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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 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 01742-2174
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 287-7000
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
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 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. [ ]
The aggregate market value of shares held by non-affiliates of the
registrant as of February 5, 1997 was $496,248,954. 26,118,366 shares of the
Common Stock of GenRad, Inc., $1 par value, were outstanding on February 5,
1997.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Proxy Statement of GenRad, Inc. for the Annual Meeting of
Shareholders to be held on May 8, 1997 (the "1997 Proxy Statement"), which
will be filed with the Securities and Exchange Commission within 120 days
after the close of the Company's fiscal year ended December 28, 1996, are
incorporated by reference into Part III.
2. Portions of the Annual Report to Shareholders for the year ended December
28, 1996 (the "1996 Annual Report"), are incorporated by reference into
Part II and Part IV.
Exhibit Index on page 6
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<PAGE>
PART I
Item 1. Business
GenRad, Inc. (the "Company" or "GenRad") commenced operations as a corporation
in June 1915. The Company is a leading worldwide supplier of integrated test,
measurement and diagnostic solutions for the manufacture and maintenance of
electronic products. The Company offers products and services in three core
business areas: Electronic Manufacturing Systems, Advanced Diagnostic Solutions
and Integrated Customer Services.
The following table sets forth for the fiscal years ended December 28, 1996
("fiscal 1996"), December 30, 1995 ("fiscal 1995") and December 31, 1994
("fiscal 1994"), the percentage of net revenues represented by its three core
businesses.
1996 1995 1994
---- ---- ----
(1) Electronic Manufacturing Systems 73% 79% 82%
(2) Advanced Diagnostic Solutions 23% 21% 18%
(3) Integrated Customer Services 4% - -
(1) ELECTRONIC MANUFACTURING SYSTEMS
GenRad's electronic manufacturing systems, previously referred to as Concord
Products, is comprised of the following products, each of which is developed and
manufactured at the Company's Concord, Massachusetts facility.
Board Test
The core board test products include the GR228X product families and are used to
test printed-circuit boards, which are used in virtually all electronic
products, during their manufacturing process. These systems sell for prices
ranging from under $100,000 to over $700,000.
GENEVA(TM) Test and Measurement Systems
GenRad's Extended VXI Architecture ("GENEVA") is a combined hardware and
software test and measurement system that uses the industry standard VXIbus for
instrument control. GenRad's extension adds a scanner bus above the instruments
to solve the signal interconnect problems not addressed by VXI. The Company has
a patent for this VXIScan (TM) architectural extension. The GENEVA architecture
is capable of addressing the needs of a wide range of test and measurement
system applications.
GenRad has four products based upon GENEVA, including the GR9000 and GR3000
primarily used by communications companies for end of line compliance testing.
Other GENEVA products include the GR5000. In 1995, GenRad expanded its family of
GENEVA products to include GR2000, designed for manufacturers with testing needs
that are low to moderate in complexity.
(2) ADVANCED DIAGNOSTIC SOLUTIONS ("ADS")
ADS develops and produces diagnostic systems for the detection of electrical and
electronic failures on motor vehicles and other products. ADS also designs,
manufactures and provides worldwide service and support for all of its products.
Applications support is provided to write test programs specific to customer
requirements. Pricing of products, including software, varies based on customer
specifications.
(3) INTEGRATED CUSTOMER SERVICES
This new business unit was formed in 1996 as a result of the acquisition of Test
Technology Associates, Inc. on January 16, 1996 and Testware, Inc. on November
8, 1996. This unit provides programming services, fixturing and on-site training
and support to owners of in-circuit and functional testers throughout the United
States and Europe.
PRINCIPAL MARKETS
GenRad's principal customers are manufacturers in the following industries:
transportation, contract manufacturing, computer/peripherals and communications.
GenRad has government contracts which are generally subject to termination at
the convenience of the government. Sales to agencies of the United States
Government amounted to 2% of consolidated revenues in 1996. Sales to Ford of
Europe amounted to 15% of consolidated revenues in 1996.
SALES, SERVICE AND DISTRIBUTION
GenRad sells and services its products primarily through its own sales and
service organizations consisting of sales offices and service centers located in
the United States, the United Kingdom, Germany, France, Switzerland, Italy and
Singapore. Sales or service elsewhere is provided through independent
representatives to whom GenRad provides technical and administrative assistance.
2
<PAGE>
SUPPLIERS
Materials and components used by GenRad in manufacturing its products are
available primarily from domestic sources. Where possible, GenRad buys from
multiple sources to avoid dependence on any single supplier. However, certain
microcomputers, microprocessors, general-purpose digital computers and custom
semiconductor devices are only available from a limited number of suppliers.
FOREIGN OPERATIONS
GenRad's operations abroad consist of selling, marketing, distributing and
servicing products, providing other types of customer support services such as
software development and manufacturing of diagnostic systems. GenRad is subject
to the usual risks of international trade, including unfavorable economic
conditions, political instability, restrictive trade policies, controls on funds
transfers and foreign currency fluctuations.
During fiscal year 1996, sales in foreign countries were $101,136,000 or 55% of
GenRad's total sales, compared with $92,019,000, or 58%, during fiscal year
1995, and $87,229,000, or 59%, during fiscal year 1994. Additional information
regarding GenRad's foreign operations is contained in the Consolidated Financial
Statements incorporated in Item 8 of this report.
BACKLOG
Backlog at the end of 1996 was approximately $24,662,000 as compared to
approximately $26,330,000 at year-end 1995. Most orders are filled within three
months of receipt. The Company believes that a substantial portion of the 1996
backlog will be recognized as revenue during the first quarter of 1997. Although
orders are subject to cancellation by purchasers, GenRad's experience has been
that cancellations are not material.
COMPETITIVE CONDITIONS
Competition, from both U.S. and foreign competitors, is strong and active. Some
of these competitors are substantially larger companies with greater resources.
For example, the Company competes with Hewlett-Packard and Teradyne in its
Electronic Manufacturing Systems business and with Hewlett-Packard in its ADS
business. Typically, GenRad meets competition by carefully selecting its markets
and by developing its products to meet the needs of each group of customers.
Primary competitive factors are product performance, customer specific
applications engineering, customer support services and pricing. The electronic
manufacturing systems market is subject to rapid change, and success is
dependent on the development of new technologies and new product introductions.
A key competitive advantage for GenRad is the Company's broad and integrated
product family and its extensive software capabilities.
RESEARCH AND DEVELOPMENT
GenRad's expenditures for the development of new products and services, and the
improvement of existing products and services, were $16,491,000 in fiscal 1996,
$15,717,000 in fiscal 1995, and $14,649,000 in fiscal 1994. The expenditures
were primarily for staffing and related expenses for the development of
electronic manufacturing test and of advanced diagnostic solutions systems and
software products.
PATENTS AND TRADEMARKS
GenRad seeks patents in the United States and appropriate foreign countries for
significant technological inventions. GenRad also owns patents, copyrights,
trademarks and proprietary information, some of which are considered to be
valuable assets. In the opinion of management, no individual patent, copyright,
trademark or proprietary information is material to the business as a whole.
ENVIRONMENT
GenRad's manufacturing facilities are subject to numerous laws and regulations
designed to protect the environment. GenRad does not anticipate that compliance
with such laws or regulations presently in effect will adversely affect its
capital expenditures, earnings or competitive position. GenRad does not expect
to make any material expenditures for environmental control facilities in the
current fiscal year.
EMPLOYEES
GenRad had 1,239 employees, including contract employees, on December 28, 1996,
and 1,138 employees on December 30, 1995. None of GenRad's employees are covered
by collective bargaining agreements, and GenRad believes relations with its
employees are good.
3
<PAGE>
EXECUTIVE OFFICERS OF GENRAD
Name Age Office
---- --- ------
James F. Lyons 62 President, Chief Executive Officer
Kevin R. Cloutier 34 Vice President, General Manager, Electronic
Manufacturing Systems
Paul Geere 42 Vice President, Managing Director, Advanced
Diagnostic Solutions
Sarah H. Lucas 37 Vice President, Chief Strategic Officer
Paul Pronsky, Jr. 55 Vice President, Chief Financial Officer and
Secretary
Michael W. Schraeder 40 Vice President, Worldwide Sales and Service
Walter A. Shephard 43 Treasurer and Clerk
All officers are elected by the Board of Directors (the "Directors"). Elected
officers hold office until the first meeting of the Directors following the
Annual Meeting of Shareholders (the "Annual Meeting") and thereafter until a
successor is chosen and qualified. There are no family relationships among the
officers and/or directors.
James F. Lyons joined the Company as President, Chief Executive Officer in July
1993. From January 1992 until July 1993, Mr. Lyons served as President and Chief
Executive Officer of Harry Gray Associates, a global investment and management
consulting organization specializing in acquisitions and leveraged buyouts.
Kevin R. Cloutier was elected Vice President, General Manager, Electronic
Manufacturing Systems in November 1996. Mr. Cloutier has been employed by the
Company for 13 years. From September 1995 to November 1996, he served as General
Manager of GenRad's Board Test Division. From December 1994 to September 1995,
Mr. Cloutier held the position of Southern Regional Sales Manager. From April
1993 to November 1994, Mr. Cloutier served as Executive Sales Engineer. From
January 1992 to March 1993, Mr. Cloutier held the position of Senior Account
Manager.
Paul Geere was elected Vice President, Managing Director, Advanced Diagnostic
Solutions in May 1996. From September 1995 to May 1996, Mr. Geere was Managing
Director of GenRad's Advanced Diagnostic Solutions division in Manchester,
England. From November 1989 to January 1995, Mr. Geere worked in Management
Consultancy for Coopers & Lybrand in its London office.
Michael W. Schraeder was elected Vice President, Worldwide Sales and Service in
November 1996. Mr. Schraeder has been employed in various sales positions with
the Company for 17 years. From March 1995 to November 1996, Mr. Schraeder served
as Vice President, Sales and Service for the Americas. From April 1992 to
February 1995, Mr. Schraeder held the position of Eastern Regional Sales
Manager. From April 1991 to March 1992, Mr. Schraeder was District Sales Manager
for the Southeastern Region.
Paul Pronsky, Jr. was elected Vice President, Chief Financial Officer and
Secretary in December 1996. From April 1992 to November 1996, Mr. Pronsky was a
Partner in NorthEast Ventures, a business consulting and venture investment
management organization. From June 1987 to March 1992, Mr. Pronsky held senior
financial and general management positions at United Technologies Corporation,
including Vice President, Controller of Pratt & Whitney's Commercial Engine
Business, and Vice President, Finance and Administration of Otis Elevator
Company's North American Operations.
Sarah H. Lucas was elected Vice President, Chief Strategic Officer in October
1995. From January 1994 to October 1995, Ms. Lucas was GenRad's Vice President,
Strategic Planning and Analysis. From July 1990 to January 1994, Ms. Lucas
served as an Associate Consultant within McKinsey & Company, a management
consulting firm.
