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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 3, 1998
Commission File No. 1-8045
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GenRad, Inc.
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(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)
7 Technology Park Drive, Westford, Massachusetts 01886-0033
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 589-7000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
29,008,593 shares of the Common Stock, $1 par value, were outstanding on
November 10, 1998.
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<PAGE>
GENRAD, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information:
Consolidated Statement of Operations ................................. 1
Consolidated Balance Sheet ........................................... 2
Consolidated Statement of Cash Flows ................................. 3
Notes to Consolidated Financial Statements ........................... 4 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operation ..................... 10 - 16
Part II. Other Information:
Items 1 and 6......................................................... 17
Signatures ........................................................... 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
GENRAD, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ --------------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales:
Sales of products $ 43,039 $ 44,523 $ 119,791 $ 130,223
Sales of services 17,511 14,347 48,771 42,197
------------ ------------ ------------ ------------
Total sales 60,550 58,870 168,562 172,420
------------ ------------ ------------ ------------
Cost of sales:
Cost of products sold 26,402 18,368 61,699 58,204
Cost of services sold 9,521 7,671 28,288 22,833
------------ ------------ ------------ ------------
Total cost of sales 35,923 26,039 89,987 81,037
------------ ------------ ------------ ------------
Gross profit 24,627 32,831 78,575 91,383
Selling, general and administrative 17,038 16,813 52,672 50,327
Research and development 4,265 4,938 14,628 14,183
Unusual charges 5,490 -- 37,036 --
------------ ------------ ------------ ------------
Total operating expenses 26,793 21,751 104,336 64,510
------------ ------------ ------------ ------------
Operating (loss) income (2,166) 11,080 (25,761) 26,873
Other expense:
Interest, net (285) (181) (567) (189)
Other, net (302) (231) (402) (287)
------------ ------------ ------------ ------------
Total other expense (587) (412) (969) (476)
------------ ------------ ------------ ------------
(Loss) income before income taxes (2,753) 10,668 (26,730) 26,397
Income tax provision (benefit) 750 1,063 (7,332) (2,846)
------------ ------------ ------------ ------------
Net (loss) income $ (3,503) $ 9,605 $ (19,398) $ 29,243
============ ============ ============ ============
Net (loss) income per common and
common equivalent shares:
Basic $ (0.12) $ 0.36 $ (0.69) $ 1.10
============ ============ ============ ============
Diluted $ (0.12) $ 0.33 $ (0.69) $ 1.05
============ ============ ============ ============
Weighted average common and common
equivalent shares used in computing
per share amounts:
Basic 28,289,000 26,992,000 28,028,000 26,636,000
============ ============ ============ ============
Diluted 28,289,000 29,212,000 28,028,000 27,951,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
1
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
October 3, January 3,
1998 1998
----------- ----------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents $ 7,985 $ 21,883
Accounts receivable, net 69,602 73,006
Inventories 32,133 29,896
Other current assets 4,132 4,194
---------- ---------
Total current assets 113,852 128,979
---------- ---------
Property, plant and equipment, net 38,008 33,479
Deferred tax asset 15,368 7,868
Intangible assets, net 22,365 7,107
Other assets 1,080 1,524
---------- ---------
$ 190,673 $178,957
========== =========
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable $ 9,123 $ 12,730
Accrued liabilities 20,347 12,445
Accrued compensation and employee benefits 5,585 6,884
Income taxes payable 552 1,029
Current portion of long-term debt 2,460 2,434
---------- ---------
Total current liabilities 38,067 35,522
---------- ---------
Long-term Liabilities:
Long-term debt 6,764 8,519
Accrued pensions and benefits 11,421 11,239
Future lease costs of unused facilities 3,810 4,106
Other long-term liabilities 5,797 4,558
---------- ---------
Total long-term liabilities 27,792 28,422
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Stockholders' Equity:
Common stock, $1 par value, 60,000,000 shares
authorized; 28,976,000 and 27,349,000 issued and
outstanding in 1998 and 1997, respectively 28,976 27,349
Treasury stock, 773,000 and 0 shares held
in 1998 and 1997, respectively (10,856) --
Additional paid-in capital 211,230 172,026
Accumulated deficit (101,890) (82,492)
Cumulative translation adjustment (2,646) (1,870)
---------- ---------
Total stockholders' equity 124,814 115,013
---------- ---------
$ 190,673 $178,957
========== =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
2
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
October 3, September 27,
1998 1997
---------- -------------
<S> <C> <C>
Operating activities:
Net (loss) income $(19,398) $ 29,243
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,631 5,934
Loss on disposition of property, plant and equipment 1,256 265
Reserve for future lease costs of unused facilities (1,024) (1,374)
Non cash unusual charges 32,991 --
Increase (decrease) resulting from changes in
operating assets and liabilities:
Accounts receivable 6,627 (16,212)
Inventories (6,786) (4,610)
Other current assets 164 (437)
Deferred tax asset (7,500) (5,394)
Trade accounts payable (4,177) 4,623
Accrued liabilities 7,234 (4,063)
Accrued compensation and employee benefits (1,428) 83
Accrued income taxes (692) 1,907
Other, net (927) (208)
--------- ----------
Net cash provided by operating activities 14,971 9,757
--------- ----------
Investing activities:
Purchases of property, plant and equipment (12,330) (17,586)
Purchase of subsidiaries (3,093) --
Proceeds from sale of property, plant and equipment -- 133
Investment in intangible assets (3,378) (341)
--------- ---------
Net cash used in investing activities (18,801) (17,794)
--------- ----------
Financing activities:
Proceeds from issuance of debt -- 11,654
Repayment of debt (1,827) (728)
Proceeds from employee stock option exercises 4,235 8,154
Purchase of treasury stock (10,856) --
--------- ---------
Net cash (used in) provided by financing activities (8,448) 19,080
--------- ----------
Effects of exchange rates on cash (1,620) 1,017
--------- ---------
(Decrease) increase in cash equivalents (13,898) 12,060
Cash and equivalents at beginning of period 21,883 10,557
--------- ---------
Cash and equivalents at end of period $ 7,985 $ 22,617
========= ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1: Accounting Comments
Reference is made to the Company's 1997 Annual Report and Form 10-K which
contains, at pages 13 through 38, financial statements and the notes thereto,
including a summary of significant accounting policies.
