SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
----------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 11, 1998
Date of Report
(Date of earliest event reported)
GENRAD, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 001-08045 04-1360950
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
7 Technology Park Drive
Westford, MA 01886-0033
(978) 589-7000
(Address of principal executive offices, including zip code and telephone
number)
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Restatement of Financial Statements and Changes to Certain Information
The undersigned registrant hereby amends in its entirety Item 7(b) of its
Current Report on Form 8-K/A as of June 11, 1998.
In April 1998, GenRad, Inc. ("the Company") acquired Industrial Computer
Corporation ("ICC") for approximately $38.2 million in a business combination
accounted for as a purchase. The Company allocated $21.7 million of the purchase
price to acquired in-process research and development. Subsequent to the
acquisition, in a letter dated September 9, 1998 to the American Institute of
Certified Public Accountants, the Chief Accountant of the Securities and
Exchange Commission ("the SEC") reiterated the views of the staff of the SEC
("the Staff") on certain appraisal practices employed in the determination of
the fair value of acquired in-process research and development and other
intangible assets resulting from purchase business combinations.
The Company has had discussions with the Staff concerning the valuation of
acquired in-process research and development and other intangible assets
resulting from its acquisition of ICC, and as a result of these discussions, the
Company has implemented a valuation methodology suggested by the SEC. The
Company has restated its previously issued results to reflect the discussions
with the Staff and to apply the appropriate guidance and policies. The purchase
price of ICC has been allocated by the Company based upon the application of the
recent guidance and, accordingly, the financial statements in this Current
Report on Form 8-K/A have been restated. After applying the appropriate guidance
and policy, the allocation of the ICC purchase price was changed for acquired
in-process research and development from $21.7 million to $8.4 million and for
developed technology from $4.9 million to $11.4 million, resulting in a change
to goodwill from $10.2 million to $17.0 million.
THIS FORM 8-K HAS BEEN AMENDED TO INCLUDE THE FINANCIAL STATEMENTS AND PRO FORMA
FINANCIAL INFORMATION OMITTED FROM THE INITIAL REPORT ON FORM 8-K FILED ON JUNE
22, 1998.
ITEM 5. OTHER EVENTS.
On June 11, 1998, GenRad, Inc. (the "Company") announced that its Board of
Directors has approved a stock repurchase program of up to 2,500,000 shares, or
approximately 8% of the issued and outstanding Common Stock of the Company.
Commencement of the stock repurchase program will require the Company to account
for the acquisition of Industrial Computer Corporation ("ICC"), completed on
April 7, 1998, as a purchase rather than a pooling of interests. The Company
also announced that as a result of this and other initiatives, the Company will
record a one-time non-recurring charge of approximately $40,000,000 in the
fiscal quarter which will end July 4, 1998. These charges will include a
write-off of in-process research and development at ICC; a goodwill impairment
loss relating to certain other past acquisitions of the Company; and anticipated
severance costs of a reduction in the work force of approximately 10% during the
fiscal quarter.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Industrial Computer Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Industrial
Computer Corporation at December 31, 1997, and the results of its operations and
its cash flows for the year then ended, 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 audit. We conducted our audit 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 audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
July 2, 1998
<PAGE>
Industrial Computer Corporation
Balance Sheet
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 552,416 $ 625,682
Accounts receivable, less allowance of $140,705 at
December 31, 1997 and March 31, 1998 2,604,064 2,951,895
Prepaid expenses and other current assets 32,187 21,281
------------- --------------
Total current assets 3,188,667 3,598,858
Fixed assets 299,885 341,356
Capitalized software development costs 388,151 321,384
Notes receivable from related parties 63,227 64,317
Other assets 10,000 10,000
------------- --------------
Total assets $ 3,949,930 $ 4,335,915
------------- --------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of notes payable $ 18,280 $ 24,825
