<PAGE> 1
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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 MARCH 30, 1996
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
300 BAKER AVENUE
CONCORD, MASSACHUSETTS 01742
----------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 287-7000
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.
20,626,069 SHARES OF COMMON STOCK, $1 PAR VALUE, OUTSTANDING APRIL 26,
1996.
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<PAGE> 2
GENRAD, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION:
Consolidated Balance Sheet ................................... 1 - 2
Consolidated Statement of Operations ......................... 3
Consolidated Statement of Cash Flows ......................... 4 - 5
Notes to Consolidated Financial Statements ................... 6
Management's Discussion and Analysis of
Financial Condition and Results of Operation ............... 7 - 10
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K ............................. 11
Signatures ................................................... 12
<PAGE> 3
PART I. FINANCIAL INFORMATION
GENRAD, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
(In thousands)
<CAPTION>
MARCH 30, December 30,
1996 1995
--------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 9,331 $ 8,984
Accounts receivable, net 41,203 39,475
Inventories:
Raw materials 9,927 9,399
Work in process 4,155 1,681
Finished goods 4,219 4,521
------- -------
18,301 15,601
------- -------
Other current assets 4,835 3,332
------- -------
Total current assets 73,670 67,392
------- -------
Property, plant and equipment:
Land 541 541
Buildings 24,461 25,098
Machinery and equipment 59,136 57,248
Service parts 14,839 14,568
------- -------
98,977 97,455
Less: Accumulated depreciation 81,997 82,317
------- -------
16,980 15,138
Deferred tax asset 2,480 -
Goodwill 4,433 -
Other assets 1,693 2,486
======= =======
$99,256 $85,016
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE> 4
GENRAD, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET (CONTINUED)
(In thousands)
<CAPTION>
MARCH 30, December 30,
1996 1995
--------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable $ 7,581 $ 7,497
Accrued liabilities 24,864 20,725
Accrued compensation and
employee benefits 8,123 9,668
Income taxes payable 1,053 735
Current portion long-term debt 500 -
--------- ---------
Total current liabilities 42,121 38,625
--------- ---------
Long-term Liabilities:
Long-term debt 50,703 48,983
Accrued pensions and benefits 11,500 11,969
Future lease costs of unused facilities 6,280 6,620
Other long-term liabilities 3,091 2,576
--------- ---------
Total long-term liabilities 71,574 70,148
--------- ---------
Stockholders' Equity (deficit):
Common stock, $1 par value, 60,000,000
shares authorized; 20,550,000
and 20,105,000 issued and outstanding in
1996 and 1995, respectively 20,550 20,105
Additional paid-in capital 109,334 107,568
Accumulated deficit (141,730) (148,663)
Cumulative translation adjustment (2,593) (2,767)
--------- ---------
Total stockholders' equity (deficit) (14,439) (23,757)
--------- ---------
$ 99,256 $ 85,016
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 5
GENRAD, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 30, April 1,
1996 1995
------------ -----------
<S> <C> <C>
Revenues:
Sales of products $ 33,979 $ 27,630
Sales of services 8,201 8,209
------------ -----------
42,180 35,839
------------ -----------
Cost and expenses:
Cost of products sold 16,588 14,077
Cost of services sold 3,895 4,184
------------ -----------
20,483 18,261
------------ -----------
Gross margin 21,697 17,578
Operating expenses:
Selling, general and administrative 11,691 11,441
Research and development 4,090 3,417
Pension curtailment gain and
restructuring credit - (2,900)
------------ -----------
15,781 11,958
------------ -----------
Operating income 5,916 5,620
Other income (expense):
Interest, net (998) (930)
Other, net 37 71
------------ -----------
(961) (859)
------------ -----------
Income before income taxes 4,955 4,761
Income tax (benefit) provision (1,978) 563
------------ -----------
NET INCOME $ 6,933 $ 4,198
============ ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARES:
Primary $ 0.32 $ 0.21
============ ===========
Fully diluted $ 0.31 $ 0.21
============ ===========
SHARES USED IN COMPUTING EARNINGS PER
COMMON AND COMMON EQUIVALENT SHARES:
Primary 21,774,000 19,942,000
============ ===========
Fully diluted 25,444,000 19,959,000
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 6
GENRAD, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
------------------------
MARCH 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,933 $ 4,198
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation and amortization 1,674 1,295
Reserve for future lease costs of unused facilities (489) (2,387)
Increase (decrease) resulting from changes in operating assets and
liabilities:
Accounts receivable (941) (4,990)
Inventories (3,253) (186)
Trade accounts payable (162) (928)
Income taxes 315 693
Accrued liabilities and customer prepayments 4,361 (1,690)
