ 1,435 $ 3,475
Trade accounts payable 6,107 5,437
Accrued liabilities 31,311 27,330
Accrued compensation and
employee benefits 9,650 10,134
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Total current liabilities 48,503 46,376
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Long-term Liabilities:
Long-term debt 48,867 48,851
Accrued pensions and benefits 13,397 12,985
Future lease costs of unused facilities 11,031 12,682
Other long-term liabilities 1,509 1,509
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Total long-term liabilities 74,804 76,027
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Stockholders' Equity (deficit):
Common stock, $1 par value
Authorized 60,000,000 shares; issued and
outstanding 18,791,000 and 18,530,000 18,791 18,530
Additional paid-in capital 105,671 105,177
Accumulated deficit (165,481) (166,492)
Equity adjustment from foreign
currency translation (2,662) (2,502)
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Total stockholders' equity (deficit) (43,681) (45,287)
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$ 79,626 $ 77,116
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</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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3.
<TABLE>
GenRad, Inc. and Subsidiaries
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
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April 2, April 3,
1994 1993
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<S> <C> <C>
Revenues:
Sales of products $ 27,604 $ 34,835
Sales of services 6,381 7,914
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33,985 42,749
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Cost and expenses:
Cost of products sold 14,961 20,341
Cost of services sold 3,256 4,260
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18,217 24,601
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Gross margin 15,768 18,148
Operating expenses:
Selling, general and administrative 10,341 11,406
Research and development 3,289 3,596
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13,630 15,002
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Operating income 2,138 3,146
Other income (expense):
Interest income 36 61
Interest expense (1,042) (1,099)
Other-net 129 (218)
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(877) (1,256)
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Income before taxes 1,261 1,890
Income taxes 250 560
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Net income $ 1,011 $ 1,330
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Net income per share $ .05 $ .07
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Average common shares outstanding 19,786,000 18,889,000
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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4.
<TABLE>
GenRad, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
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April 2, April 3,
1994 1993
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<S> <C> <C>
Operating activities:
Net income $ 1,011 $ 1,330
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 1,417 2,262
Reserve for future lease costs of unused
facilities (1,651) (684)
Increase (decrease) resulting from changes
in operating assets and liabilities:
Accounts receivable (599) 582
Inventories (483) (1,183)
Trade accounts payable 644 (528)
Income taxes - 502
Accrued liabilities and customer prepayments 3,820 2,167
Accrued compensation and
employee benefits (164) (1,681)
Prepaid expense 96 2,009
Other, net 339 104
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Net cash provided by operating activities 4,430 4,880
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Investing activities:
Purchases of property, plant and equipment (406) (1,224)
Proceeds from sale of property, plant and
equipment 27 53
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Net cash used by investing activities (379) (1,171)
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Financing activities:
Net change in notes payable (2,147) (983)
Proceeds from employee stock plan 755 564
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Net cash used by financing activities (1,392) (419)
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Effects of exchange rates on cash (206) 33
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Increase in cash and equivalents 2,453 3,323
Cash and equivalents at beginning of period 8,418 8,621
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Cash and equivalents at end of period $ 10,871 $11,944
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</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
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5.
GenRad, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Accounting Comments
Reference is made to the registrant's 1993 annual report to stockholders,
which contains, at pages 15 through 37, 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 for 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.
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6.
GenRad, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Operating Results
Operating Results:
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Orders for the Company's products and services declined slightly to $45 million
in the 1994 first quarter from $47 million in the comparable 1993 period. The
1993 first quarter included $8 million in orders related to product
lines discontinued in the 1993 third quarter. Excluding orders for these
discontinued product lines, product and service orders increased reflecting
increased demand for the Company's products and the expansion of its service
network.
Net product and service revenues in the 1994 and 1993 first quarters were $34
million and $43 million, respectively. The reduction during the 1994 first
quarter in relation to the comparable 1993 quarter stems in part from the
Company's discontinuance of certain product lines during the 1993 third
quarter. These product lines contributed $4 million in revenues to the 1993
first quarter. In addition, the 1993 first quarter included approximately $10
million in increased revenues derived from contracts with Ford of Europe
and the U.S. Marine Corps. Although these contracts continue, revenues from
these contracts reached peak levels during 1993. Revenues derived from the
international market during the 1994 and 1993 first quarters were 64% and 56%,
respectively. Product and service revenues derived from the international
market are subject to the risks of currency fluctuations.
Backlog at the end of the 1994 first quarter was $30 million compared to $19
million at year-end 1993 and $39 million at the end of the 1993 first quarter.
The 1993 first quarter backlog included $8 million related to the discontinued
product lines and $10 million in increased backlog related to the Ford of
Europe and U.S. Marine Corps contracts. A substantial portion of the first
quarter 1994 ending backlog is scheduled for shipment prior to the end of 1994.