Walter A. Shephard was elected Treasurer in February of 1991. Mr. Shephard has
been employed by the Company for 13 years. From May 1987 to January 1991, Mr.
Shephard was the Company's Assistant Treasurer.
Item 2. Properties
On July 26, 1996, the Company entered into a 15-year lease to relocate its
corporate headquarters and domestic manufacturing facility to Westford,
Massachusetts. The buildings are 230,000 square feet on 9 acres of land. The
lease is expected to begin in June 1997, the estimated completion of the
construction of the facility.
In October 1996, the Company's European subsidiary entered into a 15-year lease
commitment at its new Orion Business Park facility located in Manchester,
England. The building is 75,000 square feet on 4 acres of land.
On December 16, 1996, the Company sold its 450,000 square foot headquarters on
77 acres of land. The facility is being subleased until the new headquarters in
Westford, Massachusetts is complete.
4
<PAGE>
In addition, GenRad engages in research, design, manufacturing or marketing
operations in leased facilities in eight states in the United States and in six
foreign countries. In the opinion of management, all of GenRad's properties are
well maintained.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrants' Common Stock and Related Shareholder Matters
The information set forth in Exhibit 13, under the captions "Supplementary
Information" and "Investors' Reference Guide", which is the same as the
information set forth on pages 40 and 41 of GenRad's 1996 Annual Report, is
incorporated by reference.
During fiscal 1996, the Company completed the acquisition of two companies which
involved the issuance of shares of its Common Stock. On June 20, 1996 the
Company acquired by merger all of the outstanding shares of stock of Mitron
Corporation in exchange for 1,196,000 shares of the Company's Common Stock which
were issued to the stockholders of Mitron Corporation. On November 8, 1996 the
Company acquired by merger all of the outstanding shares of stock of Testware,
Inc. in exchange for 80,000 shares of the Company's Common Stock which were
issued to the stockholders of Testware, Inc. The issuance of the Company's
Common Stock in both transactions was exempt from the registration requirements
of the Securities Act of 1993, as amended, pursuant to Regulation D thereunder.
The Company relied in part on representations of the stockholders of the
acquired companies in determining that such exemptions were available. Neither
transaction involved any underwriters.
Item 6. Selected Financial Data
The information set forth in Exhibit 13, under the caption "Selected Financial
Data, Five Year Summary," which is the same as the information set forth under
that caption on page 15 of GenRad's 1996 Annual Report, is incorporated by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth in the Consolidated Financial Statements in Exhibit
13, which is the same information set forth in Consolidated Financial Statements
on pages 16 through 20 of GenRad's 1996 Annual Report, is incorporated by
reference.
Item 8. Financial Statements and Supplementary Data
The information set forth in the Consolidated Financial Statements and the
Supplementary Information in Exhibit 13, which is the same information set forth
in the Consolidated Financial Statements and Supplementary Information of
GenRad's 1996 Annual Report, is incorporated by reference.
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
The information set forth under "Executive Officers of GenRad, Inc." in Part I
of this report and in Item 1 of the 1997 Proxy Statement, is hereby incorporated
by reference.
Item 11. Executive Compensation
The information set forth under "Compensation of Executives and Directors" in
the 1997 Proxy Statement, is hereby incorporated by reference.
5
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under "Certain Shareholders" and "Election of
Directors" in the 1997 Proxy Statement, is hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) The following Consolidated Financial Statements of GenRad, Inc. and
Subsidiaries, which are the same as the Consolidated Financial
Statements in GenRad's 1996 Annual Report, are incorporated by
reference in Exhibit 13:
A. Consolidated Statement of Operations.
B. Consolidated Balance Sheet.
C. Consolidated Statement of Stockholders' Equity (Deficit).
D. Consolidated Statement of Cash Flows.
E. Notes to Consolidated Financial Statements.
(a)(2) The following schedules to the Consolidated Financial Statements of
GenRad, Inc. and Subsidiaries are filed as part of this report:
A. Report of Independent Accountants - Arthur Andersen LLP
B. Schedule II - Valuation and Qualifying Accounts
All other schedules not listed above are inapplicable or are not required under
Securities and Exchange Commission regulations and therefore have been omitted.
(a)(3) The following Exhibits are filed as part of this report:
10 -- Lease agreement dated July 26, 1996 between GenRad, Inc. and
Michelson Farm-Westford Technology Park Trust, incorporated by
reference to Exhibit 10 to the Company's report on Form 10-Q
for the quarter ended June 29, 1996.
11 -- Computation of Per Share Earnings, attached.
13 -- GenRad, Inc. portions of Annual Report to Shareholders for
fiscal year ended December 28, 1996, attached.
21 -- List of Subsidiaries, attached.
23.1 -- Consent of Price Waterhouse LLP, attached.
23.2 -- Consent of Arthur Andersen LLP, attached
27 -- Financial Data Schedule, attached.
(b) None
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(1) and (2) above.
6
<PAGE>
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 duly authorized.
GenRad, Inc.
(REGISTRANT)
By: /s/ JAMES F. LYONS
-------------------
James F. Lyons
President and Chief
Executive Officer
Date: March 10, 1997
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 dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
(1) Principal executive officer
/s/ JAMES F. LYONS President and Chief Executive Officer March 10, 1997
- -------------------------------------
James F. Lyons
(2) Principal financial officer:
/s/ PAUL PRONSKY, JR. Vice President, Chief Financial Officer March 10, 1997
- ------------------------------------- and Secretary
Paul Pronsky, Jr.
(3) Principal accounting officer:
/s/ PAUL PRONSKY, JR. Vice President, Chief Financial Officer March 10, 1997
- ------------------------------------- and Secretary
Paul Pronsky, Jr.
(4) A majority of the Board of Directors:
/s/ WILLIAM S. ANTLE III Director March 10, 1997
- -------------------------------------
William S. Antle III
/s/ RUSSELL A. GULLOTTI Director March 10, 1997
- -------------------------------------
Russell A. Gullotti
/s/ LOWELL B. HAWKINSON Director March 10, 1997
- -------------------------------------
Lowell B. Hawkinson
/s/ JAMES F. LYONS Director March 10, 1997
- -------------------------------------
James F. Lyons
/s/ RICHARD G. ROGERS Director March 10, 1997
- -------------------------------------
Richard G. Rogers
/s/ WILLIAM G. SCHEERER Director March 10, 1997
- -------------------------------------
William G. Scheerer
/s/ ADRIANA STADECKER Director March 10, 1997
- -------------------------------------
Adriana Stadecker
/s/ ED ZSCHAU Director March 10, 1997
- -------------------------------------
Ed Zschau
</TABLE>
7
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
Stockholders and Board of Directors
of GenRad, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements as of December 31, 1994 and January 1, 1994
for the years then ended, included in GenRad, Inc.'s annual report to
shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated February 8, 1995 (except for Note 14 for which the date is
March 2, 1995). Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The schedule listed in the accompanying index
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. This 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.
/S/ ARTHUR ANDERSEN LLP
-------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 8, 1995
8
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
==========================================================================================================================
Col. A Col. B Col. C Col. D Col. E
- --------------------------------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
==========================================================================================================================
<S> <C> <C> <C> <C>
Year ended December 28, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 801 $ 963 $ 333 $ 1,431
Inventory reserve $10,238 $3,483 $ 4,885 $ 8,836
Deferred tax asset valuation allowance $76,710 $ --- $10,032 $ 66,678
Year ended December 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,316 $ --- $ 515 $ 801
Inventory reserve $12,659 $1,387 $ 3,808 $ 10,238
Deferred tax asset valuation allowance $80,170 $ --- $ 3,460 $ 76,710
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,462 $ 516 $ 662 $ 1,316
Inventory reserve $11,332 $2,728 $ 1,401 $ 12,659
Deferred tax asset valuation allowance $80,959 $ --- $ 789 $ 80,170
</TABLE>
9
EXHIBIT 11
GENRAD, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
------------------------------------- -----------------------------------
December 28, December 30, December 28, December 30,
1996 1995 1996 1995
---------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
PRIMARY:
Weighted average number of
shares outstanding 24,474,000 21,140,000 22,488,000 20,869,000
Shares deemed outstanding from
the assumed exercise of stock options 2,260,000 1,492,000 1,730,000 1,143,000
----------- ---------- ----------------- -----------
Total: 26,734,000 22,632,000 24,218,000 22,012,000
=========== ========== ================= ===========
Net income and total earnings applicable to
common and common equivalent shares $9,665,000 $3,207,000 $ 27,335,000 $12,271,000
=========== ========== ================= ===========
Net income per common and common
equivalent shares $0.36 $0.14 $1.13 $0.56
=========== ========== ================= ===========
FULLY DILUTED:
Weighted average number of
shares outstanding 24,474,000 21,140,000 22,488,000 20,869,000
Shares deemed outstanding from
the assumed exercise of stock options 2,607,000 1,713,000 2,584,000 1,713,000
Assumed conversion of 7 1/4% convertible
subordinated debentures 1,491,000 - 2,981,000 -
----------- ---------- ----------------- -----------
Total: 28,572,000 22,853,000 28,053,000 22,582,000
=========== ========== ================= ===========
Net income $9,665,000 $3,207,000 $ 27,335,000 $12,271,000
Assumed deduction of 7 1/4% convertible
subordinated debenture interest expense 480,000 - 3,131,000 -
----------- ---------- ----------------- -----------
Total earnings applicable to common shares
and common equivalent shares $10,145,000 $3,207,000 $ 30,466,000 $12,271,000
=========== ========== ================= ===========
Net income per common and common
and common equivalent shares $0.36 $0.14 $1.09 $0.54
=========== ========== ================= ===========
</TABLE>
10
EXHIBIT 13
11
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Selected Financial Data
Five Year Summary
- --------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share amounts and number of employees)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net product and service sales $ 183,545 $ 158,753 $ 147,903 $ 161,868 $ 144,177
Gross margin 96,408 76,822 69,407 69,153 64,914
Operating income (loss) 25,856 16,369 8,657 (39,623) ( 4,214)
Net income (loss) $ 27,335 $ 12,271 $ 4,512 $ (43,957) $ ( 7,685)
Net income (loss) per common and
common equivalent share:
Primary $ 1.13 $ .56 $ .22 $ ( 2.39) $ ( .43)
Fully diluted $ 1.09 $ .54 $ .22 $ ( 2.39) $ ( .43)
Balance sheet:
Current ratio 2.7 1.7 1.3 1.2 1.7
Total assets $ 115,765 $ 87,406 $ 81,816 $ 78,997 $ 101,832
Long-term debt 146 49,073 48,955 48,990 48,958
Stockholders' equity (deficit) $ 63,680 $ (23,238) (37,788) $ (44,829) $ (4,713)
Other data:
Number of employees* 1,239 1,138 1,137 1,216 1,393
Weighted average common and
common equivalent shares used in
computing per share amounts
Primary 24,218 22,012 20,572 18,382 18,048
Fully diluted 28,053** 22,582 20,764 18,382 18,048
</TABLE>
* Includes contract employees.