With respect to the financial information for the interim periods included in
this report, which is unaudited, the management of the Company believes that all
adjustments necessary for a fair presentation of the results for such interim
periods have been included. All adjustments are of a normal and recurring
nature.
The results of any interim period are not necessarily indicative of the results
for the entire year.
Note 2: Reclassifications
Certain reclassifications were made to the 1997 consolidated financial
statements to conform to the 1998 presentation.
Note 3: Details of Financial Statement Components (in thousands)
<TABLE>
<CAPTION>
October 3, January 3,
1998 1998
----------- ----------
(unaudited)
<S> <C> <C>
Inventories:
Raw materials $ 11,692 $ 18,378
Work in process 11,941 8,355
Finished goods 8,500 3,163
--------- ---------
$ 32,133 $ 29,896
========= =========
Property, Plant and Equipment:
Leasehold improvements $ 13,927 $ 14,612
Machinery and equipment 47,707 56,259
Service parts 13,879 12,757
--------- ---------
75,513 83,628
Accumulated depreciation (37,505) (50,149)
--------- ---------
$ 38,008 $ 33,479
========= =========
Intangible Assets:
Goodwill $ 11,264 $ 6,029
Capitalized and purchased computer software 4,961 2,374
Other intangible assets 9,254 1,534
--------- ---------
25,479 9,937
Accumulated amortization (3,114) (2,830)
--------- ---------
$ 22,365 $ 7,107
========= =========
Accrued Liabilities:
Customer prepayments $ 7,174 $ 6,059
Other accrued liabilities 6,800 5,071
Accrued unusual charges 6,264 --
Lease costs of unused facilities 109 1,315
--------- ---------
$ 20,347 $ 12,445
========= =========
</TABLE>
4
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4: Unusual Charges
In the second and third quarters ended July 4, 1998 and October 3, 1998,
respectively, the Company recorded unusual charges of $31.5 and $10.4 million,
respectively, composed of the following items (in millions):
<TABLE>
<CAPTION>
Q2 1998 Q3 1998 Total
------- ------------------------------ -----
Unusual Year
Unusual Unusual Cost of to
Charges Charges Products Sold Date
------- ------- ------------- ----
<S> <C> <C> <C> <C>
(1) Purchased in-process technology related to the
acquisition of Industrial Computer Corporation $21.7 $ -- $ -- $21.7
(2) Impairment of goodwill and purchased software 4.9 -- -- 4.9
(3) Purchase of in-process diagnostic software 1.7 -- -- 1.7
(4) Severance costs, equipment & facility
termination fees and fixed asset write offs 3.2 3.6 -- 6.8
(5) Shut down of manufacturing in the Manchester,
UK facility -- 0.5 3.5 4.0
(6) Exit from the Vision product line -- 1.4 1.4 2.8
----- ---- ---- -----
$31.5 $5.5 $4.9 $41.9
===== ==== ==== =====
</TABLE>
The impact on the Company's cash flow of these unusual charges is as follows (in
millions):
<TABLE>
<CAPTION>
Summary of Unusual Charges Timing of Cash Payments
- ------------------------------------ -------------------------------------------------------
Actual Actual Forecast Forecast
Non Q2 Q3 Q4 Fiscal
* Cash Cash Total 1998 1998 1998 1999 Total
- --- ----- ---- ----- ------ ------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1) $21.7 $ -- $21.7 $ -- $ -- $ -- $ -- $ --
(2) 4.9 -- 4.9 -- -- -- -- --
(3) - 1.7 1.7 1.1 -- -- 0.6 1.7
(4) 0.1 6.7 6.8 0.6 0.9 2.7 2.5 6.7
(5) 3.7 0.3 4.0 -- -- 0.3 -- 0.3
(6) 2.6 0.2 2.8 -- 0.1 0.1 -- 0.2
----- ---- ----- ---- ---- ---- ---- ----
$33.0 $8.9 $41.9 $1.7 $1.0 $3.1 $3.1 $8.9
===== ==== ===== ==== ==== ==== ==== ====
</TABLE>
* - See description of unusual charges above.
(1) On April 7, 1998, the Company acquired Industrial Computer Corporation, as
is more fully disclosed in Note 5. An independent third-party appraisal
company conducted a valuation of the intangible assets acquired and
determined that $21.7 million of the purchase price represented purchased
in-process technology that had not yet reached technological feasibility
and had no alternative future use. Accordingly, an unusual charge of $21.7
million was recorded in the second quarter of 1998.
5
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 4: Unusual Charges (continued)
(2) In fiscal 1996, the Company purchased Test Technology Associates, Inc. and
Testware, Inc. These companies provide custom test programming, test
fixture integration and other value-added services to manufacturers and
users of electronic products. Additionally, GenRad acquired certain assets
of Field Oriented Engineering, AG in fiscal 1996, consisting primarily of
the software program known as Tracs III(R), which is sold to electronic
manufacturing systems customers. The excess purchase price over the net
assets acquired for these acquisitions was recorded as long-term
intangibles, primarily goodwill.
