<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JULY 1, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-8045
GENRAD, INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C>
MASSACHUSETTS 04-1360950
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification
organization) Number)
7 TECHNOLOGY PARK DRIVE WESTFORD, MASSACHUSETTS 01886-0033
(Address of principal executive offices) (Zip Code)
</TABLE>
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.
29,981,725 shares of the Common Stock, $1 par value, were outstanding on
August 10, 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
GENRAD INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
THREE MONTHS ENDED JULY 1, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations........... 1
Condensed Consolidated Balance Sheets..................... 2
Condensed Consolidated Statements of Cash Flows........... 3
Notes to Condensed Consolidated Financial Statements...... 5
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders......... 26
Item 6: Exhibits and Reports on Form 8-K............................ 26
Signatures.................................................. 28
</TABLE>
<PAGE>
PART I
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GENRAD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Products............................................ $70,303 $46,069 $119,873 $82,752
Services............................................ 17,021 17,549 33,824 33,976
------- ------- -------- -------
Total revenue....................................... 87,324 63,618 153,697 116,728
COST OF REVENUE:
Products............................................ 40,740 22,806 67,996 37,188
Services............................................ 12,245 10,048 23,191 20,224
------- ------- -------- -------
Total cost of revenue............................. 52,985 32,854 91,187 57,412
------- ------- -------- -------
Gross margin.......................................... 34,339 30,764 62,510 59,316
OPERATING EXPENSES:
Selling, general and administrative................. 20,329 16,323 38,103 32,624
Research and development............................ 7,237 4,788 12,991 9,472
Amortization of acquisition-related intangible
assets............................................ 2,004 667 2,795 1,497
Acquired in-process research and development........ -- -- 500 --
Restructuring benefit, net.......................... -- -- (2,479) --
Reorganization charges.............................. 4,124 -- 4,124 --
------- ------- -------- -------
Total operating expenses.......................... 33,694 21,778 56,034 43,593
------- ------- -------- -------
Operating income...................................... 645 8,986 6,476 15,723
OTHER INCOME (EXPENSE):
Interest income..................................... 59 30 124 157
Interest expense.................................... (2,326) (262) (2,735) (486)
Other, net.......................................... 10 100 52 (106)
------- ------- -------- -------
Total other income (expense)...................... (2,257) (132) (2,559) (435)
------- ------- -------- -------
Net income (loss) before income taxes................. (1,612) 8,854 3,917 15,288
Income tax benefit (expense).......................... 581 (894) 13,130 2,994
------- ------- -------- -------
Net income (loss)..................................... $(1,031) $ 7,960 $ 17,047 $18,282
------- ------- -------- -------
NET INCOME (LOSS) PER SHARE:
Basic............................................... $ (0.04) $ 0.28 $ 0.61 $ 0.64
======= ======= ======== =======
Diluted............................................. $ (0.04) $ 0.27 $ 0.60 $ 0.62
======= ======= ======== =======
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic............................................... 28,073 28,518 28,105 28,392
======= ======= ======== =======
Diluted............................................. 28,073 29,480 28,551 29,412
======= ======= ======== =======
</TABLE>
The Accompanying Notes are an Integral Part of These Condensed Consolidated
Financial Statements.
1
<PAGE>
GENRAD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 11,639 $ 6,951
Accounts receivable, less allowance of $1,673 and $1,487.... 93,011 81,276
Inventory................................................... 72,818 49,068
Deferred tax asset.......................................... 15,665 --
Other current assets........................................ 8,534 8,228
-------- --------
Total current assets.................................... 201,667 145,523
Property and equipment, net of accumulated depreciation of
$44,526 and $41,751....................................... 51,597 43,194
Deferred tax asset.......................................... 13,949 19,868
Intangible assets, net of accumulated amortization of
$16,290 and $10,866....................................... 96,152 38,686
Other assets................................................ 3,187 1,368
-------- --------
$366,552 $248,639
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable...................................... 21,264 21,841
Accrued liabilities......................................... 11,587 9,681
Deferred revenue............................................ 10,854 9,388
Accrued compensation and employee benefits.................. 8,504 6,750
Current portion of bank debt................................ 50,440 2,353
-------- --------
Total current liabilities............................... 102,649 50,013
Long-term portion of bank debt.............................. 55,162 3,653
Accrued pension benefits.................................... 8,969 9,175
Lease costs of excess facilities............................ 50 3,922
Deferred revenue............................................ 1,073 1,005
Other long-term liabilities................................. 4,353 4,036
-------- --------
Total long-term liabilities............................. 69,607 21,791
Commitments and Contingencies
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 60,000 shares authorized;
29,993 and 29,877 issued and outstanding at July 1, 2000
and January 1, 2000, respectively......................... 29,993 29,877
Additional paid-in capital.................................. 223,934 221,854
Treasury stock, net......................................... (31,292) (29,017)
Accumulated deficit......................................... (27,019) (44,066)
Accumulated other comprehensive loss........................ (1,320) (1,813)
-------- --------
Total stockholders' equity.............................. 194,296 176,835
-------- --------
$366,552 $248,639
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of These Condensed Consolidated
Financial Statements.