**The computation of fully diluted earnings per share includes the 7 1/4%
subordinated debentures as common equivalent shares for the entire year.
15
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Operating Results
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of net
sales represented by certain items in the Company's Consolidated Statement of
Operations.
- -------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------
Net product and service sales 100.0% 100.0% 100.0%
Cost of products and services sold 47.5 51.6 53.1
- -------------------------------------------------------------------------------
Gross margin 52.5 48.4 46.9
Selling, general and administrative expenses 29.4 30.0 31.2
Research and development 9.0 9.9 9.9
Restructuring credit -- ( 1.8) --
- -------------------------------------------------------------------------------
Operating income 14.1 10.3 5.8
Other expense ( 0.1) ( 2.3) ( 2.1)
Income tax benefit (provision) .9 ( 0.3) ( 0.7)
- -------------------------------------------------------------------------------
Net income 14.9% 7.7% 3.0%
==========================
OPERATING RESULTS - 1996 VS. 1995
Orders for the Company's products and services increased to $180.7 million for
the twelve months ended December 28, 1996, compared to $153.4 million for the
comparable period in 1995. The increase in orders between the periods resulted
from the strong demand in all aspects of the Company's business, including
strong demand from contract manufacturing, computer manufacturers, diagnostic
customers, and transportation customers in the North American and Asian markets,
as well as from the acquisition of Test Technology Associates, Inc. ("TTA") and
Testware, Inc. ("Testware"). Backlog at the end of 1996 was $24.7 million
compared to $26.3 million at year-end 1995. The Company believes that a
substantial portion of the 1996 backlog will be recognized as revenue during the
first quarter of 1997.
Net product and service sales were $183.5 million for the twelve months ended
December 28, 1996, as compared to $158.8 million for the comparable period in
1995. The increase is due to increased sales in Electronic Manufacturing Systems
and Advanced Diagnostic Solutions; new product introductions; and incremental
sales associated with the acquisition of TTA and Testware. Partially offsetting
these increases were decreasing sales from the MCATES contract for the U.S.
Marine Corps, a $29.3 million contract. Sales for the MCATES contract were $1.1
million for the twelve months ended December 28, 1996 as compared to $9.3
million for the comparable period in 1995.
Sales from international markets accounted for 55% of sales for the twelve
months ended December 28, 1996, as compared to 58% for the comparable period in
1995. Product and service sales from international markets are subject to the
risks of currency fluctuations.
Product gross margin as a percent of sales increased to 55.3% for the twelve
months ended December 28, 1996, as compared to 49.0% for the comparable period
in 1995. Product margin improvements resulted from a combination of new product
offerings which yielded higher gross margins, continued improvements in
controlling manufacturing costs that commenced in 1993, and a reduction of
warranty costs.
16
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Operating Results
- --------------------------------------------------------------------------------
OPERATING RESULTS - 1996 vs. 1995 (continued)
Service gross margins as percent of sales decreased to 42.3% for the twelve
months ended December 28, 1996 as compared to 46.4% for the comparable period in
1995. Service margins were impacted by customer funded development at a lower
margin and continuing competitive pricing pressures in the maintenance business.
Selling, general and administrative expenses increased for the twelve months
ended December 28, 1996 to $54.1 million from $47.6 million in the comparable
period of 1995. The increase in expenses is due primarily to increased selling
expenses associated with increased orders, additional expenses from the newly
acquired TTA and Testware subsidiaries and start-up expenses incurred to support
new product offerings. Additionally, in 1995 the Company resolved all legal
issues and settled patent infringement litigation with a competitor. The
settlement resulted in the elimination of previously established reserves and
reduced selling, general and administrative expenses by $1.3 million in 1995.
Research and development expenses increased for the twelve month period ended
December 28, 1996 to $16.5 million from $15.7 million in the comparable period
in 1995. In the fourth quarter of 1996, the Company capitalized $1.2 million of
software development costs in accordance with Statement of Accounting Standards
No. 86 (SFAS 86), "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed". As a percentage of net product and service sales,
research and development expenses prior to capitalization of software
development costs decreased to 9.6% for the twelve months ended December 28,
1996 versus 10.0% for the comparable period in 1995. The Company continues to
invest in new product development and enhancements to existing products and
expects research and development to continue at approximately the same
percentage of sales as compared to prior fiscal years.
During 1996, interest expense was $4.6 million as compared to $4.0 million for
the comparable period in 1995. The Company recorded $1.0 million of expense in
the fourth quarter of 1996 to obtain short-term financing for the redemption of
all of its 7 1/4% convertible subordinated debentures, which was not utilized,
and to replace its $15 million secured credit facilities with a $25 million
unsecured credit facility. This was offset by interest savings of $0.4 million
in the fourth quarter of 1996 due to the redemption of these debentures.
As part of a 1993 restructuring, the Company established a reserve for
discontinued product lines. As a result of the sale of one such product line in
March 1995, $1.0 million of the reserve was reversed in 1995.
On January 31, 1995, the Company ceased all benefit accruals under the Company's
domestic noncontributory defined benefit pension plan as part of its redesigning
of the Company's domestic employee benefit plans. This change resulted in the
Company recognizing a curtailment gain of $1.9 million in 1995. In 1996, the
gain was reclassified from selling, general and administrative to restructuring
credit and pension curtailment gain in the Consolidated Statement of Operations.
In 1996 the Company incurred severance costs of $2.6 million as compared to $3.9
million in 1995. The severance costs were reflected in the Company's 1996 and
1995 consolidated statement of operations, respectively, as follows: costs of
products and services sold, $0.7 million and $1.2 million; selling, general and
administrative, $1.7 million and $2.1 million; and research and development,
$0.2 million and $0.6 million.
Other net income increased to $4.3 million in 1996 from $0.1 million in 1995.
The Company realized a $4.0 million gain from the sale of property, plant and
equipment. Other net income also includes foreign currency exchange gains and
other miscellaneous expenses of $0.3 million.
A net income tax benefit of $2.5 million was recorded in the first quarter of
1996. The benefit represents a reduction in the valuation allowance for deferred
taxes and was recorded due to management's improved expectations of future
income and expected utilization of the Company's domestic net operating loss
carryforwards in 1997. Excluding the $2.5 million income tax benefit, the income
tax provision of $0.8 million for the twelve months ended December 28, 1996
increased by $0.3 million from the comparable period in 1995.
17
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Operating Results
- --------------------------------------------------------------------------------
OPERATING RESULTS - 1996 vs. 1995 (continued)
Although pretax profitability increased substantially for the twelve months
ended December 28, 1996, GenRad's annualized effective tax rate, excluding the
$2.5 million income tax benefit, decreased due to higher profits in the U.S. as
compared to Europe.
The 1996 income tax expense represents U.S. and foreign income taxes. At
December 28, 1996, the Company had a net deferred tax asset of $69.2 million
with a valuation allowance of $66.7 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 $27.3 million for
the twelve months ended December 28, 1996 as compared to net income of $12.3
million for the comparable period in 1995.
OPERATING RESULTS - 1995 VS. 1994
Orders for the Company's products and services decreased to $153.4 million for
the twelve months ended December 30, 1995, compared to $160.5 million for the
comparable period in 1994. The 1994 orders benefited from a $12.2 million MCATES
order from the U.S. Marine Corps.
Backlog at the end of 1995 was $26.3 million compared to $31.7 million at
year-end 1994. Backlog relating to the MCATES order at the end of 1995 was $1.1
million compared to $9.1 million at the end of 1994.
Net product and service sales were $158.8 million for the twelve months ended
December 30, 1995, as compared to $147.9 million for the comparable period in
1994. The increase for the twelve months ended December 30, 1995 is primarily
due to increased sales of approximately $7.5 million derived from contracts with
MCATES and Ford of Europe.
Sales from international markets accounted for 58% of sales for the twelve
months ended December 30, 1995, as compared to 59% for the comparable period in
1994. Product and service sales from international markets are subject to the
risks of currency fluctuations.
Gross margin as a percent of sales increased to 48.4% for the twelve months
ended December 30, 1995, as compared to 46.9% for the comparable period in 1994.
Gross margin for the twelve months ended December 30, 1995 increased primarily
due to reduced manufacturing costs and an overall increase in sales volume.
Selling, general and administrative expenses decreased for the twelve months
ended December 30, 1995 to $47.6 million, from $46.1 million in the comparable
period of 1994. On August 17, 1995, the Company resolved all legal issues, and
settled patent infringement litigation with a competitor. The Company had
previously established reserves for legal fees and related costs with respect to
the litigation. The settlement resulted in the elimination of previously
established reserves and reduced selling, general and administrative expenses by
$1.3 million in 1995.
Research and development expenses increased for the twelve month period ended
December 30, 1995 to $15.7 million from $14.6 million in the comparable period
of 1994. As a percentage of net product and service sales, research and
development expenses remained consistent at 9.9% in 1995 and 1994.
In 1995 the Company incurred severance costs of $3.9 million, which were
reflected as follows: cost of products and services sold, $1.2 million; selling,
general and administrative, $2.1 million; and research and development, $0.6
million. In 1994 the Company incurred severance costs of $2.0 million, reflected
entirely in selling, general and administrative expenses.
As part of a 1993 restructuring, the Company established a reserve for
discontinued product lines. As a result of the sale of one such product line in
March 1995, $1.0 million of the reserve was reversed in 1995. This reversal is
classified as a restructuring credit and pension curtailment gain in the
Consolidated Statement of Operations.
18
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Operating Results
- --------------------------------------------------------------------------------
OPERATING RESULTS - 1995 VS. 1994 (continued)
On January 31, 1995, the Company ceased all benefit accruals under the Company's
domestic noncontributory defined benefit pension plan as part of its redesigning
of the Company's domestic employee benefit plans. This change resulted in the
Company recognizing a curtailment gain of $1.9 million in 1995. In 1996, the
gain was reclassified from selling, general and administrative to restructuring
credit and pension curtailment gain in the Consolidated Statement of Operations.
During 1995, interest income and interest expense were virtually unchanged from
1994. Other income, net decreased to $0.1 million in 1995 from $0.7 million in
1994. Other income, net includes foreign currency exchange gains and losses, the
cost of hedging and certain miscellaneous income and expenses.
The provision for taxes represents foreign and state income taxes. The provision
for income taxes decreased by $0.6 million for the twelve months ended December
30, 1995 in relation to the comparable period in 1994, due primarily to a
decreased level of estimated taxable foreign income. The net deferred tax asset
before valuation allowance decreased to $76.7 million at December 30, 1995,
compared to $80.2 million for the comparable period in 1994. The net deferred
tax asset consisted primarily of the future tax benefits from net operating loss
carryforwards and other tax credits. At December 30, 1995 and December 31, 1994,
the Company had a 100% valuation allowance against the net deferred tax asset.