The historical financial performance of these entities has continued to be
less than anticipated and the businesses have been negatively impacted by
the recent decline in the in-circuit test market. Due to these factors as
well as certain management changes during the second quarter of 1998, the
Company prepared revised projections of future operating cash flows
relating to these businesses, which indicated that the businesses would not
generate sufficient operating cash flows to realize the carrying value of
the intangible assets. This analysis was performed in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets", and as a result, a $4.9 million unusual charge was recorded in the
second quarter of 1998.
(3) On July 2, 1998, the Company acquired the rights to certain diagnostic
software for which technological feasibility had not been established. The
software technology will be used in the diagnosis of increasingly complex
mechatronic systems, in particular, in vehicle systems. The purchase price
of $1.7 million was recorded as an unusual charge in the second quarter of
1998.
(4) During the second and third quarters of 1998, the Company restructured its
operations, which resulted in a workforce reduction of approximately 230
employees or 15% of the Company's workforce. In accordance with EITF 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity", the Company will incur approximately $6.8
million for severance costs, post-employment benefits, write offs of
certain fixed assets and for the termination fees of certain equipment and
real estate leases.
(5) In the third quarter of 1998, the Company shut down manufacturing at the
Manchester, UK facility. Inventory totaling $3.5 million was written off to
cost of product, which related to the discontinuance of certain Automotive
Diagnostic Solutions ("ADS") products that were uneconomic to produce as
well as the shut down of the ADS contract manufacturing business. The
remainder of the unusual charge ($0.5 million) related to a workforce
reduction of approximately 20 people and the write-off of certain fixed
assets used in ADS manufacturing.
(6) The Company completed an in depth analysis of the hardware portion of the
Vision product line in the third quarter of 1998. The decision to shut down
this business was based upon the following: (i) the market for Vision
equipment in PCB manufacturing is not as large as had been previously
estimated, and (ii) the continued research and development investment
required for the existing Vision product was not warranted given the
resizing of the Vision market. The shut down of the Vision hardware product
line resulted in unusual charges ($1.4 million) related to fixed asset
write-offs. Additionally, unusual cost of products sold ($1.4 million) were
incurred related to the write-off of inventory on hand, inventory purchase
order cancellation charges and the write-off of prepaid royalties.
6
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5: Acquisitions
Industrial Computer Corporation
On April 7, 1998, GenRad acquired all of the then outstanding common shares of
Industrial Computer Corporation ("ICC"). ICC is a software company providing
real-time manufacturing execution systems to electronics manufacturers. ICC was
established in 1980 and is located in Atlanta, Georgia. The acquisition was
accounted for by the purchase method of accounting. The results of ICC are
included in the 1998 financial statements beginning from the date of purchase.
In connection with the acquisition of ICC, 1,237,917 shares of GenRad's common
stock were issued for all of the then outstanding shares of ICC in a tax-free
reorganization. The total consideration for the acquisition of ICC was $36.6
million. Merger costs were $1.6 million and consisted primarily of legal fees,
accounting fees and broker fees. Additional information concerning the
acquisition is contained in the Company's current report on Form 8-K/A, as filed
with the Securities and Exchange Commission on July 10, 1998.
An independent third-party appraisal company conducted a valuation of the
intangible assets acquired. Approximately $21.7 million of the purchase price
represented purchased in-process technology that had not yet reached
technological feasibility and had no alternative future use. This amount was
expensed as a non-recurring, non-tax deductible charge in the second quarter of
1998. The value was determined by estimating the future costs to develop the
purchased in-process technology into commercially viable products; estimating
the resulting net cash flow from such projects; and discounting the net cash
flows back to their present value. The efforts required to develop the purchased
in-process technology into a commercially viable product principally relate to
the completion of all planning, designing, prototyping and testing activities in
order to establish that the product can be produced to meet its design
specifications, including functions, features and technical performance
requirements. If this project is not successfully developed, the consolidated
sales and profitability of the Company may be adversely affected in future
periods. Additionally, the value of other intangible assets acquired could
become impaired. GenRad expects to begin to benefit from the purchased
in-process technology commencing in the year 2000.
The remaining excess purchase price over the net assets acquired was comprised
of the following intangibles: $5.0 million of purchased software (5 year useful
life); acquired workforce of $1.3 million (3 year useful life); trade name of
$0.4 million (3 year useful life); and goodwill of $10.2 million (15 year useful
life). Intangibles will be amortized straight line over the estimated useful
lives, previously noted.
The following unaudited pro forma combined financial statements give effect to
the business combination of GenRad and ICC using the purchase method of
accounting. The pro forma combined financial statements assume that the
acquisition took place as of the beginning of the periods presented. These
statements are presented for illustrative purposes only and are not necessarily
indicative of the financial position or the results of operations that actually
would have been realized had the Company and ICC been a combined company during
the specified periods. Additionally, they are not indicative of the results of
future combined operations.
7
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5: Acquisitions (continued)
<TABLE>
<CAPTION>
(In thousands, except per share data)
Nine Months Ended
----------------------------
October 3, September 27,
1998 1997
----------------------------
<S> <C> <C>
Total Sales $171,410 $179,787
======== ========
Net (Loss) Income $(20,000) $ 5,627
======== ========
Pro Forma Net (Loss) Income
Per Common and Common
Equivalent Shares:
Basic $ (0.70) $ 0.20
======== ========
Diluted $ (0.70) $ 0.19
======== ========
</TABLE>
Approximately $21.7 million of the purchase price represented in-process
technology that had not yet reached technological feasibility and had no
alternative future use. This charge is included in the above pro forma combined
statements of operations.