Accrued compensation and employee benefits (1,944) (2,189)
Deferred tax asset (2,480) -
Prepaid expense (1,418) 217
Other, net 154 799
------- -------
Net cash (used in) provided by operating activities 2,750 (5,168)
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,516) (1,373)
Purchase of Test Technology Associates, Inc. (3,696) -
Proceeds from sale of property, plant and equipment 276 -
Proceeds from sale of assets held for sale - 3,157
------- -------
Net cash (used in) provided by investing activities (4,936) 1,784
------- -------
FINANCING ACTIVITIES:
Net change in notes payable - 650
Proceeds from employee stock plan 2,211 614
------- -------
Net cash provided by financing activities 2,211 1,264
------- -------
EFFECTS OF EXCHANGE RATES ON CASH 322 (166)
------- -------
INCREASE (DECREASE) IN CASH EQUIVALENTS 347 (2,286)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 8,984 7,613
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 9,331 $ 5,327
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 7
GENRAD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
- ------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY:
In conjunction with the purchase of Test Technology Associates, Inc. in the
first quarter of 1996, the Company has a minimum future obligation of $2.0
million which has been classified as current and long-term debt.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 8
GENRAD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACCOUNTING COMMENTS
Reference is made to the registrant's 1995 Annual Report and Form 10-K which
contains, at pages 7 through 34, 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.
Certain reclassifications have been made to the three months ended April 1, 1995
Consolidated Statement of Operations. Within operating expenses, the pension
curtailment gain of $1.9 million was reclassified from Selling, general and
administrative to Pension curtailment gain and restructuring credit.
The results of any interim period are not necessarily indicative of the results
for the entire year.
NOTE 2: ACQUISITION OF TEST TECHNOLOGY ASSOCIATES, INC.
On January 16, 1996, the Company acquired Test Technology Associates, Inc.
("TTA"). Pro forma results of operations have not been presented because the
effects of the acquisition were not significant. TTA provides custom test
programming, test fixture integration and other value-added services to
manufacturers and users of electronic products. TTA, established in 1982, is
located in Lewisville, Texas and Milpitas, California. In May 1996, TTA is
opening an office in Westford, Massachusetts.
The acquisition was accounted for by the purchase method of accounting and was
funded through internally generated funds and short-term borrowings under the
Company's revolving line of credit with a bank. The excess purchase price over
the net assets acquired is being amortized on a straight-line basis over the
lesser of its useful life or 10 years.
6
<PAGE> 9
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 increased to $46.8 million in the
first quarter of 1996 from $38.3 million in the comparable period in 1995. The
orders growth was experienced across all markets and geographies, with the most
significant contributors coming from contract manufacturing, computer
manufacturers, diagnostic customers and major transportation companies.
Backlog at the end of the first quarter in 1996 was $31.8 million compared to
$26.3 million at year-end 1995 and $34.1 million at the end of the 1995 first
quarter. The 1995 first quarter backlog included $6.1 million related to U.S.
Marine Corps which the related revenue was recognized in fiscal 1995. A
substantial portion of the 1996 first quarter backlog is scheduled for shipment
prior to the end of 1996.
Net product and service revenues in the 1996 and 1995 first quarters were $42.2
million and $35.8 million, respectively. The increase between quarters stems
primarily from increased sales in Board Test, GENEVA and Advanced Diagnostic
Solutions (ADS); a new product release; and incremental revenues associated
with the acquisition of TTA. Revenues from international markets accounted for
63% of revenues in the 1996 first quarter as compared to 53% in the comparable
1995 period. The increase in export sales is attributable to the relative
increase in foreign ADS revenues vis-a-vis the decrease in domestic U.S. Marine
Corps revenues. Product and service revenues from international markets are
subject to the risks of currency fluctuations.
Gross margin as a percent of revenues increased to 51.4% in the first quarter of
1996 as compared to 49.0% for the comparable period in 1995. Although margins
continue to be impacted by competitive pricing pressures, the Company's
manufacturing costs have decreased due to increased throughput and engineered
cost reductions.
Selling, general and administrative expenses were $11.7 million in the first
quarter of 1996 as compared to $11.4 million in the comparable 1995 period.
Expenses increased due to the acquisition of TTA in the first quarter of 1996.