Accounts payable 227,120 498,156
Accrued expenses 1,042,450 1,042,450
Accrued compensation 339,982 58,578
Income taxes payable 224,037 197,837
Deferred revenue 1,044,252 1,192,377
------------- --------------
Total current liabilities 2,896,121 3,014,223
------------- --------------
Long-term liabilities
Notes payable 43,427 28,651
Deferred compensation 1,047,795 1,343,992
Other long-term liabilities 36,802 37,886
------------- --------------
Total long-term liabilities 1,128,024 1,410,529
------------- --------------
Commitments and Contingencies
Stockholders' Deficit
Common stock, $0.028572 par value; 100,000 shares authorized;
93,973 shares issued and 86,873 shares outstanding at
December 31, 1997 and March 31, 1998 2,685 2,685
Less: Treasury stock, 7,100 shares at December 31, 1997
and March 31, 1998 (39,994) (39,994)
Additional paid-in capital 130,130 130,130
Accumulated Deficit (165,047) (179,969)
Unrealized loss on available-for-sale securities (1,989) (1,689)
------------- --------------
Total Stockholders' Deficit (74,215) (88,837)
------------- --------------
Total Liabilities and Stockholders' Deficit $ 3,949,930 $ 4,335,915
------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Industrial Computer Corporation
Statement of Operations
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months
Year ended Ended Ended
December 31, March 31, March 31,
1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Sales:
Sales of products $ 4,159,201 $ 977,680 $ 1,223,218
Sales of services 5,924,217 1,870,556 1,316,131
-------------- ------------- --------------
Total sales 10,083,418 2,848,236 2,539,349
Cost of sales:
Cost of products sold 931,381 297,800 486,691
Cost of services sold 3,241,997 713,991 663,170
-------------- ------------- --------------
Total cost of sales 4,173,378 1,011,791 1,149,861
Gross margin 5,910,040 1,836,445 1,389,488
-------------- ------------- --------------
Selling, general and administrative 3,288,989 1,249,204 743,817
Research and development 2,392,539 615,824 506,487
-------------- ------------- --------------
Total operating expenses 5,681,528 1,865,028 1,250,304
-------------- ------------- --------------
Operating income (loss) 228,512 (28,583) 139,184
-------------- ------------- --------------
Other (expense) income
Interest, net (1,125) 13,661 (8,222)
Other, net 740 - 208
-------------- ------------- --------------
Total other (expense) income (385) 13,661 (8,014)
Income (loss) before income taxes 228,127 (14,922) 131,170
Provision for income taxes 343,710 - 197,629
-------------- ------------- --------------
Net loss $ (115,583) $ (14,922) $ (66,459)
-------------- ------------- --------------
Basic and diluted loss per common share (1.33) (0.17) (0.77)
Weighted average common shares outstanding 86,873 86,873 86,873
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Industrial Computer Corporation
Statement of Changes in Stockholders' Equity (Deficit)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Treasury Paid-in
Shares Amount Stock Capital
<S> <C> <C> <C> <C>
Balance at December 31, 1996 86,873 $ 2,685 $ (39,994) $ 130,130
Net loss - - - -
---------------- --------------- ---------------- ----------------
Balance at December 31, 1997 86,873 2,685 (39,994) 130,130
Net loss (unaudited) - - - -
---------------- --------------- ---------------- ----------------
Balance at March 31, 1998 (unaudited) 86,873 $ 2,685 $ (39,994) $ 130,130
---------------- --------------- ---------------- ----------------
<CAPTION>
Unrealized
loss on
Accumulated investments
deficit held for sale Total
<S> <C> <C> <C>
Balance at December 31, 1996 $ (49,464) $ (1,901) $ 41,456
Net loss (115,583) (88) (115,671)
--------------- ---------------- ----------------
Balance at December 31, 1997 (165,047) (1,989) (74,215)
Net loss (unaudited) (14,922) 300 (14,622)
--------------- ---------------- ----------------
Balance at March 31, 1998 (unaudited) $ (179,969) $ (1,689) $ (88,837)
--------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Industrial Computer Corporation
Statement of Cash Flows
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months
Year ended Ended Ended
December 31, March 31, March 31,
1997 1998 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (115,583) $ (14,922) $ (66,459)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 324,342 91,333 72,004
Bad debt expense 91,850 - 76,145
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,228,793) (347,831) 42,976
Decrease (increase) in other, net 15,595 12,290 (20,463)
(Decrease) increase in accounts payable (12,800) 271,036 5,178
Increase in accrued expenses 405,734 - 80,396
Increase (decrease) in accrued compensation 234,797 (281,404) (22,195)