Manufacturing Execution Systems Business
On April 9, 1998, GenRad acquired certain assets of the Manufacturing Execution
Systems ("MES") business of Valstar Systems Limited located in Aberdeenshire,
Scotland. Valstar's MES component provides integration services and support and
distribution in Europe for ICC's Shop Floor Data Manager Software.
Valstar's MES business was acquired for $3.0 million in cash, funded through
internally generated funds. As part of the acquisition, the Company entered into
a two-year consulting and services agreement with Valstar Systems Limited that
includes securing certain Valstar personnel and other resources to transition
the business to GenRad. Of the $3.0 million purchase price, $2.0 million was
paid on April 9, 1998 and $1.0 million was released from escrow on October 7,
1998 as certain contingencies were achieved.
The acquisition was accounted for by the purchase method of accounting. The
excess purchase price over the net assets acquired was composed of the following
intangibles: $0.2 million of employment contracts (3 year useful life); customer
list of $0.9 million (7 year useful life); and goodwill of $2.1 million (10 year
useful life). Intangibles will be amortized straight line over the estimated
useful lives, previously noted.
Note 6: 1997 Non-Qualified Employee Stock Option Plan
The Company has a 1997 Non-Qualified Employee Stock Option Plan for key
employees excluding directors and officers. On April 3, 1998 and October 23,
1998, respectively, the Board of Directors approved 1,250,000 and 250,000
additional shares for this plan. On October 23, 1998, there were 2,000,000
shares authorized for issuance under this plan. Options under this plan
generally vest over a four-year period and have a term of ten years.
8
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7: Contingencies
On April 28, 1998, the Company and James F. Lyons, President and Chief Executive
Officer were served with a lawsuit purported to be a class action suit on behalf
of persons who purchased Company stock in the open market over a specified
period of time. The lawsuit is entitled Duck Enterprises, LPV GenRad and James
F. Lyons, CA No. 98-10706-PBS, and was filed in the United States District Court
for the District of Massachusetts. The complaint seeks unspecified damages, as
well as costs and attorney's fees. The Company has reviewed the complaint and
believes that the allegations are without merit. The Company intends to
vigorously defend the suit and has notified its insurance carrier of the claim.
Due to the preliminary nature of the action, it is not possible at this time to
assess the outcome of the suit.
On May 27, 1998, William E. Gaines, William E. Masskaker, Frank B. Wingate and
Heritage Investment Limited Partnership ("the plaintiffs") filed a Demand for
Arbitration with the American Arbitration Association in Boston (No. 11 168
00247 98) against the Company, James F. Lyons and Paul Pronsky, Jr. The claims
arise out of the merger transaction between GenRad and ICC. The plaintiffs are
seeking damages of $13.6 million, plus interest charges and legal fees, based
upon the decline in the market price of GenRad's common stock subsequent to the
merger. The Company denies the allegations made in the Demand for Arbitration.
The Company intends to vigorously defend the claim and has notified its
insurance carrier. Due to the preliminary nature of the action, it is not
possible at this time to assess the outcome of the claim.
Note 8: Line of Credit
The Company has a credit facility under which there were no borrowings
outstanding on October 3, 1998. The Company increased its credit facility to $50
million on July 16, 1998. Borrowings under the revised credit facility, which
expires on July 16, 2001, are subject to compliance with specified financial and
operating covenants. Interest is payable at the lesser of (i) the prime interest
rate, or (ii) under a LIBOR option, with borrowing spreads of LIBOR plus 0.75%
to LIBOR plus 1.50%. The unused commitment fee ranges from 0.25% to 0.50% based
upon the Company's financial performance.
Note 9: Treasury Stock
On June 11, 1998, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 2,500,000 shares of its common stock,
which represents approximately 8% of the then issued and outstanding shares of
common stock of the Corporation. At October 3, 1998, the Company had repurchased
approximately 773,000 shares of common stock for $10.9 million. The Company
accounts for its treasury stock utilizing the cost method.
Note 10: Impact of Recently Issued Accounting Pronouncement
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
requires disclosure of comprehensive income and its components in interim and
annual reports. Total comprehensive income components included in stockholder's
equity include any changes in equity during a period that are not the result of
transactions with owners, including cumulative translation adjustments,
unrealized gains and losses on available-for-sale securities and minimum pension
liabilities. For the nine months ended October 3, 1998 and September 27, 1997,
comprehensive income items included in stockholders' equity consisted of
translation adjustments of ($0.8) million for each period.
9
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating Results
On April 7, 1998, GenRad acquired all of the then outstanding common shares of
Industrial Computer Corporation ("ICC") in exchange for 1,237,917 shares of
GenRad's common stock in a tax-free reorganization. The acquisition was
accounted for by the purchase method of accounting. The total consideration for
the acquisition was $36.6 million, plus merger costs of $1.6 million.
Approximately $21.7 million of the purchase price represented purchased
in-process technology that had not yet reached technological feasibility and was
expensed as an unusual charge in the statement of operations in the second
quarter of 1998. The remaining excess purchase price over the net assets
acquired was composed of $16.9 million of intangibles which will be amortized
straight line over their estimated useful lives (3 to 15 years); the majority of
the excess ($10.2 million) was related to goodwill. ICC is a software company
providing real-time Manufacturing Execution Systems ("MES") to electronic
manufacturers.
On April 9, 1998, GenRad acquired certain assets of the MES business of Valstar
Systems Limited located in Aberdeenshire, Scotland. The acquisition was
accounted for by the purchase method of accounting. The acquisition was for $3.0
million in cash and was funded through internally generated funds; acquisition
costs were insignificant. Of the $3.0 million purchase price, $2.0 million was
paid on April 9, 1998 and $1.0 million was released from escrow on October 7,
1998 as certain contingencies were fulfilled. The excess purchase price over the
net assets acquired was allocated to various intangible assets and will be
amortized straight line over their estimated useful lives (3 to 10 years).