Research and development expenses increased in the first quarter of 1996 to $4.1
million as compared to $3.4 million in the comparable period of 1995. As a
percentage of net product and service revenues, research and development
expenses increased slightly to 9.7% in the first quarter of 1996 versus 9.5% in
the comparable period in 1995. The Company continues to invest in new product
development and enhancements to existing products.
On January 31, 1995, the Company ceased all benefit accruals under the Company's
domestic noncontributory defined benefit pension plan as a part of redesigning
of the Company's domestic employee plans. This change resulted in the Company
recognizing a curtailment gain of $1.9 million in the first quarter of 1995.
7
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OPERATING RESULTS (CONTINUED)
- -----------------------------
As part of a 1993 restructuring, the Company established a reserve for
discontinued product lines. As a result of the sale of Structural Test Products
(STP) Division in March 1995, $1.0 million of the reserve was reversed in the
first quarter of fiscal 1995.
Interest expense, net remained virtually unchanged for the first quarter of 1996
as compared to the comparable period in 1995.
The income tax provision of $.5 million in the first quarter of 1996 represents
foreign and state income taxes. Income taxes decreased in the first quarter of
1996 as compared to the comparable period in 1995 due to a decreased level of
estimated foreign taxable income.
Due to management's improved expectations of future income and the expected
utilization of the Company's domestic net operating loss carryforwards, net
income for the first quarter of 1996 includes the benefit of a reduction in the
valuation allowance for deferred tax assets of $2.5 million. At March 30, 1996,
the Company had a gross deferred tax asset of approximately $77.2 million with a
valuation allowance of approximately $73.3 million. Management will continue to
assess the realizability of the deferred tax asset based on actual and
forecasted operating results.
As a result of the above, the Company reported net income of $6,933,000 for the
first quarter of 1996 as compared to $4,198,000 for the comparable period in
1995.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
Cash and equivalents increased $347,000 for the three months ended March 30,
1996 as compared to a decrease in cash of $2.3 million for the comparable period
in the first quarter of 1995.
In the first quarter of 1996, net income provided $6.9 million which included a
$2.5 million non-cash benefit resulting from the deferred tax asset that was
recorded in the first quarter of 1996.
Working capital changes for the three months ended March 30, 1996 used cash of
$3.3 million. Inventory and accounts receivable increases were offset by
increases in accrued liabilities. However, the payment of 1995 incentive
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND SOURCES OF CAPITAL (CONTINUED)
- --------------------------------------------
compensation reduced cash by $1.9 million while increases in prepaid expenses
for annual maintenance agreements and property taxes used cash of $1.4 million.
The 1996 first quarter capital expenditures of $1.5 million were offset by
depreciation expense of $1.7 million and were principally for equipment used in
research and development and manufacturing. Capital expenditure commitments were
not significant at March 30, 1996.
The acquisition of TTA used $3.6 million in cash while the proceeds from stock
option exercises generated $2.2 million of cash in the first quarter of 1996.
The Company's primary source of liquidity is internally generated funds. The
Company also has existing available secured lines of credit up to $14.2 million,
against which there were no borrowings outstanding on March 30, 1996. The U.S.
credit facility was entered into in June 1992 and expires on December 31, 1996.
The total U.S. available credit line is $12.0 million and is secured by all of
the Company's domestic assets. The total U.K. available credit line of $2.2
million is payable on demand and is secured by all of the Company's U.K. assets.
Management is in the process of securing new lines of credit and anticipates
that the necessary financing will be in place by the end of fiscal 1996.
Borrowings under the credit facilities are subject to compliance with specified
financial and operating covenants.
The terms of the Company's 7 1/4% Convertible Subordinated Debentures require
the Company to make annual sinking fund payments of $2.875 million commencing in
May 1996. As a result of the Company having repurchased $7.5 million of the
Debentures during 1990, the Company intends to use the previous repurchase in
lieu of sinking fund payments and defer the initiation of such payments until
1998.
In 1996, the Company anticipates it will fund its working capital and capital
expenditure requirements, make interest payments on its convertible debentures
and other borrowings and meet its other cash obligations from internally
generated funds and available credit facilities. If there is a significant
reduction in internally generated funds or available credit facilities, the
Company may require significant funds from outside financing sources. In such an
event, there can be no assurance that the Company would be able to obtain such
funding as and when required, or on acceptable terms.
The Company buys and sells foreign currencies using forward contracts intended
to hedge payables and receivables denominated in foreign currencies. The Company
primarily trades in U.S. dollars and European currencies. At March 30, 1996, the
Company had forward exchange contracts to sell approximately $12.3 million of
foreign currencies.