Increase (decrease) in income taxes payable 180,883 (26,200) 190,843
Increase in deferred revenue 355,776 148,125 259,674
Increase in deferred compensation 623,247 296,197 110,000
--------------- --------------- ----------------
Net cash provided by operating activities 875,048 148,624 728,099
--------------- --------------- ----------------
Cash flows from investing activities:
Purchases of fixed assets (155,857) (66,037) (70,373)
Capitalized software development costs (138,100) - (34,525)
Notes issued to officers (58,222) (1,090) (601)
--------------- --------------- ----------------
Net cash used for investing activities (352,179) (67,127) (105,499)
--------------- --------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of long term debt 19,635 - 19,635
Principal payments on long term debt (186,376) (8,231) (9,912)
--------------- --------------- ----------------
Net cash (used for) provided by financing activities (166,741) (8,231) 9,723
--------------- --------------- ----------------
Net increase in cash and cash equivalents 356,128 73,266 632,323
Cash and cash equivalents, beginning of period 196,288 552,416 196,288
--------------- --------------- ----------------
Cash and cash equivalents, end of period 552,416 625,682 828,611
--------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Industrial Computer Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
1. Nature of Business
Industrial Computer Corporation ("ICC" or the "Company") was incorporated
as a Georgia corporation in 1980. The Company develops and markets
real-time manufacturing execution systems for discrete manufacturing
environments.
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.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash, Cash Equivalents, and Marketable Securities
All highly liquid investments with an initial maturity of three months or
less are considered to be cash equivalents. The Company invests excess
cash primarily in money market funds of major financial institutions.
Accordingly, these investments are subject to minimal credit and market
risk. At December 31, 1997, the Company's cash equivalents are classified
as available-for-sale and include $517,884 of money market funds. These
investments are stated at cost plus accrued interest, which approximates
fair market value.
At December 31, 1997, the Company also holds corporate equity securities
with an original cost of $2,364 and a market value of $375, which are
included in prepaid expenses and other current assets on the balance
sheet. These securities are classified as available-for-sale securities
and, accordingly, the unrealized loss has been included as a component of
stockholder's equity.
Accounts Receivable, Concentration of Credit Risk, and Significant
Customers
Financial instruments which potentially expose the Company to
concentrations of credit risk include accounts receivable. The Company
does not require collateral but closely monitors amounts receivable from
customers. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management expectations.
Revenue of approximately $1,835,000 (18%), $1,489,000 (15%), $1,299,000
(13%), and $1,273,000 (13%) was attributable to four separate customers in
fiscal 1997.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Maintenance and repair
expenditures are charged to expense as incurred.
<PAGE>
Industrial Computer Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
Capitalized Software Development Costs
Costs associated with the development of computer software are expensed as
incurred prior to the establishment of technological feasibility (as
defined by Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed"). Costs incurred subsequent to the establishment of
technological feasibility and prior to the general release of the products
are capitalized. Capitalized software development costs are amortized to
cost of sales over the estimated useful life of the related products,
generally three years. During the year ended December 31, 1997, the
Company capitalized $138,094 of software development costs. At December
31, 1997, net software development costs were $388,151, net of accumulated
amortization of $413,033. Amortization expense for the year ended December
31, 1997 was $221,029.
Revenue Recognition
Revenue from software licenses is recognized upon shipment provided that
no significant Company obligations or uncertainties remain and collection
of the related receivable is probable. Service revenue is recognized
ratably over the period the services are performed for post-contract
customer support or as services are performed for implementation contracts
and training. Payments received in advance of revenue recognition are
recorded as deferred revenue.