In the second quarter of 1998, the Company recorded unusual charges of $31.5
million. The majority of the charges related to purchased in-process technology
in connection with the acquisition of ICC and certain diagnostic software for
which technological feasibility had not been established ($23.4 million). An
intangible asset impairment ($4.9 million) was recorded related to the fiscal
1996 acquisitions of Test Technology Associates, Inc., Testware, Inc. and Field
Oriented Engineering, AG. Lastly, the Company restructured current operations
that resulted in severance costs, post-employment benefits and termination fees
for certain equipment and real estate leases ($3.2 million).
In the third quarter of 1998 the Company continued implementing its
restructuring plans begun in the second quarter of 1998. As a result, unusual
charges of $10.4 million were recorded during the quarter, of which $5.5 million
was classified as unusual charges and $4.9 million was classified as cost of
products. The majority of the charges were related to the shut down of
manufacturing in the Manchester, UK facility ($4.0 million) and the exit from
the hardware portion of the Company's Vision product line ($2.8 million). The
balance of $3.6 million is attributable to severance costs and post-employment
benefits relating to additional reductions in the workforce, closure of excess
facilities and write offs of certain fixed assets.
Orders for the Company's products and services were $59.9 million and $166.8
million for the three months and nine months ended October 3, 1998,
respectively, as compared to $59.6 million and $177.8 million for the comparable
periods in 1997. The decrease in year to date 1998 orders occurred primarily in
Electronic Manufacturing Systems' ("EMS") GENEVA(R) product group and Automotive
Diagnostic Solutions ("ADS"); both product lines had unusually large multiple
orders in 1997 as compared to 1998. GR Software orders increased in the 1998
periods due to the acquisition of ICC in the second quarter of 1998 as well as a
$1.7 million software order recorded in the third quarter of 1998. Orders for
the 1998 periods increased in North America and decreased in both Europe and
Asia as compared to 1997.
Backlog at the end of the 1998 third quarter decreased to $23.1 million compared
to $24.9 million at year-end 1997 and $30.0 million at the end of the 1997 third
quarter. The Company believes that a substantial portion of the 1998 third
quarter backlog will be shipped prior to the end of fiscal 1998. Backlog
decreased in the third quarter of 1998 from the
10
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating Results (continued)
comparable 1997 quarter primarily due to decreased orders in ADS and EMS
(GENEVA), which was partially offset by increased orders in GR Software. Third
quarter 1998 backlog decreased in both North America and Europe and increased in
Asia as compared to the 1997 third quarter.
Net product and service sales increased to $60.6 million in the third quarter of
1998 from $58.9 million in the comparable 1997 period. Sales increased primarily
as a result of the acquisition of ICC in the second quarter of 1998. For the
nine months ended October 3, 1998, sales decreased to $168.6 million from $172.4
million in the comparable 1997 period. Sales declined in ADS, while increasing
in both EMS and GR Software. Sales increased in North America, which was more
than offset by decreases in both Europe and Asia.
Sales from international markets increased to 51.5% of total sales for the three
months ended October 3, 1998 from 45.8% of total sales in the comparable 1997
period due to increased international EMS and GR Software sales. Sales from
international markets remained constant at 52.7% of total sales for the nine
months ended October 3, 1998 and September 27, 1997. A decrease in European ADS
sales offset increased European EMS sales. Product and service revenues from
international markets are subject to the risk of currency fluctuations.
Product margins including unusual product costs were 38.7% and 48.5% for the
three months and nine months ended October 3, 1998, respectively, as compared to
58.7% and 55.3% for the comparable periods in 1997. Product margins excluding
unusual charges were 50.1% and 52.6% for the three and nine months ended October
3, 1998. The unusual product costs of $4.9 million recorded in the three months
ended October 3, 1998 related to the discontinuance of certain ADS product
offerings ($3.5 million) and the exit from the hardware portion of the Company's
Vision product line ($1.4 million). A greater proportion of sales from EMS
products and the inclusion of the sales of ICC favorably impacted product
margins, excluding unusual items, which typically have higher margins than ADS
sales. This was more than offset by lower than planned manufacturing levels,
which resulted in under absorption of manufacturing overhead. Management has
taken steps to eliminate the excess capacity in manufacturing by downsizing the
headcount to improve future product margins.
Service margins decreased to 45.6% and 42.0% for the three months and nine
months ended October 3, 1998, respectively, from 46.5% and 45.9% in the
comparable 1997 periods. The decrease in margins in the 1998 periods as compared
to 1997 is primarily due to service margin declines in ADS as a result of lower
margin contracts. This was partially offset by increased utilization in the EMS
service organization, primarily Board Test, and the favorable inclusion of ICC
margins commencing in the second quarter of 1998.
Selling, general and administrative expenses increased in the three and nine
month periods ended October 3, 1998 to $17.0 million and $52.7 million,
respectively, from $16.8 million and $50.3 million in the comparable periods in
1997. Expenses increased for the three and nine month periods in 1998 as
compared to 1997 due primarily to the inclusion of costs of ICC which was
acquired in the second quarter of 1998 as well as increased global selling and
support infrastructure costs. Marketing and overhead costs decreased in the 1998
periods as compared to 1997 due to the restructuring measures taken by the
Company in the second and third quarters of 1998. Management believes that the
full impact of these changes will be realized commencing in fiscal 1999.