As a result of the above, the Company reported net income of $12.3 million for
the twelve months ended December 30, 1995, as compared to net income of $4.5
million for the comparable period in 1994.
LIQUIDITY AND SOURCES OF CAPITAL
Cash and equivalents at December 28, 1996 totaled $10.6 million, compared to
$9.1 million at December 30, 1995. The Company's current ratio at December 28,
1996 increased to 2.7 from 1.7 at December 30, 1995. Cash generated from
operating activities was $4.8 million for the fiscal year ended December 28,
1996, compared to $1.2 million and $4.1 million for the comparable periods in
1995 and 1994, respectively.
The increase in cash provided by operating activities in 1996, as compared to
1995 and 1994, is primarily attributable to an increase in overall net income.
Increases in accounts receivable and inventory in 1996 used cash of $8.1 million
as a result of increases in sales and orders, and the maintenance of higher
inventory levels to meet increasing customer demands for shorter delivery
periods. A decrease in current liabilities used cash of $11.2 million in 1996
and was attributable to the general timing of vendor and employee payments.
During the fiscal year ended December 28, 1996, net cash used in investing
activities was $7.2 million, compared to $3.4 million and $3.1 million for the
comparable periods in 1995 and 1994, respectively. Capital expenditures were
$8.9 million, $6.6 million and $5.2 million in 1996, 1995 and 1994,
respectively, and were primarily for equipment used in research and development,
and manufacturing. Capital expenditure commitments were not significant at
December 28, 1996, and fiscal 1997 expenditures are expected to be approximately
$16.0 million. Approximately $11.0 million of the projected 1997 capital
expenditures is attributable to leasehold improvements and machinery and
equipment related to the move of the Company's corporate headquarters and
manufacturing operations to Westford, Massachusetts in June 1997. Proceeds from
the sale of property, plant and equipment in 1996 provided cash of $6.8 million.
Lastly, the Company used $5.0 million of cash to acquire three companies during
the fiscal year ended December 28, 1996.
Net cash provided by financing activities was $4.7 million for the fiscal year
ended December 28, 1996 compared to cash provided of $3.4 million for the fiscal
year ended December 30, 1995 and cash used of $1.4 million for the fiscal year
ended December 31, 1994. The increase in cash provided by financing activities
in fiscal 1996, as compared to 1995 and 1994, is primarily attributable to the
increase in the proceeds from issuances of stock under the Company's employee
stock plans. Such proceeds were $6.1 million, $2.6 million and $2.5 million in
1996, 1995 and 1994, respectively.
On October 22, 1996, the Company issued a notice of redemption for all of its 7
1/4% convertible subordinated debentures aggregating $50 million in principal.
On November 6, 1996, $0.4 million of principal was redeemed and $49.6 million of
principal was converted into 3,452,000 shares of common stock at a conversion
price of $14.375 per share.
19
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Operating Results
- --------------------------------------------------------------------------------
LIQUIDITY AND SOURCES OF CAPITAL (continued)
In November 1996, the Company incurred $1.0 million in costs to obtain
short-term financing for the redemption of the debentures, which was not
utilized, and to refinance its U.S. line of credit which is described below.
In the fourth quarter of 1996, the Company replaced its $12.8 million U.S.
secured credit facility, scheduled to expire on December 31, 1996, and its $2.2
million U.K. secured credit facility with an unsecured U.S. credit facility. The
new line provides borrowings up to $25 million. No borrowings were outstanding
at December 28, 1996. The borrowings under the new credit facility will expire
on December 31, 1998. Borrowings under the credit facility are subject to
compliance with specified financial and operating covenants.
The Company's primary source of liquidity is internally generated funds. In
1997, the Company anticipates it will fund its working capital and capital
expenditure requirements, make interest payments on its borrowings and meet its
cash obligations from internally generated funds and from the available credit
facility.
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.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report contains certain forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed below.
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 sales
will come from new products and services. The Company cannot determine the
ultimate effect that new products and services will have on its sales, 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.
Although margins continue to be impacted by competitive pricing pressures, the
Company continues to invest in minimizing costs through manufacturing
productivity improvements and engineered cost reductions.
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, result of operations or liquidity.
20
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Reports
- --------------------------------------------------------------------------------
MANAGEMENT REPORT
The accompanying consolidated financial statements and related information
included in the Annual Report are the responsibility of management. The
financial statements were prepared in conformity with generally accepted
accounting principles appropriate in the circumstances, based on management's
best estimates and judgments.
Management believes that the Company's internal control systems provide
reasonable assurance that assets are safeguarded and that transactions are
properly recorded and executed in accordance with management's authorization.
Judgments are required to assess and balance the relative cost and expected
benefits of these control systems.
The 1996 financial statements have been audited by Price Waterhouse LLP, the
Company's independent accountants, whose audit report appears below. Their audit
included a review of the systems of internal control to the extent considered
necessary by them to determine the audit procedures required to support their
opinion.
The Board of Directors, through its Audit Committee consisting solely of outside
directors of the Company, is responsible for reviewing and monitoring the
Company's financial reporting and accounting practices. Price Waterhouse LLP has
full and free access to the Audit Committee, and meets with the Committee, with
and without the presence of management.
/s/ PAUL PRONSKY, JR.
- -------------------------------------
Paul Pronsky, Jr.
Vice President,
Chief Financial Officer and Secretary
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of GenRad, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
GenRad, Inc. and its subsidiaries at December 28, 1996 and December 30, 1995,
and the results of their operations and their cash flows for each of the two
years in the period ended December 28, 1996, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. The
consolidated financial statements of GenRad, Inc. for the year ended December
31, 1994 were audited by other independent accountants whose report dated
February 8, 1995, expressed an unqualified opinion on those statements.
/s/ PRICE WATERHOUSE LLP
- -------------------------------------
Price Waterhouse LLP
Boston, Massachusetts
January 28, 1997
21
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
Years ended December 28, 1996, December 30, 1995 and December 31, 1994
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Sales:
Sales of products $ 144,325 $ 122,105 $ 111,810
Sales of services 39,220 36,648 36,093
- --------------------------------------------------------------------------------
Total sales 183,545 158,753 147,903
- --------------------------------------------------------------------------------
Cost of sales:
Cost of products sold 64,500 62,277 58,552
Cost of services sold 22,637 19,654 19,944
- --------------------------------------------------------------------------------
Total cost of sales 87,137 81,931 78,496
- --------------------------------------------------------------------------------
Gross Margin 96,408 76,822 69,407
- --------------------------------------------------------------------------------
Selling, general and administrative 54,061 47,636 46,101
Research and development 16,491 15,717 14,649
Restructuring credit and
pension curtailment gain -- (2,900) --
- --------------------------------------------------------------------------------
Total operating expenses 70,552 60,453 60,750
- --------------------------------------------------------------------------------
Operating income 25,856 16,369 8,657
- --------------------------------------------------------------------------------
Other income (expenses):
Interest income 106 238 252
Interest expense (4,575) (4,009) (4,051)
Other, net 4,292 136 736
- --------------------------------------------------------------------------------
Total other expenses ( 177) (3,635) (3,063)
- --------------------------------------------------------------------------------
Income before income taxes 25,679 12,734 5,594
Income tax (benefit) provision (1,656) 463 1,082
- --------------------------------------------------------------------------------
Net income $ 27,335 $ 12,271 $ 4,512
=======================================
Net income per common and
common equivalent shares:
Primary $ 1.13 $ .56 $ .22
=======================================
Fully diluted $ 1.09 $ .54 $ .22
=======================================
The accompanying notes are an integral part of these Consolidated Financial
Statements.
22
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
December 28, 1996 and December 30, 1995 (In thousands)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Assets
Current Assets:
Cash and equivalents $ 10,557 $ 9,064
Accounts receivable, less allowances
of $1,431 and $801 49,142 41,284
Inventories 20,250 15,601
Other current assets 4,501 3,376
- --------------------------------------------------------------------------------
Total current assets 84,450 69,325
Property, plant and equipment, net 19,168 15,443
Deferred tax asset 2,480 --
Intangible assets 8,486 1,144
Other assets 1,181 1,494
- --------------------------------------------------------------------------------
$ 115,765 $ 87,406
=========================
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Revolving lines of credit $ -- $ 729
Trade accounts payable 7,171 7,743
Accrued liabilities 15,007 21,376
Accrued compensation and employee benefits 7,096 9,816
Accrued income taxes 1,537 742
- --------------------------------------------------------------------------------
Total current liabilities 30,811 40,406
- --------------------------------------------------------------------------------
Long-term Liabilities:
Long-term debt 146 49,073
Accrued pensions and benefits 12,177 11,969
Future lease costs of unused facilities 4,949 6,620
Other long-term liabilities 4,002 2,576
- --------------------------------------------------------------------------------
Total long-term liabilities 21,274 70,238
- --------------------------------------------------------------------------------
Stockholders' Equity (Deficit):
Common stock, $1 par value-authorized
60,000,000 shares; issued and
outstanding 26,048,000 and 21,232,000 26,048 21,232
Additional paid-in capital 163,099 109,436
Accumulated deficit (123,787) (151,122)
Cumulative translation adjustment ( 1,680) ( 2,784)
- --------------------------------------------------------------------------------
Total stockholders' equity (deficit) 63,680 ( 23,238)
- --------------------------------------------------------------------------------
$ 115,765 $ 87,406
=========================
The accompanying notes are an integral part of these Consolidated Financial
Statements.