Gross margin as a percent of sales increased to 46% in the first quarter of
1994 from 42% in the comparable period in 1993. Gross margin increased due to
a relative decrease in sales levels of automotive electronics diagnostic
systems and revenues under the U.S. Marine Corps contract which have lower
margins than the Company's electronic manufacturing test products. In
addition, margins have improved as a percentage of sales due to cost reductions
achieved as a result of the 1993 restructuring. However, and partially
offsetting some of the margin improvements noted above, the Company continues
to be impacted by competitive pricing pressures.
Operating expenses decreased to $13.6 million during the 1994 first quarter
from $15.0 million in the comparable 1993 quarter. The decline in expenses is
directly related to the Company's 1993 restructuring which resulted in a
reduction in workforce, discontinued product lines, reduced facility costs
and reduced depreciation. Exclusive of the benefits of the restructuring,
the Company's operating expenses increased as a result of the Company's
establishment of two additional sales offices to service its automotive
customers, the added focus on new products and features development,
increased reserves for pending litigation and related benefit
increases reflecting changes in the cost of living.
Interest income decreased slightly in the first quarter of 1994 in relation to
the comparable period in 1993 as a result of an overall reduction in average
cash balances available for investing and a general decline in interest rates.
During the same periods, interest expense also decreased slightly due to lower
short-term borrowings and interest rates.
The provision for taxes in the first quarters of 1994 and 1993 represents
primarily foreign and state income taxes. The Company utilized existing
operating loss carryforwards to offset current requirements for United States
Federal Income Taxes.
As a result of the above, the Company generated net income of $1,011,000 for
the first quarter of 1994 as compared to net income of $1,330,000 for the
similar period last year.
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7.
During the third quarter 1993, the Company developed and began the
implementation of a worldwide restructuring program. The first quarter of 1994
results from operations reflect the benefits of a company-wide reduction in
force and resulted in cash outflows for severance pay of approximately $1.4
million related to the third quarter 1993 restructuring. Asset write-offs
resulted in $0.6 million of depreciation savings in the first quarter of 1994
related to the third quarter 1993 restructuring. Excess facilities reserves
relate primarily to lease losses for vacated or excess domestic and European
facilities. Cash outflows related to excess facilities were $0.7 million in
the first quarter 1994 related to the third quarter 1993 restructuring.
Operating expense reductions for discontinued product lines related to the
third quarter 1993 restructuring totaled $2.9 million in relation to the 1993
first quarter.
The Company is a named defendant in a patent infringement litigation matter
with a competitor. During the 1993 fourth quarter, the Company established a
reserve to cover its best estimate of the outcome of settlement negotiations.
During the 1994 first quarter, the Company increased its estimate of legal
costs and recorded such increase in General & Administrative Expenses. In
management's opinion, current reserves are adequate to cover the potential
outcome of the dispute.
Liquidity and Sources of Capital:
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Cash and equivalents increased by $2.5 million for the three months ended April
2, 1994. The increase reflects improved operating results which generated $4.4
million in cash, partially offset by the Company's investment in research and
development and productive equipment of $0.4 million and the repayment of
short-term borrowings of $2.1 million.
The Company is a party to long-term leases related to office closings and
vacated domestic and European facilities provided for in the Company's 1993 and
prior restructurings. During the 1994 first quarter, cash of approximately
$1.6 million was used to fund these arrangements. Additional funding of
approximately $4.7 is projected for the remaining quarters of 1994. Such
amounts do not include any benefit or additional cash outlays that may result
from surrendering or sub-leasing any of the facilities since it is uncertain as
to whether any such arrangements can be consummated during 1994. During the
1994 first quarter, cash of approximately $1.8 million was used to fund
severance and other items provided in the 1993 restructuring.
The Company's primary source of liquidity is internally generated funds. The
Company also has existing available secured lines of credit of up to $15.7
million of which $1.4 million was outstanding at the end of the first quarter
of 1994. The total available borrowings consist of a $12 million U.S. credit
facility entered into in June 1992 which expires January 1, 1995, and $3.7
million in a U.K. credit facility. Borrowings under the U.S. credit facility
are secured by all of the Company's domestic assets and are subject to
compliance tests and restrictions. Under these restrictions, at April 2, 1994
the Company had an available borrowing capacity of $9.0 million under the U.S.
credit facility. Additionally, the borrowings under the U.K. credit facility
are secured by all of the Company's U.K. assets and are payable on demand.
The Company's ability to fund its working capital and capital expenditure
requirements, make interest payments on its convertible debentures and other
borrowings and meet its other cash obligations including those arising from its
recent restructurings will depend, among other things, on the continued
availability and compliance with its credit lines. Management believes that
internally generated funds and its available credit lines will provide the
Company with sufficient sources of funds to satisfy its anticipated
requirements in 1994. However, if revenues or margins decrease significantly,
thereby reducing internally generated funds, the Company may 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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8.
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
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(a) There are no exhibits filed with this report.
(b) There were no reports on Form 8-K filed during the Quarter ended
April 2, 1994.
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9.
SIGNATURES
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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
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Robert C. Aldworth
Chief Financial Officer
Date: May 6, 1994