Inflation during the periods presented did not have a significant effect on the
operations of the Company. The Company attempts to mitigate inflationary cost
increases by continuously improving manufacturing methods and technologies.
9
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
- --------------------------------------
The Company's future operating results are dependent upon the Company's ability
to develop, manufacture and market technologically innovative products that meet
customers needs, fund its working capital, capital expenditure and financing
requirements and meet its cash obligations, including those arising from past
restructurings.
The market for the Company's products is characterized by rapid technological
change, evolving industry standards, changes in customers needs, and frequent
new product introductions and is therefore highly dependent on timely product
innovation. Competition in the markets in which the Company operates is intense.
The introduction by the Company or its competitors of products embodying new
technology or the emergence of new industry standards or practices could render
the Company's existing products obsolete or otherwise unmarketable. The
Company's ability to develop and market products and services that successfully
meet changing market needs will impact future results. A portion of future
revenues will come from new products and services. The Company cannot determine
the ultimate effect that new products and services will have on revenues,
earnings and stock price.
The Company is dependent upon a number of suppliers for several key components
of its products. The loss of certain of the Company's suppliers or substantial
price increases imposed by suppliers could have a material adverse effect on the
Company.
The Company is exposed to risks inherent in international trade and operations
as a result of its international sales and the operation of its manufacturing
facility in Manchester, England. Such trade and operations expose the Company to
continuing risks such as unpredictable and potentially inconsistent regulatory
requirements, political and economic changes, tariffs or other trade
restrictions, transportation delays, foreign currency fluctuations and labor
disruptions.
The Company may be subject to patent or product liability claims in the future.
A successful claim brought against the Company in excess of available insurance
coverage or any claim that results in significant adverse publicity may have a
material adverse effect on the Company's competitive position, financial
condition, results of operations or liquidity. In the opinion of management,
the amount of ultimate liability with respect to any pending legal proceedings
will not materially affect the results of operations or the financial position
of the Company.
10
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 11. Statement re: Computation of Earnings Per Share.
(b) There were no reports on Form 8-K filed during the Quarter ended
March 30, 1996.
11
<PAGE> 14
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/ DANIEL F. HARRINGTON
------------------------
DANIEL F. HARRINGTON
VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
Date: May 7, 1996
12
<PAGE> 1
EXHIBIT 11
GENRAD, INC. AND SUBSIDIARIES
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
--------------------------
MARCH 30, April 1,
1996 1995
----------- -----------
<S> <C> <C>
Primary:
- --------
Weighted average number of
shares outstanding 20,265,000 19,486,000
Shares deemed outstanding from
the assumed exercise of stock options 1,509,000 456,000
----------- -----------
Total: 21,774,000 19,942,000
=========== ===========
Earnings applicable to common shares $ 6,933,000 $ 4,198,000
=========== ===========
Earnings per share of common stock $ 0.32 $ 0.21
=========== ===========
Fully Diluted:
- --------------
Weighted average number of
shares outstanding 20,265,000 19,486,000
Shares deemed outstanding from
the assumed exercise of stock options 1,701,000 473,000
Assumed conversion of 7 1/4% convertible
subordinated debentures 3,478,000 -
----------- -----------
Total: 25,444,000 19,959,000
=========== ===========
Earnings applicable to common shares $ 6,933,000 $ 4,198,000
Assumed reduction of 7 1/4% convertible
subordinated debenture interest expense 933,000 -
----------- -----------
Adjusted earnings applicable to common shares $ 7,866,000 $ 4,198,000
=========== ===========
Earnings per share of common stock $ 0.31 $ 0.21
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<EXCHANGE-RATE> 1
<CASH> 9,331
<SECURITIES> 0
<RECEIVABLES> 42,030
<ALLOWANCES> (827)
<INVENTORY> 18,301
<CURRENT-ASSETS> 73,670
<PP&E> 98,977
<DEPRECIATION> 81,997
<TOTAL-ASSETS> 99,256
<CURRENT-LIABILITIES> 42,121
<BONDS> 50,703
<COMMON> 20,550
0
0
<OTHER-SE> (34,989)
<TOTAL-LIABILITY-AND-EQUITY> 99,256
<SALES> 33,979
<TOTAL-REVENUES> 42,180
<CGS> 16,588
<TOTAL-COSTS> 20,483
<OTHER-EXPENSES> 15,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 998
<INCOME-PRETAX> 4,955
<INCOME-TAX> (1,978)
<INCOME-CONTINUING> 6,933
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,933
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>