3. Net Income per Common and Common Equivalent Share
In February, 1997, Statement of Financial Accounting Standard No. 128,
"Earnings per Share" (SFAS No. 128), was issued which supercedes the
old methodology for calculation of EPS, as promulgated under APB
Opinion No. 15. SFAS No. 128 requires presentation of "basic" earnings
per share (which excludes dilution as a result of unexercised stock
options and convertible subordinated debentures) and "diluted" earnings
per share. In the absence of dilutive securities, the Company's basic
and diluted earnings per share are the same for all periods.
2
<PAGE>
Industrial Computer Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
4. Fixed Assets
Fixed assets at December 31, 1997 consist of the following:
Estimated
useful life December 31,
(years) 1997
Computer equipment 5 $ 690,927
Furniture and fixtures 7 75,430
Office equipment 7 102,707
Leasehold improvements 10 4,827
-------------
873,891
Less accumulated depreciation 574,006
-------------
$ 299,885
-------------
Depreciation expense for the year ended December 31, 1997 was $103,313.
5. Notes Receivable From Related Parties
Notes receivable from related parties at December 31, 1997 consist of two
notes in the amounts of $49,520 and $13,707 due from two shareholders who
are also officers of the Company. Both notes bear interest at 7.11% and
are due on July 10, 2007 and, accordingly, are classified as non-current
assets at December 31, 1997.
6. Phantom Stock Plan
On December 15, 1993, the Company adopted the Industrial Computer
Corporation Phantom Stock Plan (the "Plan"). The purpose of the Plan is to
provide deferred compensation to key employees of ICC. Under the terms of
the Plan, the Board of Directors has the authority to grant performance
units at an initial base value determined in accordance with the Plan. All
units vest immediately upon grant. The units are redeemable in cash upon
sale of all of the Company's common stock to a third party or the issuance
by the Company of stock for public sale. Upon these events, the units are
redeemable at the third party purchase price or initial public offering
price per share less the initial base value determined at the grant date.
At December 31, 1997, there were 3,485 performance units outstanding. The
Company recorded $623,247 of compensation expense during fiscal 1997
related to these units, resulting in total deferred compensation of
$1,047,795 at December 31, 1997. All outstanding units were redeemed in
April 1998 in connection with the sale of all of the Company's common
stock as described in Note 12.
3
<PAGE>
Industrial Computer Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
7. Accrued Expenses
Accrued expenses at December 31, 1997 consist of the following:
Sales and use tax payable $ 1,000,000
Other 42,450
-----------
$ 1,042,450
-----------
8. Notes Payable and Line of Credit
The Company has outstanding promissory notes for the purchase of computer
equipment and furniture and fixtures. The principal of the promissory
notes is repayable in monthly installments, including interest at rates
ranging from 9.25% to 9.75%. At December 31, 1997, the outstanding balance
of the promissory notes was $61,707, of which $18,280 is classified as
current. Annual maturities for the five years subsequent to December 31,
1997 are $18,280 for 1998, $32,087 for 1999, $10,609 for 2000, and $731
for 2001.
The Company has a $500,000 credit facility. The credit facility expired on
April 30, 1998 and interest is payable at 9.25%. There were no borrowings
outstanding on the line of credit at December 31, 1997.
Interest paid amounted to $17,823 for the year ended December 31, 1997.