23
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
Years ended December 28, 1996, December 30, 1995 and December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Total
Common Stock-
Stock, Additional Cumulative holders'
$1 par Paid-In Accumulated Translation Equity
value Capital Deficit Adjustment (Deficit)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 18,780 $ 106,806 $(167,905) $ (2,510) $ (44,829)
Net income -- -- 4,512 -- 4,512
Translation adjustment -- -- -- 73 73
Cash proceeds from stock issued
under employee stock plans 958 1,498 -- -- 2,456
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 19,738 108,304 (163,393) (2,437) (37,788)
Net income -- -- 12,271 -- 12,271
Translation adjustment -- -- -- ( 347) ( 347)
Cash proceeds from stock issued
under employee stock plans 1,494 1,132 -- -- 2,626
- ------------------------------------------------------------------------------------------------------------
Balance at December 30, 1995 21,232 109,436 (151,122) (2,784) (23,238)
Net income -- -- 27,335 -- 27,335
Translation adjustment -- -- -- 1,104 1,104
Cash proceeds from stock issued
under employee stock plans 1,256 4,835 -- -- 6,091
Stock issued in connection with
company acquisitions 108 1,972 -- -- 2,080
Conversion of 7 1/4% Convertible Debentures 3,452 46,856 -- -- 50,308
- ------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996 $ 26,048 $ 163,099 $(123,787) $ (1,680) $ 63,680
===========================================================
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements
24
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
Years ended December 28, 1996, December 30, 1995 and December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 27,335 $ 12,271 $ 4,512
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,825 5,577 5,984
(Gain) loss on disposition of property, plant and equipment (4,034) 694 388
Payment for lease costs of excess facilities, net (1,671) (4,775) (5,917)
Increase (decrease) resulting from changes in operating assets and
liabilities:
Accounts receivable (3,845) (8,321) (1,732)
Inventories (4,211) 208 (2,789)
Prepaid expenses (1,373) 1,102 (1,576)
Deferred tax asset (2,480) -- --
Trade accounts payable (1,375) ( 736) 3,166
Accrued income taxes 775 ( 201) 912
Accrued liabilities (7,692) (2,951) 628
Accrued compensation and employee benefits (2,930) ( 957) ( 555)
Other, net ( 485) ( 698) 1,095
-----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,839 1,213 4,116
- -----------------------------------------------------------------------------------------------------------
Investing activities:
Purchases of property, plant and equipment ( 8,947) (6,598) (5,158)
Purchase of subsidiaries ( 4,989) -- --
Proceeds from sale of property, plant and equipment 6,769 73 316
Proceeds from sale of assets held for sale -- 3,157 1,736
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,167) (3,368) (3,106)
- -----------------------------------------------------------------------------------------------------------
Financing activities:
Net change in notes payable ( 642) 76 (3,882)
Borrowing under revolving lines of credit ( 729) 729 --
Proceeds from exercise of stock options 6,091 2,626 2,456
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 4,720 3,431 (1,426)
- -----------------------------------------------------------------------------------------------------------
Effects of exchange rates on cash ( 899) ( 209) ( 179)
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and equivalents 1,493 1,067 ( 595)
Cash and equivalents at beginning of year 9,064 7,997 8,592
- -----------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 10,557 $ 9,064 $ 7,997
==================================
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (continued)
- --------------------------------------------------------------------------------
Supplemental disclosure of non-cash financing activity:
In conjunction with the purchase of TTA in 1996, the Company has a minimum
future obligation of $2.0 million which has been classified as accrued
liabilities and other long-term liabilities.
Stock issued in association with the Company's acquisitions in 1996 increased
total stockholder's equity by $2.1 million.
The net carrying amount of convertible debt, including unamortized debt issue
costs and accrued interest, which converted to equity in 1996, was $50.3
million.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
26
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 1: DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of the Business: GenRad, Inc. (the "Company" or "GenRad") commenced
operations as a corporation in June 1915. The Company is a leading worldwide
supplier of integrated test, measurement and diagnostic solutions for the
manufacture and maintenance of electronic products. The Company offers products
and services in three core business areas: electronic manufacturing systems,
advanced diagnostic solutions and integrated customer services.
Accounting Estimates: The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts of
assets, liabilities, sales and expenses at and during the reporting periods of
the financial statements. Actual results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and all of its subsidiaries. All significant
intercompany transactions and balances have been eliminated.
Revenue Recognition and Accounts Receivable: Revenue from product sales is
generally recognized at the time the product is shipped or delivered based on
shipping terms. Service revenue is recognized over the contractual period on a
straight-line basis for service contracts or as services are performed. Revenue
under certain contracts is recognized under the percentage-of-completion method.
Financial instruments which potentially expose the Company to concentration of
credit risks include accounts receivable. The Company maintains reserves for
potential credit issues which, in the aggregate, have not exceeded management's
expectations.
Net Income Per Common and Common Equivalent Share: Primary net income per common
and common equivalent share is calculated based on the weighted average number
of common shares outstanding during the period plus, in periods in which they
have a dilutive effect, the effect of common shares contingently issuable from
stock options using the treasury stock method.
Fully diluted net income per common and common equivalent share is calculated
consistent with primary net income per common and common equivalent share, but
reflects additional dilution from stock options due to the use of the market
price at the end of the period when it is higher than the average price for the
period. The 1996 computation of fully diluted earnings per share includes the 7
1/4% subordinated debentures as common equivalent shares for the entire year,
and net income applicable to common stock excludes interest charges related to
the converted securities from the beginning of the year until the conversion
date.
Cash and Equivalents: The Company considers cash on hand, certificates of
deposit, loan participation notes and money market funds as cash and
equivalents. Such cash equivalents have maturities of less than ninety days.
Inventory Valuation: Inventories include material, labor and overhead and are
stated at the lower of cost (first-in, first-out method) or market.
Property, Plant and Equipment: These assets are stated at cost. Depreciation is
computed by the straight-line method over the estimated useful lives of the
assets (buildings and improvements, 10 to 40 years; machinery and equipment, 3
to 8 years; and service parts, 5 to 7 years).
Intangible Assets: Goodwill, representing the excess of the purchase price over
the fair value of the net assets of the acquired entities, is being amortized on
a straight-line basis over the period of expected benefit of three to ten years.
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed", requires
capitalization of certain computer software development costs incurred once
technological feasibility is established. Capitalized computer software costs
are amortized over the economic lives of the related
27
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 1: DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
products, generally two years, beginning from initial product shipment.
Amortization commences when the product is available for general release to
customers. Computer software costs capitalized for the fiscal years ended
December 28, 1996 and December 30, 1995 were $1.2 million and $0.2 million,
respectively. Accumulated amortization and amortization expense in 1996, 1995
and 1994 were insignificant.
Purchased software of $0.8 million, which was attributable to the acquisition of
Field Oriented Engineering, AG, was recorded in the third quarter of fiscal
1996. This purchased software is being amortized on a straight-line basis over
three years.
Other intangibles also include the cost of patents and trademarks acquired which
is amortized on a straight-line basis over their estimated useful lives.
The Company evaluates the net realizable value of its intangible assets on an
ongoing basis. Should the review indicate that an intangible asset will not be
recoverable, the Company's carrying value will be reduced by the estimated
shortfall of the undiscounted cash flows.
Foreign Currency Translation: All balance sheet accounts of foreign subsidiaries
are translated at the current exchange rates and statement of operations items
are translated at the average exchange rates during the year. Resulting
translation adjustments are made directly to a separate component of
stockholders' equity (deficit). The effect of foreign currency transaction gains
and losses, included in the determination of 1996, 1995, and 1994 results of
operations, was insignificant.
Fiscal Year: The Company's fiscal year ends on the Saturday nearest December 31.
Fiscal years 1996, 1995 and 1994 include 52 weeks.
Reclassifications: Certain reclassifications were made to the 1995 consolidated
financial statements to conform to the 1996 presentation.
NOTE 2: ACQUISITIONS
Test Technology Associates, Inc. ("TTA") and Testware, Inc. ("Testware"): On
January 16, 1996 and November 8, 1996, respectively, the Company acquired TTA
and Testware. These companies provide custom test programming, test fixture
integration and other value-added services to manufacturers and users of
electronic products.
The acquisition of TTA was for cash. The acquisition of Testware was for cash
and 80,000 shares of the Company's Common Stock. Both acquisitions were
accounted for by the purchase method of accounting. Pro forma results of
operations have not been presented because the effects of the acquisitions were
not significant. The results of TTA and Testware are included in the 1996
financial statements beginning from the date of purchase. The excess purchase
price over the net assets acquired, recorded as goodwill, is being amortized on
a straight-line basis over the lesser of its useful life or 10 years.
In conjunction with the purchase of TTA, the Company agreed to pay to the
sellers for each of fiscal years 1996 through 1999 the greater of $0.5 million
per year, or fifty percent of an amount based on the operating results of the
business unit for the respective years. The minimum obligation of $2.0 million
was recorded at the date of acquisition, with $0.5 million classified as accrued
liabilities and $1.5 million classified as other long-term liabilities.
Mitron Corporation ("Mitron"): On June 20, 1996, GenRad, Inc. acquired Mitron.
Mitron is a developer of an integrated family of software applications, tools
and services for electronics manufacturing including its CIMBridge (R) software
applications. The products enable users to generate and collect electronics
manufacturing data for greater control, shorter time-to-market and lower costs.
28
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 2: ACQUISITIONS (continued)
In connection with the acquisition, approximately 1,196,000 shares of the
Company's common stock were issued in exchange for all outstanding shares of
Mitron common stock. The acquisition was accounted for as a pooling of
interests, and accordingly, the consolidated financial statements and all
financial data contained herein have been restated to include the accounts of
Mitron for all periods presented. Financial results for each of the previously
separate companies have not been presented because the effects of the
acquisition were not significant. Merger costs were insignificant and were
expensed in the second quarter of 1996.
Field Oriented Engineering, AG ("FOE AG"): On August 14, 1996, GenRad acquired
certain assets of FOE AG, consisting primarily of the software program known as
TRACS(R) III, sold with the Company's Electronic Manufacturing Systems. In close
collaboration with GenRad, FOE AG developed TRACS(R) III which provides
manufacturers of electronic products real-time data collection, analysis,
reporting and paperless repair for improved manufacturing process control.
The acquisition was accounted for by the purchase method of accounting. Pro
forma results of operations have not been presented because the effects of the
acquisition were not significant. The purchase price paid by GenRad in
connection with the acquisition of certain assets consisted of shares of GenRad
Common Stock and cash. The excess purchase price over the net assets acquired,
recorded as goodwill, is being amortized on a straight-line basis over the
lesser of its useful life or three years.
NOTE 3: EXCESS FACILITY RESERVES
The Company had excess facility reserves of $6.6 million and $7.8 million at
December 28, 1996 and December 30, 1995, respectively. The excess facilities
reserves were provided for two buildings: one in Milpitas, California with a
lease expiration of March 1998 and the other in Maidenhead, England with a lease
expiration date of 2013. The Milpitas, California building has been partially
subleased through March 1998, and the Maidenhead building has been subleased
through February 1999. As the Company continues to renegotiate leasing
arrangements, the utilization of excess facilities reserves and related cash
outflows may differ from the present estimates.
29
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 4: DETAILS OF FINANCIAL STATEMENT COMPONENTS
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Inventories:
Raw materials $10,632 $ 9,399
Work in process 4,075 1,681
Finished goods 5,543 4,521
- -----------------------------------------------------------------------------------------
$20,250 $ 15,601
========================
Property, plant and equipment:
Land $ -- $ 541
Buildings and leasehold improvements 2,908 25,098
Machinery and equipment 64,058 60,313
Service parts 13,189 14,568
- -----------------------------------------------------------------------------------------
80,155 100,520
Accumulated depreciation (60,987) (85,077)
- -----------------------------------------------------------------------------------------
$19,168 $ 15,443
========================
Intangible Assets:
Goodwill $ 6,029 $ --
Capitalized and purchased computer software 2,187 283
Other intangible assets 1,333 1,261
- ----------------------------------------------------------------------------------------
9,549 1,544
Accumulated amortization ( 1,063) ( 400)
- -----------------------------------------------------------------------------------------
$ 8,486 $ 1,144
========================
Accrued liabilities:
Lease costs of unused facilities $ 1,686 $ 1,716
Customer prepayments 10,238 8,668
Other accrued liabilities 3,083 10,992
- -----------------------------------------------------------------------------------------
$15,007 $ 21,376
========================
Accrued pension and benefits:
Accrued U.S. pension cost $ 5,507 $ 5,965
Accrued foreign pension cost 4,159 3,493
Postretirement health care and life insurance benefits 2,511 2,511
- -----------------------------------------------------------------------------------------
$12,177 $ 11,969
========================
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 5: DEBT(In thousands)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
7 1/4% Convertible Subordinated Debentures, due 2011 $ -- $ 48,983
Other long-term debt 146 90
- --------------------------------------------------------------------------------
$ 146 $ 49,073
=====================
Interest paid amounted to $5.1 million in 1996, $4.0 million in 1995 and $4.1
million in 1994.