Research and development expenses for the three and nine month periods ended
October 3, 1998 were $4.3 million and $14.6 million, respectively, as compared
to $4.9 million and $14.2 million in the comparable periods in 1997. As a
percentage of product and service sales, research and development expenses were
7.0% and 8.7% for the three and nine month periods ended October 3, 1998,
respectively, as compared to 8.4% and 8.2% in the comparable periods of 1997.
Including capitalized software development costs, research and development
expenses as a percentage of product and
11
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operating Results (continued)
service sales were 9.9% and 10.9% for the three and nine month periods ended
October 3, 1998, respectively, as compared to 8.6% and 8.3% in the comparable
periods in 1997. The Company continues to invest in new product development and
enhancements to existing products.
Net interest expense was $0.3 million and $0.6 million for the three and nine
month periods ended October 3, 1998, respectively, as compared to $0.2 million
in each of the comparable periods in 1997. The 1998 interest expense primarily
relates to the five year term loan entered into on June 26, 1997 that provided
approximately $12 million for the purchase of furniture and fixtures for the
Company's new corporate headquarters and manufacturing facilities in Westford,
Massachusetts.
A net income tax benefit of $7.5 million was recorded in the first quarter of
1998 as compared to $5.4 million in the comparable period in 1997. The tax
benefit represents a reduction in the Company's valuation allowance for deferred
taxes and was recorded due to management's expectations of future income and
expected utilization of the Company's domestic net operating loss carryforwards.
Income tax expense decreased to $0.8 million for the three months ended October
3, 1998 from $1.1 million in the comparable period in 1997. Excluding the
deferred tax benefits, the income tax provision was $0.2 million for the nine
months ended October 3, 1998 as compared to $2.6 million for the comparable
period in 1997. Income taxes decreased year to date 1998 as compared to 1997 due
to lower pre-tax income levels.
As a result of the above, the Company reported a net loss of $3.5 million for
three months and $19.4 million for the nine months ended October 3, 1998, as
compared to net income of $9.6 million and $29.2 million, respectively, for the
comparable periods in 1997.
Liquidity and Sources of Capital
Cash and equivalents at the end of the third quarter of 1998 totaled $8.0
million as compared to $21.9 million at year-end 1997 and $22.6 million at the
end of the 1997 third quarter. The Company's current ratio decreased to 3.0 at
the end of the third quarter of 1998, as compared to 3.6 at year-end 1997 and
3.5 at the end of the 1997 third quarter. Excluding the accrued unusual charge
of $6.3 million, the current ratio was 3.6 at the end of the 1998 third quarter.
Cash provided by operating activities was $15.0 million in the third quarter of
1998. The net loss of $19.4 million for the nine months ended October 3, 1998
included a $7.5 million non-cash benefit resulting from the deferred tax asset
that was recorded in the first quarter of 1998 and $33.0 million of unusual
non-cash charges. The decrease in accounts receivable provided cash of $6.6
million as a result of significant collections during 1998. Increases in
inventory used cash of $6.8 million primarily as a result of work in process for
the Ford WDS project. Accrued liabilities increased $7.2 million due primarily
from the accrued unusual charges of $6.3 million related to the 1998
restructuring efforts. The remaining other current liabilities decreased $7.2
million as a result of the timing of payments to employees and vendors.
During the nine months ended October 3, 1998, $12.3 million of cash was used for
the purchase of property, plant and equipment. Capital expenditures were
primarily for equipment used in manufacturing and in research and development as
well as the implementation of the Company's new business system. The purchase of
ICC and MES in the second quarter of 1998 used cash of $3.1 million. Investments
in intangible assets of $3.4 million were primarily for capitalized software.
12
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Sources of Capital (continued)
The issuance of stock under the Company's employee stock plans provided cash of
$4.2 million for the nine months ended October 3, 1998, while the purchase of
treasury stock used $10.9 million of cash.
The Company's primary source of liquidity is internally generated funds. The
Company also has an existing unsecured line of credit up to $50 million, against
which there were no borrowings outstanding on October 3, 1998. Borrowings under
the credit facility are subject to compliance with specified financial and
operating covenants. The credit facility expires on July 16, 2001. The Company
also has a five year term loan which provided approximately $12 million for the
purchase of furniture and fixtures for the Company's new corporate headquarters
and manufacturing facilities in Westford, Massachusetts. The principal of the
loan is repayable in twenty equal quarterly payments of $0.6 million to be paid
through the second quarter of 2002. Interest is payable quarterly in arrears at
LIBOR plus 1.25%.
The Company anticipates that for the remainder of fiscal 1998 it will fund its
working capital and capital expenditure requirements and meet its cash
obligations from internally generated funds and from the available credit
facility. The Company expects to make cash payments of approximately $3.1
million in the fourth quarter of fiscal 1998 and $3.1 million in fiscal 1999 in
connection with the unusual charges, previously described. The Company also
plans to continue its stock repurchase plan.
The Company buys and sells foreign currencies using forward contracts intended
to hedge payables and receivables denominated in foreign currencies. The Company
primarily operates in U.S. dollars and European currencies. At October 3, 1998,
the Company had forward exchange contracts to sell approximately $34.5 million
of foreign currencies.
Inflation during the periods presented did not have a significant effect on the
operations of the Company. The Company attempts to mitigate inflationary cost
increases by continuously improving manufacturing methods and technologies.
Forward-Looking Statements
This Quarterly Report contains certain forward-looking statements, as such,
these statements are subject to risks and uncertainties. The Company's actual
results of operations and future financial conditions may differ materially from
those expressed in any such forward-looking statements as a result of many
factors that may be beyond the Company's control. Factors that might cause such
differences are identified in this Quarterly Report and include, but are not
limited to, those discussed below. Factors that may cause results to differ
materially from those projected are also discussed in the Company's 1997 Annual
Report on Form 10K for the fiscal year ended January 3, 1998.