9. Income Taxes
The components of the provision for income taxes for the year ended
December 31, 1997 are as follows:
Current tax provision
Federal $ 259,481
State 84,229
------------
$ 343,710
------------
4
<PAGE>
Industrial Computer Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
The Company's effective income tax rate varies from the
federal statutory income tax rate for the year ended
December 31, 1997 as follows:
Federal income tax at statutory rate $ 77,563
State income taxes, net of federal benefit 55,591
Non-deductible meals and entertainment 8,654
Increase in valuation allowance 411,800
Utilization of research and development credits (209,898)
----------
$ 343,710
----------
Deferred tax assets (liabilities) at December 31, 1997
consist of the following:
Allowance for doubtful accounts $ 76,000
Accrued expenses 380,000
Deferred compensation 398,162
Capitalized software development costs (147,497)
-----------
Net deferred tax assets 706,665
Valuation allowance (706,665)
-----------
Net deferred tax assets $ -
-----------
Deferred income taxes reflect the effect of temporary differences between the
tax basis of assets and liabilities and the reported amounts of assets and
liabilities for financial reporting purposes, net of any valuation allowance,
under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." The Company has provided a valuation allowance for the full
amount of its net deferred tax assets since the Company believes that it is more
likely than not that any future benefit from deductible temporary differences
will not be realized.
10. 401(k) Savings Plan
The Company has established a retirement savings plan under Section 401(k)
of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all employees of the Company who meet minimum age and
service requirements, and allows participants to defer a portion of their
annual compensation on a pre-tax basis. The Company has not made any
contributions to the 401(k) Plan through December 31, 1997.
5
<PAGE>
Industrial Computer Corporation
Notes to Financial Statements
- ------------------------------------------------------------------------------
11. Commitments and Contingencies
The Company leases its office space and certain office equipment under
noncancelable operating leases. Total rent expense under these operating
leases was approximately $483,514 for the year ended December 31, 1997.
Future minimum lease commitments at December 31, 1997 are as follows:
Year ending December 31,
1998 $ 467,788
1999 447,921
2000 449,248
2001 75,035
----------
$ 1,439,992
-----------
The Company has granted exclusive rights to a third party to license its
products in certain geographic territories as defined in the agreement. In
connection with this arrangement, the Company is required to pay royalties
on certain sales made by this third party.
12. Subsequent Event
On April 7, 1998, the Company was acquired by GenRad, Inc. ("GenRad")
pursuant to an Agreement and Plan of Merger (the "Merger Agreement").
Under the terms of the Merger Agreement, GenRad acquired all of the
outstanding voting common stock of the Company in exchange for 1,237,917
shares of GenRad common stock.
6
<PAGE>
(b) Pro forma financial information.
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are presented
for illustrative purposes only and are not necessarily indicative of the
combined financial position or results of operations that actually would have
been realized had GenRad, Inc. ("GenRad") and Industrial Computer Corporation
("ICC") been a combined company during the specified periods. Additionally, they
are not indicative of the results of future combined operations.
The following 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 utilize the audited financial
statements of GenRad for the fiscal year ended January 3, 1998 and of ICC for
the fiscal year ended December 31, 1997, and the unaudited financial statements
of GenRad for the three months ended April 4, 1998 and of ICC for the three
months ended March 31, 1998. The pro forma combined statements of operation
assume that the acquisition took place as of the beginning of the periods
presented. The pro forma combined balance sheet assumes that the acquisition
took place as of the end of the interim period.
The unaudited pro forma combined financial statements have been prepared by
management and should be read in conjunction with the historical financial
statements of GenRad and ICC. The unaudited pro forma combined financial
statements are based on certain assumptions and preliminary estimates which may
be subject to change.