Convertible Subordinated Debentures: On October 22, 1996, the Company announced
its redemption of all $50 million of its 7 1/4% convertible subordinated
debentures due in 2011 at par value plus accrued interest to the redemption
date. Prior to the November 6, 1996 redemption date, holders of the debentures
converted $49.6 million of principal into common stock at a price of $14.375 per
share. The remaining principal was redeemed in cash totaling $0.4 million,
including accrued interest and bond redemption costs. The net carrying amount of
convertible debt, including unamortized debt issue costs and accrued interest,
which converted to equity was $50.3 million. The Company recorded $1.0 million
of interest expense in the fourth quarter of 1996 to obtain short-term financing
for the redemption of all of its 7 1/4% convertible subordinated debentures,
which was not utilized, and to replace its $15 million secured credit facilities
with a $25 million unsecured credit facility.
Line of Credit: During 1996, the Company replaced its $12.8 million U.S. secured
credit facility and its $2.2 million U.K. secured credit facility with an
unsecured $25 million U.S. credit facility. Interest will be payable at the
lesser of (i) the prime interest rate, or (ii) under a LIBOR option, with
borrowing spreads of LIBOR plus 1.00% to LIBOR plus 1.75% , depending on the
Company's financial performance. The borrowings under the new credit facility
will expire on December 31, 1998 and are subject to compliance with specified
financial and operating covenants.
NOTE 6: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates internationally and is exposed to market risks from changes
in foreign exchange rates. Derivative financial instruments are utilized by the
Company to mitigate those risks. The Company does not hold or issue financial
instruments for trading purposes.
The Company enters into foreign exchange contracts to hedge certain purchases
and accounts receivable denominated in foreign currencies (principally European
currencies). The term of the currency derivatives is rarely more than six
months. Market value gains and losses are recognized and the resulting gain or
loss offsets foreign exchange gains or losses on those transactions. The purpose
of the Company's foreign currency hedging activities is to protect the Company
from the risk that the eventual net cash inflows resulting from the sale of
products to foreign customers and purchases from foreign suppliers will be
adversely affected by changes in exchange rates.
At December 28, 1996, the Company had contracts maturing through June 19, 1997
to sell $12.9 million, net, of foreign currency at various rates, which is
primarily comprised of European currencies.
NOTE 7: STOCK PLANS
Stock Option Plans: The Company has three stock option plans: a 1982 plan of
2,700,000 shares (terminated in 1991); a 1991 plan (amended in 1993, 1994 and
1996) for 6,250,000 shares in which key employees are participants; and a 1991
plan (amended in 1995) for 200,000 shares for non-employee directors.
In general, option shares granted under these plans are exercisable in
installments based on stock price or years of service. Currently, options under
the 1991 plan generally become vested over a four-year period and have a maximum
term of ten years. Options under the 1991 non-employee directors plan generally
become vested upon issuance of options and have a maximum term of five years.
Shares issued under each plan may be either non-qualified stock options or
incentive stock options. No accounting recognition is given to stock options
with exercise prices equal to fair market value on the grant date until the
options are exercised, at which time the proceeds are credited to the
stockholders' equity accounts.
31
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 7: STOCK PLANS (continued)
Stock option activity is summarized below (thousands of shares):
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Total Average Total Average Total Average
Shares Option Price Shares Option Price Shares Option Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options:
Outstanding at beginning of year 3,514 $ 5.06 4,170 $ 4.66 2,096 $2.39
Granted 2,021 13.44 728 5.55 3,205 5.56
Exercised (1,132) 5.16 ( 759) 3.08 ( 747) 1.89
Canceled ( 360) 8.95 ( 625) 5.35 ( 384) 5.29
------- ------ ------
Outstanding at end of year 4,043 8.88 3,514 5.06 4,170 4.66
===== ===== =====
Options exercisable 2,644 1,466 932
===== ===== ===
Options available for future grants 195 162 186
=== === ===
</TABLE>
The following table summarizes information about the stock options outstanding
at December 28, 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------
Weighted
(in thousands) Average Weighted (in thousands) Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/28/96 Life Price at 12/28/96 Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.54-$3.50 636 6.9 $3.06 575 $3.27
$4.38-$7.75 1,553 7.9 $5.75 1,550 $5.75
$8.13-$11.38 519 8.9 $8.64 519 $8.64
$12.13-$14.88 779 9.5 $13.10 - -
$16.00-$18.38 436 9.7 $17.83 - -
$21.13-$22.38 120 9.9 $21.45 - -
- ------------------------------------------------------------------------------------------------------------
4,043 2,644
===== =====
</TABLE>
At December 28, 1996, there are 450,000 options granted pending shareholder
approval. Compensation expense, if any, will be appropriately recorded upon
approval.
Employee Stock Purchase Plan: Under the Company's Employee Stock Purchase Plan,
eligible employees may invest up to 10% of their base salary in shares of the
Company's Common Stock. The purchase price of the shares is 85% of the fair
market value of the stock on the offering commencement date or the offering
termination date (typically three months after commencement date), whichever is
lower. In 1994, the Plan was amended, increasing the amount of shares from
1,962,000 to 2,462,000. During the fiscal years ended December 28, 1996,
December 30, 1995 and December 31, 1994, the Company issued 74,000, 39,000 and
33,000 shares under the Plan, respectively. At December 28, 1996, there were
1,960,000 shares available for future issuance.
New Accounting Pronouncements: The Company accounts for stock-based compensation
using the method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123 (SFAS No. 123), "Accounting for Stock-Based Compensation". Accordingly, no
compensation cost has been recognized for the Company's stock option plans and
employee stock purchase plan.
32
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 7: STOCK PLANS (continued)
Had compensation cost been determined based on the fair value of the options at
the grant dates for awards in 1996 and 1995 on a basis consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share on a
fully diluted basis would have been reduced to the pro forma amounts indicated
below:
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Net income-as reported $ 27,335 $ 12,271
Net income-pro forma 22,803 10,556
Earnings per share-as reported 1.09 0.54
Earnings per share-pro forma 0.94 0.47
The fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Expected life (years) 5 4
Interest rate 6.5% 6.5%
Volatility 63.0% 57.4%
Dividend yield 0% 0%
Fair value of option grants $ 3.27 $ 6.58
SFAS 123 does not apply to awards prior to 1995, and additional awards in future
years are anticipated.
Restricted Stock Awards: In 1991, the Company adopted the 1991 Equity Incentive
Plan which contains provisions for stock options, as described above, and
restricted stock awards. All stock awards are granted subject to restrictions as
to continuous employment, except in the case of death, permanent disability or
retirement. One fourth of the shares vest at the end of one year from the date
of grant and the remaining shares are vested at a one-fourth rate per year
through the fourth year. The cost of the awards, determined as the fair market
value of the shares on the date of grant, is charged to expense ratably over the
vesting period. No awards were issued in 1996 and 1995, and 35,000 shares were
issued in 1994.
In 1994, the Company adopted the 1994 Director Restricted Stock Plan (amended in
1996), which contains provisions for restricted stock awards. Up to 50,000
shares of the Company's common stock may be issued under the Plan. On August 31
of each year, while the Plan is in effect, each eligible non-employee director
is granted a restricted stock award of 2,500 shares of the Company's Common
Stock. The awards are subject to certain restrictions that generally prohibit
the transfer of any shares prior to the first anniversary of the award, the
director's death or disability, the director's resignation with the consent of
the Board of Directors or a change in control of the Company as defined under
the Plan. During 1996, 1995 and 1994, the Company granted 10,500, 10,500 and
7,500 shares, respectively. Compensation expense related to these awards was not
significant in 1996, 1995 and 1994. At December 28, 1996 there were 21,500
shares available for future issuance.
Shareholder Rights Plan: GenRad has a shareholder rights program that was
adopted June 17, 1988. Under the Plan, the holder of each share of the Company's
Common Stock is entitled to purchase from the Company one share of Common Stock
at a purchase price of $50.00 subject to adjustment. The Rights expire June 17,
1998 and are exercisable only if an individual or group has acquired or obtained
the right to acquire beneficial ownership of 20% or more of the Company's Common
Stock or announces a tender or exchange offer that would result in such
individual or group owning 30% or more of the Company's Common Stock. Such
percentages may, at the Board's discretion, be lowered, although in no event
below 10%. When the Rights become exercisable, they separate from the Company's
Common Stock. The Company is entitled to redeem the Rights in whole at $0.02 per
Right under certain circumstances.
33
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 8: INCOME TAXES
The components of income before income taxes consist of the following
(in thousands):
- ---------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------
Domestic $24,082 $11,229 $ 1,936
Foreign 1,597 1,505 3,658
- ---------------------------------------------------------------------
$25,679 $12,734 $ 5,594
=============================================
The provision (benefit) for income taxes consists of the following
(in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Current Deferred Current Deferred Current Deferred
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal $ 219 $(2,480) $ -- $ -- $ -- $ --
Foreign 520 -- 420 -- 980 --
State 85 -- 43 -- 102 --
- ---------------------------------------------------------------------------------------------------
$ 824 $(2,480) $ 463 $ -- $1,082 $ --
===================================================================================
</TABLE>
A reconciliation of tax on income (loss) at the federal statutory rate to the
recorded income tax provision (benefit) is presented below (in thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax provision at statutory rate $ 8,988 $ 4,330 $ 1,902
State income taxes less related federal income tax benefits 55 28 67
Realization of deferred tax assets ( 8,155) (3,893) ( 857)
Reversal of deferred tax asset valuation allowance ( 2,480) -- --
Foreign earnings taxed at different rates,
including withholding taxes ( 64) (2) (30)
- ---------------------------------------------------------------------------------------------------
Recorded income tax (benefit) provision $( 1,656) $ 463 $ 1,082
====================================
</TABLE>
The temporary differences and carryforwards that gave rise to the significant
deferred tax assets and liabilities as of December 28, 1996 and December 30,
1995 were as follows (in thousands):
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Domestic net operating losses not yet benefited $ 49,193 $ 54,894
Research and development tax credits 9,569 9,700
Foreign net operating losses not yet benefited -- 585
Inventory valuation reserves 2,993 3,555
Retirement benefit accruals 3,207 3,391
Restructuring reserves, severance and lease costs
of unused facilities 4,136 4,914
Other reserves 1,978 1,067
- -------------------------------------------------------------------------------
Total deferred tax assets 71,076 78,106
Valuation allowance (66,678) (76,710)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 4,398 $ 1,396
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation $( 1,649) $ (1,392)
Other ( 269) (4)
- --------------------------------------------------------------------------------
Total deferred tax liabilities ( 1,918) (1,396)
- --------------------------------------------------------------------------------
Net deferred taxes recorded $ 2,480 $ --
========================
34
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 8: INCOME TAXES (continued)
Deferred income taxes are provided to reflect the future tax consequences of
differences between the book and the tax basis of assets and liabilities. At
December 28, 1996 and December 30, 1995, the Company had a net deferred tax
asset of $69.2 million and $76.7 million, before valuation allowance,
respectively.