Factors That May Affect Future Results
While the Company's sales cycle varies substantially from customer to customer,
a high percentage of the Company's revenues are expected to be realized in the
third month of each fiscal quarter. The Company's backlog at the beginning of a
quarter will not generally be large enough to assure that it will meet its
revenue targets for any particular quarter. In addition, the Company's operating
expenses are based on expected future revenue and are relatively fixed for the
short term. Accordingly, the Company's quarterly results may be difficult to
predict until late in the quarter and a shortfall in shipments or contract
orders at the end of any particular quarter may cause the results for that
quarter to fall short of anticipated levels.
13
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Factors That May Affect Future Results (continued)
The market for the Company's products is characterized by rapid technological
change, an increased demand for specific feature requests by customers, evolving
industry standards, and frequent new product introductions. The introduction 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. Future operating results are dependent upon the Company's ability
to develop, design, manufacture and market technologically innovative products
that meet customer needs.
Competition in the markets where the Company operates is intense. The Company
continues to invest in manufacturing productivity to try to minimize the impact
of competitive pricing pressures, fluctuations within the Company's product mix,
potential inventory obsolescence exposure and start-up manufacturing costs for
new product introductions.
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, supply
shortages or increases in the costs of key raw materials could have a material
adverse effect on the Company.
The Company is subject to various legal proceedings and claims related to
products, contracts, employees and other matters that arise in the ordinary
course of business. An adverse result beyond the Company's current insurance
coverage could have a material adverse effect on the Company's financial
condition, results of operations and liquidity.
Other factors which could impact future results are past and future
acquisitions, strategic alliances, patent or product liability claims in excess
of available insurance coverage, changes in the Company's effective tax rates,
new regulatory requirements, political and economic changes, tariffs, trade
restrictions, transportation delays, foreign currency fluctuations and
inflation.
The Company disclaims any intent or obligation to update any forward-looking
statements that may be included in this report. Additionally, there can be no
assurance that other factors, not included above, could impact future results.
Factor That May Affect Future Results: The Year 2000 Issue
Many computer systems and other equipment with embedded chips or processors use
only two digits to represent the year. Consequently, they may be unable to
process accurately certain dates before, during and after the year 2000. As a
result, entities are at risk for possible miscalculations or system failures
causing disruptions in their operations. GenRad has and continues to evaluate
its operations to assess modifications needed for this issue. A full time
project manager position was established in 1998 to address the Year 2000 issue.
GenRad has a comprehensive worldwide program that is intended to identify and
remediate potential material problems related to the Year 2000 in its products,
information systems, infrastructure and manufacturing facilities. The work plan
established involves the following phases:
o Inventory GenRad products, assets, facilities and manufacturing and
business processes.
o Assess the risk associated with that inventory.
o Remediate business systems impacted by Year 2000 issues.
o Identify and communicate to customers those products (a) that will be Year
2000 compliant, (b) that have a remediation path to make those products
Year 2000 compliant and (c) that have no remediation path and will not be
Year 2000 compliant.
o Test and document all of the above that must be or are represented to be
compliant.
14
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Factor That May Affect Future Results: Year 2000 Issue (continued)
A number of inventory reviews have been completed and will continue to be
updated in the future. Software and hardware, as well as tools to test, age and
evaluate data, have been acquired, are being installed and are being utilized
for the Year 2000 compliance work plan. Test plans for items identified as
critical are either being deployed or currently being developed.
Prior to addressing the Year 2000 issue, GenRad had decided to replace all of
its business system software. GenRad is replacing its worldwide business systems
with systems that use programs primarily from SAP America, Inc. ("SAP"). SAP has
advised GenRad that its programs are Year 2000 compliant. The SAP costs will be
capitalized in accordance with SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The financial system
replacement is scheduled for completion in the first quarter of 1999, while the
manufacturing, materials, order entry and service portions are scheduled for
completion in the third quarter of 1999. As a contingency, the existing business
systems have been remediated and are in the process of being tested.
With respect to GenRad products, the Company is in the process of designing and
executing scripted tests that will determine the impact of the Year 2000 on each
currently manufactured GenRad product. GenRad will treat any Year 2000 issue
discovered during this process, if any, as an important product maintenance
issue and shall make reasonable efforts to provide available fixes to all
worldwide GenRad customers. The status in regards to the Year 2000 compliance
issue of each product manufactured by GenRad is posted on the Company's home
page at the following web address: http://www.genrad.com.
GenRad has initiated formal communications with all significant external
interfaces and suppliers to determine the extent to which GenRad is vulnerable
to third party failures to remediate their own potential Year 2000 problems. A
failure of these parties to adequately address their Year 2000 issues could
adversely affect the Company's operations. This process is scheduled for
completion by July of 1999 and will be evaluated in the context of GenRad's
contingency plans.
Costs incurred to date for the Year 2000 issue were approximately $200,000 with
estimated future costs of $300,000. The costs were and will continue to be
funded through internally generated resources and expensed as incurred in
accordance with EITF 96-14, "Accounting For the Costs Associated with Modifying
Computer Software for the Year 2000". Management believes that Year 2000 issues
will be addressed in a manner that will prevent such issues from having a
material adverse effect on GenRad results of operations, liquidity or financial
condition. There can be no assurance that management will be successful in
addressing all Year 2000 issues. If management is not, the Company's operating
results and financial condition could be materially and adversely impacted. Year
2000 contingency plans, as necessary, are scheduled to be incorporated into the
previously established Year 2000 Plan during fiscal 1999.