<PAGE>
GenRad, Inc. and Industrial Computer Corporation
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
GenRad ICC
April 4, March 31,
1998 1998 Debit Credit Pro Forma
-------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C>
Assets
Cash and equivalents $ 16,299 $ 626 $ 16,925
Accounts receivable, net 64,944 2,952 67,896
Inventories 37,721 - 37,721
Other current assets 4,967 21 4,988
-------- -------- --------
Total current assets 123,931 3,599 127,530
-------- -------- --------
Property, plant and equipment 36,080 341 36,421
Deferred tax asset 15,368 - 15,368
Intangible assets 7,855 321 (5) 30,041 (4) 321 37,896
Other assets 1,419 75 1,494
-------- -------- --------
$184,653 $ 4,336 $218,709
======== ======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Trade accounts payable $ 11,967 $ 498 $ 12,465
Accrued liabilities 11,817 2,234 (1) 1,455 15,506
Accrued compensation and employee benefits 4,461 59 4,520
Income taxes payable 904 198 1,102
Current portion of long-term debt 2,440 25 2,465
-------- -------- --------
Total current liabilities 31,589 3,014 36,058
-------- -------- --------
Long-term Liabilities:
Long-term debt 7,931 29 7,960
Accrued pensions and benefits 10,869 1,344 12,213
Future lease costs of unused facilities 4,111 - 4,111
Other long-term liabilities 4,209 38 4,247
-------- -------- --------
Total long-term liabilities 27,120 1,411 28,531
-------- -------- --------
Stockholders' Equity
Common stock 27,592 3 (2) 3 (2) 1,238 28,830
Treasury stock - (40) (2) 40 -
Additional paid-in capital 174,112 130 (2) 130 (2) 35,358 209,470
Accumulated deficit (73,583) (180)(3) 8,420 (2) 180 (82,003)
Cumulative translation adjustment and unrealized
loss on available-for-sale securities (2,177) (2) (2) 2 (2,177)
-------- -------- --------
Total stockholders' equity 125,944 (89) 154,120
-------- -------- --------
$184,653 $ 4,336 $218,709
======== ======== ========
-------- --------
$ 38,594 $ 38,594
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial statements.
<PAGE>
GenRad, Inc. and Industrial Computer Corporation
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------------------
GenRad ICC
April 4, March 31,
1998 1998 Debit Credit Pro Forma
---------- -------- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
Sales:
Sales of products $ 35,590 $ 978 $ 36,568
Sales of services 13,484 1,870 15,354
---------- -------- ----------
Total sales 49,074 2,848 51,922
---------- -------- ----------
Cost of Sales:
Cost of products sold 15,100 298 406 (4) 67 15,737
Cost of services sold 8,702 714 9,416
---------- -------- ----------
Total cost of sales 23,802 1,012 25,153
---------- -------- ----------
Gross margin 25,272 1,836 26,769
Selling, general and administrative 18,434 1,248 (5) 566 20,248
Research and development 4,919 616 5,535
---------- -------- ----------
Total operating expenses 23,353 1,864 25,783
---------- -------- ----------
Operating income 1,919 (28) 986
Other income (expenses):
Interest income 217 13 230
Interest expense (326) - (326)
Other, net (311) - (311)
---------- -------- ----------
Total other (expenses) income (420) 13 (407)
---------- -------- ----------
Income before taxes 1,499 (15) 579
Income tax (benefit) expense (7,410) - (7,410)
---------- -------- ----------
Net Income $ 8,909 $ (15) $ 7,989
========== ======== ==========
Net income per common and common
equivalent shares:
Basic $ 0.33 $ (0.17) $ 0.28
========== ======== ==========
Diluted $ 0.30 $ (0.17) $ 0.26
========== ======== ==========
Weighted average common and common
equivalent shares used in computing per
share amounts:
Basic 27,395,000 87,000 28,633,000
========== ======== ==========
Diluted 29,621,000 87,000 30,859,000
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial statements.
<PAGE>
GenRad, Inc. and Industrial Computer Corporation
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twelve months ended
---------------------------------------------------------------------------
GenRad ICC
January 3, December 31,
1998 1997 Debit Credit Pro Forma
------------ ----------- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
Sales:
Sales of products $ 179,672 $ 4,159 $ 183,831
Sales of services 57,089 5,924 63,013
---------- ------- ----------
Total sales 236,761 10,083 246,844
---------- ------- ----------
Cost of Sales:
Cost of products sold 78,515 931 1,624 (5) 81,070
Cost of services sold 31,482 3,242 (4) 83 34,641
---------- ------- ----------
Total cost of sales 109,997 4,173 115,711
---------- ------- ----------
Gross margin 126,764 5,910 131,133
Selling, general and administrative 68,376 3,289 (5) 2,264 73,929
Research and development 19,902 2,393 22,295
---------- ------- ----------
Total operating expenses 88,278 5,682 96,224
---------- ------- ----------
Operating income 38,486 228 34,909
Other income (expenses):
Interest income 530 - 530
Interest expense (793) (1) (794)
Other, net (477) 1 (476)
---------- ------- ----------
Total other (expenses) income (740) - (740)
---------- ------- ----------
Income before taxes 37,746 228 34,169
Income tax (benefit) expense (3,549) 344 (3,205)
---------- ------- ----------
Net Income $ 41,295 $ (116) $ 37,374
========== ======= ==========
Net income (loss) per common and common
equivalent shares:
Basic $ 1.54 $ (1.33) $ 1.33
========== ======= ==========
Diluted $ 1.43 $ (1.33) $ 1.24
========== ======= ==========
Weighted average common and common
equivalent shares used in computing per
share amounts:
Basic 26,814,000 87,000 28,052,000
========== ======= ==========
Diluted 28,788,000 87,000 30,026,000
========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial statements.