The Company's net deferred tax asset consists primarily of the future tax
benefit from domestic net operating loss carryforwards and other tax credits.
Realization of net deferred tax asset and future reversals of the valuation
allowance depend on the Company's ability to generate taxable income during the
respective carryforward periods.
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", the Company is required to recognize all or a portion of its net
deferred tax asset if it believed that it was more likely than not that all or a
portion of the benefits of the carryforward losses and tax credits will be
realized.
In establishing the valuation reserve, management considers positive factors,
including positive earnings in recent years, and negative factors including the
continued restructuring actions taken by management; operating losses incurred
in years prior to 1994; the competitive nature of the industry in which the
Company sells its products and services; and uncertainties relating to the tax
jurisdiction in which income will be generated. Based on all of these factors,
primarily the positive earnings in 1994 and 1995, the Company reversed $2.5
million of the valuation allowance in the first quarter of 1996. Management
believes that based on the available evidence, it is more likely than not that
the Company will not realize all of the benefits from its net deferred tax
asset, and accordingly, has recorded a valuation allowance of $66.7 million
against the net deferred tax asset at December 28, 1996. Management continues to
assess the realizability of the net deferred tax asset on an ongoing basis, and
believes that it is reasonably possible that an additional portion of the
valuation allowance will be reduced in the near term.
It has been the practice of the Company to reinvest unremitted earnings of
foreign subsidiaries outside the United States. Accordingly, the Company does
not provide for federal income taxes that would result from the remittance of
such earnings.
At December 28, 1996 the Company had, for tax purposes, domestic unused net
operating loss carryforwards of $143.1 million, which are available to offset
future taxable income and will begin expiring in 2000. The Tax Reform Act of
1986 contains provisions that limit the net operating loss carryforwards
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interests. For tax purposes, the
Company has investment and research credit carryforwards, which began expiring
in 1996, of $9.6 million. The European subsidiaries had a tax loss carryforward
of $1.3 million at December 30, 1995, which was fully utilized in 1996. Net
taxes paid were $154,000 in 1996, $43,000 in 1995 and $151,000 in 1994.
NOTE 9: RETIREMENT BENEFITS
Pension Plan: The Company maintains a noncontributory defined benefit pension
plan covering substantially all domestic employees. The benefits are based on
years of service, age and the average of the employee's highest five consecutive
years compensation during the last 10 years of his or her employment. The
Company's funding policy is to contribute amounts to the Plan sufficient to meet
the minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, plus such additional amounts as the Company determined to
be appropriate from time to time. On January 31, 1995, the Company ceased all
benefit accruals under the Company's domestic noncontributory defined benefit
pension plan as part of its redesigning of the Company's employee benefit plans.
Participants of the Plan who met the vesting requirements earned benefits based
on years of service and compensation through January 31, 1995. The change
resulted in a curtailment gain of $1.9 million in 1995.
35
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 9: RETIREMENT BENEFITS (continued)
Net pension cost included the following components (in thousands):
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ -- $ 66 $ 819
Interest cost on projected benefit obligation 2,779 2,781 2,714
Actual return on plan assets (4,013) (2,565) 29
Net deferral and (amortization) 776 (368) (3,098)
- --------------------------------------------------------------------------------
Net periodic pension (benefit) cost $( 458) $ (86) $ 464
================================
The plan's funded status and amounts recognized in the Company's consolidated
financial statements are as follows (in thousands):
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Actuarial present value of accumulated plan
benefits, including vested benefits of $39,772
and $38,163 $ (39,800) $(38,237)
===========================
Actuarial present value of projected benefit
obligation for service rendered to date $ (39,800) $(38,237)
Plan assets at fair value, primarily listed
stock and U.S. bonds 38,679 36,650
- --------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets ( 1,121) (1,587)
Unrecognized net asset at transition ( 3,282) (3,692)
Unrecognized net actuarial gain ( 1,104) (686)
- --------------------------------------------------------------------------------
Accrued U.S. pension cost $ ( 5,507) $ (5,965)
===========================
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% at December 28, 1996 and December 30,
1995. There was no rate increase in future compensation levels to determine the
actuarial present value of the projected benefit obligation at December 28, 1996
and at December 30, 1995, as the Company ceased all benefit accruals on January
31, 1995. The rate of increase in future compensation levels used in determining
the actuarial present value of the projected benefit obligation was 5% at
December 31, 1994. The expected long-term rate of return on plan assets was 8%
in 1996 and 1995, from 8.5% in 1994. No contributions were required from the
Company for 1996, 1995 or 1994.
Non-U.S. Plans: The Company has a defined benefit pension plan outside the U.S.
for one of its subsidiaries. For the non-U.S. defined benefit pension plan, the
net pension cost included the following components (in thousands):
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ 270 $ 141 $ 124
Interest cost on projected benefit obligation 267 257 214
Net deferral and (amortization) 129 (20) (53)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 666 $ 378 $ 285
================================
In addition, the Company recorded a curtailment gain of $0.5 million in 1994
associated with workforce reductions.
The Plan's unfunded status and amounts recognized in the Company's financial
statements are as follows (in thousands):
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Actuarial present value of accumulated plan
benefits, including vested benefits of $3,089
and $2,665 $ (3,217) $(2,836)
============================
Actuarial present value of projected benefit
obligation for service rendered to date $ (3,499) $(3,206)
Unrecognized net asset at transition (56) (66)
Unrecognized net actuarial gain (604) (221)
- --------------------------------------------------------------------------------
Accrued pension cost $ (4,159) $(3,493)
============================
36
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 9: RETIREMENT BENEFITS (continued)
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation was
7.5% at December 28, 1996 and December 30, 1995.
Postretirement Health Care and Life Insurance Benefits: Effective January 3,
1993, the Company put in place the provisions of Statement of Financial
Accounting Standards No. 106 (SFAS No. 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 U.S. employees. Employees become eligible for these benefits when they
reach normal retirement age while working for the Company. Prior to the adoption
of this Statement, the cost was recognized as claims were paid. The Company's
postretirement benefit plans were modified at the end of 1995 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.
The following table sets forth the Plan's projected funded status (in
thousands):
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Accumulated and unfunded postretirement
benefit obligation:
Retired employees $(6,775) $ (8,794)
Active employees ( 999) (1,544)
- --------------------------------------------------------------------------------
Total accumulated and unfunded postretirement
benefit obligation (7,774) (10,338)
Unrecognized net (gain) loss ( 269) 1,950
Unrecognized transition obligation 5,532 5,877
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost $(2,511) $ (2,511)
===============================
The Company is recognizing the actuarial present value of the accumulated
postretirement benefit obligation at transition on the delayed recognition
method over 20 years.
Net periodic postretirement benefit costs for fiscal 1996, 1995 and 1994 include
the following components (in thousands):
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Service cost $ 62 $ 95 $ 96
Interest cost 505 1,028 863
Amortization of unrecognized net actuarial loss -- 24 --
Amortization of transition obligation 345 582 583
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost $912 $1,729 $1,542
=========================
For measurement purposes, an 8.5%, 9.0% and 12% annual rate of increase in the
per capita cost of covered health care benefits was assumed for fiscal 1996,
1995 and 1994, respectively. The Company's annual per capita cost commitment for
retiree medical care is capped at 1995 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 7.5% at December 28, 1996 and December 30,
1995.
37
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 10: LEASES
The Company leases certain manufacturing facilities, sales and service offices
and equipment under operating leases. Total rental expense for these leases
amounted to $4.8 million in 1996, $4.9 million in 1995 and $4.7 million in 1994.
The future minimum commitments as of December 28, 1996 for noncancellable
operating leases are as follows (in thousands):
- --------------------------------------------------------------------------------
Real Estate Equipment Total
- --------------------------------------------------------------------------------
1997 $ 8,613 $ 1,027 $ 9,640
1998 6,172 434 6,606
1999 5,345 210 5,555
2000 5,070 84 5,154
2001 4,756 6 4,762
Thereafter 46,327 2 46,329
- --------------------------------------------------------------------------------
Gross commitment $76,283 $ 1,763 $78,046
Less sublease income 12,978 -- 12,978
- --------------------------------------------------------------------------------
Net commitment $63,305 $ 1,763 $65,068
=======================================================
On July 26, 1996, the Company entered into a 15-year lease to relocate its
Corporate headquarters and domestic manufacturing facility to Westford,
Massachusetts. The lease is expected to begin in June 1997, the estimated
completion of the construction of the building. The future minimum commitment
for the noncancellable operating lease is $36.3 million, which is included
above.
In October 1996 the Company's European subsidiary entered into a 15-year lease
commitment at its new Orion Business Park facility located in Manchester,
England. The future minimum commitment for the noncancellable operating lease is
$16.1 million, which is included above.
NOTE 11: CONTINGENCIES
On August 17, 1995, the Company settled litigation with a competitor relative to
patent infringement. The Company had previously established reserves for legal
fees and related costs with respect to the litigation. The settlement resulted
in the elimination of previously established reserves and reduced selling,
general and administrative expenses by $1.3 million.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
results of operations or the financial position of the Company.
NOTE 12: FINANCIAL INFORMATION BY GEOGRAPHIC AREA
GenRad sells and services its products primarily through its own sales and
service organizations consisting of sales offices and service centers located in
the United States, the United Kingdom, Germany, France, Switzerland, Italy and
Singapore. Sales or service elsewhere is provided through independent
representatives to whom GenRad provides technical and administrative assistance.
GenRad's operations abroad consist of selling, marketing, distributing and
servicing products, providing other types of customer support services such as
software development and manufacturing of diagnostic systems. Transfer prices to
foreign subsidiaries, combined with supplemental commission arrangements, are
intended to produce profit margins commensurate with the sales and service
effort associated with the products sold.