Impact of Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board issued Statement No. 131, "Disclosure
about Segments of an Enterprise and Related Information". This Statement
requires an enterprise to report financial and descriptive information about its
reportable operating income. Operating segments are components that are
evaluated regularly by chief operating decision makers in deciding how to
allocate resources and in assessing performance. This Statement requires a
business enterprise to report a measure of segment profit or loss, certain
specific revenue and expense items (including interest, depreciation, and income
taxes), and segment assets. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Financial Accounting Standards Board issued Statement No. 132,
15
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Impact of Recently Issued Accounting Pronouncements (continued)
"Employers' Disclosure about Pensions and Other Post-retirement Benefits". This
statement revises employer's disclosures about pensions and other
post-retirement plans. The Statement does not change the measurement or
recognition of those types of plans. These Statements are required to be adopted
in the Company's fiscal year-end 1998. These statements will not affect the
Company's consolidated financial position or results of operations as they
impact disclosure only.
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company) and requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company is currently
determining the impact that the adoption of this Statement will have on its
earnings or statement of financial position.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceeding
On April 28, 1998, the Company and James F. Lyons, President and Chief Executive
Officer were served with a lawsuit purported to be a class action suit on behalf
of persons who purchased Company stock in the open market over a specified
period of time. The lawsuit is entitled Duck Enterprises, LPV GenRad and James
--------------------------------------
F. Lyons, CA No. 98-10706-PBS, and was filed in the United States District Court
- --------
for the District of Massachusetts. The complaint seeks unspecified damages, as
well as costs and attorney's fees. The Company has reviewed the complaint and
believes that the allegations are without merit. The Company intends to
vigorously defend the suit and has notified its insurance carrier of the claim.
Due to the preliminary nature of the action, it is not possible at this time to
assess the outcome of the suit.
On May 27, 1998, William E. Gaines, William E. Masskaker, Frank B. Wingate and
Heritage Investment Limited Partnership ("the plaintiffs") filed a Demand for
Arbitration with the American Arbitration Association in Boston (No. 11 168
00247 98) against the Company, James F. Lyons and Paul Pronsky, Jr. The claims
arise out of the merger transaction between GenRad and ICC. The plaintiffs are
seeking damages of $13.6 million, plus interest charges and legal fees, based
upon the decline in the market price of GenRad's common stock subsequent to the
merger. The Company denies the allegations made in the Demand for Arbitration.
The Company intends to vigorously defend the claim and has notified its
insurance carrier. Due to the preliminary nature of the action, it is not
possible at this time to assess the outcome of the claim.
Item 6. Exhibits and Reports on Form 8-K
(a)(3) The following Exhibits are filed:
10. Amended and restated revolving credit agreement dated July 16,
1998 between GenRad, Inc. and BankBoston, N.A., incorporated
by reference to Exhibit 10 to the Company's report on Form 10-Q
for the quarter ended July 4, 1998.
10.1 Agreement and Plan of Merger dated April 7, 1998 by and among
GenRad, Inc., Industrial Computer Corporation, Frank B. Wingate,
William E. Massaker, William E. Gaines and Heritage Investment
Limited Partnership, incorporated by reference to the Company's
Registrations Statement on Form S-3 (File No. 333-57251).
11. Statement re: Computation of Earnings Per Share.
27. Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the quarter ended October 3,
1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GenRad, Inc.
By: /s/ Walter A. Shephard
-------------------------------------
Walter A. Shephard
Vice President,
Chief Financial Officer and Clerk
Date: November 16, 1998
18
EXHIBIT 11
GENRAD, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- ---------------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Basic earnings per share:
- -------------------------
Net (loss) income available to
common stockholders $(3,503,000) $ 9,605,000 $(19,398,000) $29,243,000
============ =========== ============= ===========
Weighted average number of
common shares outstanding 28,289,000 26,992,000 28,028,000 26,636,000
============ =========== ============= ===========
Basic earnings per share $ (0.12) $ 0.36 $ (0.69) $ 1.10
============ =========== ============= ===========
Diluted earnings per share:
- ---------------------------
Net (loss) income available to
common stockholders $(3,503,000) $ 9,605,000 $(19,398,000) $29,243,000
============ =========== ============= ===========
Weighted average number of
common shares outstanding 28,289,000 26,992,000 28,028,000 26,636,000
Weighted average incremental
shares from the assumed conversion
of stock options and restricted
stock awards -- 2,220,000 -- 1,315,000
------------ ----------- ------------- -----------
Total: 28,289,000 29,212,000 28,028,000 27,951,000
============ =========== ============= ===========
Diluted earnings per share $ (0.12) $ 0.33 $ (0.69) $ 1.05
============ =========== ============= ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF OCTOBER 3, 1998 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE PERIOD ENDED OCTOBER 3, 1998 FOR GENRAD, INC. AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<EXCHANGE-RATE> 1
<CASH> 7,985
<SECURITIES> 0
<RECEIVABLES> 71,064
<ALLOWANCES> 1,462
<INVENTORY> 32,133
<CURRENT-ASSETS> 113,852
<PP&E> 75,513
<DEPRECIATION> 37,505
<TOTAL-ASSETS> 190,673
<CURRENT-LIABILITIES> 38,067
<BONDS> 0
0
0
<COMMON> 28,976
<OTHER-SE> 95,838
<TOTAL-LIABILITY-AND-EQUITY> 190,673
<SALES> 43,039
<TOTAL-REVENUES> 60,550
<CGS> 26,402
<TOTAL-COSTS> 35,923
<OTHER-EXPENSES> 27,069
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311
<INCOME-PRETAX> (2,753)
<INCOME-TAX> 750
<INCOME-CONTINUING> (3,503)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,503)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