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1: Historical
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 will be
accounted for as a purchase.
On a combined basis, there were no material transactions between GenRad and ICC
during the periods presented.
There are no material differences between the accounting policies of GenRad and
ICC.
Certain reclassifications have been made to the GenRad statement of operations
for the fiscal year ended January 3, 1998 to conform to the interim 1998 period.
Note 2: Pro Forma Adjustments
An independent third-party appraisal company conducted a valuation of the
intangible assets acquired. The unaudited pro forma combined financial
statements are based on certain assumptions and preliminary estimates which may
be subject to change. The following pro forma adjustments were recorded:
(1) Adjustment to record acquisition costs (legal fees, accounting fees and
broker fees) of $1,455,000.
(2) Adjustments to reflect the elimination of ICC stockholders' equity and to
record the issuance of 1,237,917 shares of GenRad's common stock in a tax free
reorganization. The total consideration for the acquisition of ICC was
$36,596,000.
(3) Management estimates that approximately $8.4 million of the purchase price
represents purchased in-process technology that has not yet reached
technological feasibility and has no alternative future use. This amount will be
expensed as a non-recurring, non-tax deductible charge upon consummation of the
acquisition. This amount has been reflected as a reduction to stockholders'
equity and has not been included in the pro forma combined statements of
operation due to its non-recurring nature. The pro forma per share impact would
have been as follows:
<TABLE>
<CAPTION>
Fiscal year ended Three months ended
January 3, 1998 April 4, 1998
----------------- ------------------
<S> <C> <C>
Basic ($0.30) ($0.29)
Diluted ($0.28) ($0.27)
</TABLE>
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(continued)
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 flows from such projects; and discounting the net cash flows
back to their present value.
(4) Write off the net book value of the capitalized software costs acquired and
the elimination of the related amortization expense recorded in the statement of
operations for the periods presented.
(5) To record the intangible assets acquired and related amortization expense
had the acquisition occurred at the beginning of the periods presented.
Intangibles consist of the following: $11.4 million of purchased software (7
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 $17.0 million
(10 year useful life). Intangibles will be amortized straight line over their
estimated useful lives.
Note 3: Pro Forma Net Income Per Share
The shares used in computing pro forma net income per share assume that the
acquisition had taken place as of the beginning of the respective periods.
<PAGE>
(c) Exhibits.
2. 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
Registration Statement on Form S-3 (File No. 333-57251)).
23. Consent of PricewaterhouseCoopers LLP.
<PAGE>
SIGNATURE
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
Chief Financial Officer and Secretary
Date: July 10, 1998
Exhibit 23
----------
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 2-85614, No. 2-89950, No. 33-28715, No. 333-09675,
No. 333-19685 and No. 333-57251) and the Registration Statements on Form S-8
(No. 333-69045, No. 333-69049, No. 333-64329, No. 333-43445, 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 No. 333-05235) of
GenRad, Inc. of our report dated July 2, 1998 relating to the financial
statements of Industrial Computer Corporation, which appears in this Current
Report on Form 8-K of GenRad, Inc. dated April 16, 1999.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 14, 1999