38
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements for the Years ended December 28,
1996, December 30, 1995 and December 31, 1994
- --------------------------------------------------------------------------------
NOTE 12: FINANCIAL INFORMATION BY GEOGRAPHIC AREA (continued)
Certain information on a geographic basis follows (in thousands):
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Net sales:
North America $ 104,268 $ 85,293 $ 77,177
Intercompany sales 22,982 18,962 22,022
- -------------------------------------------------------------------------------
Total North America 127,250 104,255 99,199
Europe 79,277 73,461 70,726
Intercompany sales 1,332 2,869 2,760
- -------------------------------------------------------------------------------
Total Europe 80,609 76,330 73,486
Eliminations (24,314) (21,832) (24,782)
- -------------------------------------------------------------------------------
Total $ 183,545 $ 158,753 $147,903
==================================
Operating profit:
North America $ 33,077 $ 19,292 $ 18,932
Europe 3,374 3,127 574
Eliminations ( 2,729) 56 548
General corporate expenses ( 7,866) (6,106) (11,397)
- -------------------------------------------------------------------------------
Total $ 25,856 $ 16,369 $ 8,657
==================================
Identifiable assets:
North America $ 70,040 $ 43,689 $ 46,433
Europe 45,725 43,717 35,383
- -------------------------------------------------------------------------------
Total $ 115,765 $ 87,406 $ 81,816
==================================
North America sales include export sales of $21.9 million in 1996, $18.6 million
in 1995 and $16.5 million in 1994.
Sales to the U.S. government and related agencies amounted to 2% of consolidated
sales in 1996, 7% in 1995 and 5% in 1994. Sales to a non-government customer
amounted to 15% of consolidated sales in 1996, 16% in 1995 and 15% in 1994. No
other customer accounted for 10% or more of consolidated sales.
39
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Supplementary Information
- --------------------------------------------------------------------------------
Quarterly Information (In thousands, except per share amounts - unaudited)
- --------------------------------------------------------------------------------
First Second Third Fourth Year
- --------------------------------------------------------------------------------
Year ended December 28, 1996:
Net sales and service sales $43,554 $45,168 $46,152 $48,671 $183,545
Gross margin 22,835 24,222 23,898 25,453 96,408
Net income 6,949 5,711 5,010 9,665 27,335
Net income per common and
common equivalent share:
Primary .30 .24 .21 .36 1.13
Fully diluted .29 .24 .21 .36 1.09
- --------------------------------------------------------------------------------
Year ended December 30, 1995:
Net sales and service sales $37,240 $41,738 $38,051 $41,724 $158,753
Gross margin 18,559 19,546 18,524 20,193 76,822
Net income 4,313 2,618 2,133 3,207 12,271
Net income per common and
common equivalent share:
Primary .20 .12 .10 .14 .56
Fully diluted .20 .12 .09 .14 .54
- --------------------------------------------------------------------------------
Common Stock
As of February 5, 1997 there were 3,382 stockholders of record holding
26,118,000 shares.
Dividends
It is the policy of the Company to retain earnings to support the growth and
expansion of the Company's business. Although the Company has paid dividends in
the past, there are no plans to resume paying dividends. Payment of dividends is
restricted by financing agreements to which the Company is a party.
STOCK PRICE INFORMATION
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
1st Quarter 13 3/8 8 1/8 6 1/8 4 5/8
2nd Quarter 17 5/8 11 3/4 8 3/8 4 7/8
3rd Quarter 16 3/4 11 7/8 10 1/8 7 1/8
4th Quarter 23 15 5/8 9 7/8 7 1/8
This Annual Report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from
results discussed in the forward-looking statements due to a number of important
factors, including, but not limited to, those discussed in the section "Factors
that may Affect Future Results" of this Annual Report.
40
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Investors' Reference Guide
- --------------------------------------------------------------------------------
COMMON STOCK
The Company's Common Stock is listed and traded on the New York Stock Exchange
(trading symbol "GEN")
TRANSFER AGENT AND REGISTRAR FOR COMMON STOCK
BankBoston is the Company's stock transfer agent and registrar and maintains the
stockholder accounting records. The agent will respond to questions regarding
change of ownership, lost stock certificates and consolidation of accounts.
Please direct questions of this nature to BankBoston's Consumer Service
Department at (617) 575-3120.
A change of address should be reported promptly by sending a signed and dated
letter to BankBoston. Stockholders should state the name in which the stock is
registered, account number, social security number and the new address. Please
mail correspondence to:
BankBoston
c/o Boston EquiServe
Transfer Processing
Mail Stop: 45-01-05
P.O. Box 8040
Boston, MA 02266-8040
INVESTOR RELATIONS
Inquiries from stockholders and the financial community are welcome by
telephone, fax or letter and should be directed to:
Claire M. Murphy
Manager, Investor Relations
GenRad, Inc.
300 Baker Avenue
Concord, MA 01742-2174
TEL (508) 287-7222
FAX (508) 287-2002
Internet: [email protected]
GenRad Home Page: http://www.genrad.com
FORM 10-K AND OTHER DOCUMENTS
The Company's Form 10-K for the fiscal year ended December 28, 1996, filed with
the Securities and Exchange Commission, interim reports and additional
information about the Company, its products, and the market it serves, can be
obtained by request to the Corporate Relations office (above).
By using GenRad, Inc.'s Investor Relations FAX-ON-DEMAND Service, you can
receive GenRad's most current stockholder information. Please call
1-800-469-1261.
ANNUAL MEETING
The Annual Meeting of Stockholders will be held in Westford, Massachusetts on
Thursday, May 8, 1997, 11:00 a.m. at the Westford Regency auditorium. All
stockholders are cordially invited to attend.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Boston, Massachusetts
GENERAL LEGAL COUNSEL
Nutter, McClennen & Fish, LLP
Boston, Massachusetts
- --------------------------------------------------------------------------------
GenRad, Inc. is an Equal Opportunity Employer. All employment related action(s)
are taken without regard to race, color, sex, national origin, sexual
orientation, religion, physical/mental disability, or veteran status.
Additionally, the Company is committed to maintaining an atmosphere free of
discrimination and one which fosters an environment that enables all employees
to work to their potential.
41
<PAGE>
- --------------------------------------------------------------------------------
GENRAD, INC. AND SUBSIDIARIES
Corporate Data
- --------------------------------------------------------------------------------
DIRECTORS
William S. Antle III (1, 2)
President and Chief Executive Officer
Oak Industries Inc.
Russell A. Gullotti (1)
Chairman, President and Chief Executive Officer
National Computer Systems, Inc.
Lowell B. Hawkinson (3,4)
Chairman and Chief Executive Officer
Gensym Corporation
James F. Lyons
President, Chief Executive Officer
GenRad, Inc.
Richard G. Rogers (2,4)
President
Tokyo Electron America
William G. Scheerer (3,4)
President
Performance QUEST LLC
Adriana Stadecker (2,3)
President
Epic International
Ed Zschau (1,4)
Senior Lecturer of Business Administration
Harvard University
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance Committee
(4) Member of the Technology and Quality Committee
- --------------------------------------------------------------------------------
SENIOR MANAGEMENT TEAM
James F. Lyons
President, Chief Executive Officer
Kevin R. Cloutier
Vice President, General Manager
Electronic Manufacturing Systems
Paul Geere
Vice President, Managing Director
Advanced Diagnostic Solutions
Lori B. Hannay
Vice President, Human Resources
Sarah H. Lucas
Vice President, Chief Strategic Officer
Paul Pronsky, Jr.
Vice President, Chief Financial Officer
and Secretary
Michael W. Schraeder
Vice President, Worldwide Sales and Service
CORPORATE OFFICE
300 Baker Avenue
Concord, Massachusetts USA
MANUFACTURING AND SERVICE CENTERS
Electronics Manufacturing Systems
Concord, Massachusetts USA
Test Technology Associates, Inc.
Lewisville, Texas USA
Milpitas, California USA
Mitron Corporation
Portland, Oregon USA
Marlborough, Massachusetts USA
Integrated Customer Services, Inc.
Hudson, Massachusetts USA
Fern Park, Florida USA
Advanced Diagnostic Solutions
Manchester, UK
SALES OFFICES
Fremont, California USA
Irvine, California USA
San Jose, California USA
Altamonte Springs, Florida USA
Arlington Heights, Illinois USA
Frederick, Maryland USA
Concord, Massachusetts USA
Westford, Massachusetts USA
Novi, Michigan USA
Portland, Oregon USA
Plano, Texas USA
Cedex, France
Ismaning, Germany
Munich, Germany
Milan, Italy
Science Park, Singapore
Zurich, Switzerland
Maidenhead, UK
Manchester, UK
Windsor, UK
42
EXHIBIT 21
GenRad, Inc.
Schedule of Subsidiaries as of December 28, 1996
Subsidiary Name State/Jurisdiction of Incorporation
- --------------- -----------------------------------
GenRad SA France
GenRad GmbH Germany
GenRad Benelux B.V. Netherlands
GenRad Europe Limited England
GenRad Limited England
GenRad Holdings Limited England
GenRad Securities Corporation Massachusetts
Integrated Customer Services, Inc. Massachusetts
Mitron Corporation Oregon
Test Technology Associates, Inc. Texas
All subsidiaries are Consolidated Subsidiaries and do business under their own
name.
12
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (No. 2-85614, No.
2-89950, No. 33-28715 and 33-19685) and the Registration Statements on Form S-8
(No. 2-92786, No. 2-92800, No. 33-1667, No. 33-10658, No. 33-53869, No.
33-35918, No. 33-53871, No. 33-53867, No. 33-42789, No. 33-52009, No. 33-60153
and 33-05235) of GenRad, Inc. of our report dated January 28, 1997 in the Annual
Report to Shareholders which is incorporated in this Annual Report on Form 10-K.
We also consent to the application of such report to the Financial Statement
Schedule for the two years ended December 28, 1996 listed under Item 14(a) of
this Annual Report on Form 10-K, when such schedule is read in conjunction with
the financial statements referred to in our report. The audits referred to in
such report also included this schedule.
/S/ PRICE WATERHOUSE LLP
---------------------------
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 6, 1997
13
EXHIBIT 23.2
Consent of Independent Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated February 8, 1995 (except for
Note 14 for which the date is March 2, 1995). It should be noted that we have
not audited any financial statements of the Company subsequent to December 31,
1994 or performed any audit procedures subsequent to the date of our report.
/S/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 5, 1997
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 28, 1996 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28, 1996 FOR GENRAD, INC.
AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<EXCHANGE-RATE> 1
<CASH> 10,557
<SECURITIES> 0
<RECEIVABLES> 50,573
<ALLOWANCES> 1,431
<INVENTORY> 20,250
<CURRENT-ASSETS> 84,450
<PP&E> 80,155
<DEPRECIATION> 60,987
<TOTAL-ASSETS> 115,765
<CURRENT-LIABILITIES> 30,811
<BONDS> 0
0
0
<COMMON> 26,048
<OTHER-SE> 37,632
<TOTAL-LIABILITY-AND-EQUITY> 115,765
<SALES> 144,325
<TOTAL-REVENUES> 183,545
<CGS> 64,500
<TOTAL-COSTS> 87,137
<OTHER-EXPENSES> 66,154
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,575
<INCOME-PRETAX> 25,679
<INCOME-TAX> (1,656)
<INCOME-CONTINUING> 27,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,335
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.09
</TABLE>