2
<PAGE>
GENRAD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
JULY 1, JULY 3,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................. $17,047 $18,282
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................... 10,614 6,401
Stock-based compensation.................................... 312 306
Loss on disposal of property and equipment.................. 245 392
Deferred tax asset.......................................... (13,757) (4,500)
Lease costs of excess facilities, net....................... (3,872) (34)
Acquired in-process research and development................ 500 --
Restructuring charges....................................... 986 --
Increase (Decrease) resulting from changes in operating
assets and liabilities, net of effects of acquisitions:
Accounts receivable......................................... (6,581) (12,113)
Inventory................................................... (16,876) (18,413)
Other current assets........................................ 550 (717)
Accounts payable............................................ (2,720) 7,523
Deferred revenue............................................ 1,717 3,274
Accrued liabilities......................................... 118 (10,896)
Accrued compensation and employee benefits.................. 949 (1,460)
Other, net.................................................. (1,736) (1,096)
------- -------
Net cash used in operating activities....................... (12,504) (13,051)
INVESTING ACTIVITIES:
Purchases of property and equipment......................... (12,782) (9,978)
Acquisitions, net of cash acquired.......................... (69,185) --
Development of intangible assets............................ (1,619) (2,965)
------- -------
Net cash used in investing activities....................... (83,586) (12,943)
FINANCING ACTIVITIES:
Proceeds from credit facility, net.......................... 99,224 14,422
Proceeds from employee stock plans.......................... 818 8,595
Purchase of treasury stock.................................. (2,275) (3,696)
------- -------
Net cash provided by financing activities................... 97,767 19,321
Effect of exchange rates on cash and cash equivalents....... 3,011 2,474
------- -------
Increase (Decrease) in cash and cash equivalents............ 4,688 (4,199)
Cash and cash equivalents at beginning of period............ 6,951 12,998
------- -------
Cash and cash equivalents at end of period.................. $11,639 $ 8,799
======= =======
</TABLE>
The Accompanying Notes are an Integral Part of These Condensed Consolidated
Financial Statements.
3
<PAGE>
GENRAD INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING ACTIVITIES:
Cash outlay associated with the Company's acquisitions in 2000 totaled
approximately $69.2 million.
Fair value of assets acquired and liabilities assumed upon acquisition:
<TABLE>
<S> <C>
Accounts receivable, net.................................... $7,350
Inventory, net.............................................. 8,021
Other current assets........................................ 1,045
Property and equipment, net................................. 1,540
Other assets................................................ 323
Trade accounts payable...................................... 2,383
Accrued liabilities......................................... 1,132
Deferred revenue............................................ 55
Current portion of long-term debt........................... 619
Accrued pensions and benefits............................... 134
Accrued compensation and employee benefits.................. 977
Other long-term liabilities................................. 5,624
</TABLE>
The Accompanying Notes are an Integral Part of These Condensed Consolidated
Financial Statements.
4
<PAGE>
GENRAD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
GenRad, Inc. ("GenRad" or "the Company") should be read in conjunction with the
Company's consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended January 1, 2000, filed
with the Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, considered necessary to
present fairly the consolidated financial position at July 1, 2000 and
January 1, 2000, the results of operations for the three and six months ended
July 1, 2000 and July 3, 1999, and cash flows for the six months ended July 1,
2000 and July 3, 1999. Interim results are not necessarily indicative of the
results for the full fiscal year.
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 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.
Certain prior period balances have been reclassified to conform to the
current presentation.
NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share in accordance with Statement of Financial Accounting
Standards No. 128 "Earnings per Share" for the three and six months ended
July 1, 2000 and July 3, 1999, respectively (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JULY 1, 2000 JULY 3, 1999 JULY 1, 2000 JULY 3, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss)................................ $(1,031) $ 7,960 $17,047 $18,282
Basic: weighted average shares outstanding....... 28,073 28,518 28,105 28,392
Weighted average share equivalents............... -- 962 446 1,020
------- ------- ------- -------
Diluted: weighted average shares outstanding..... 28,073 29,480 28,551 29,412
======= ======= ======= =======
Basic net income (loss) per share................ $ (0.04) $ 0.28 $ 0.61 $ 0.64
======= ======= ======= =======
Diluted net income (loss) per share.............. $ (0.04) $ 0.27 $ 0.60 $ 0.62
======= ======= ======= =======
</TABLE>
COMPREHENSIVE INCOME (LOSS)
For the three and six months ended July 1, 2000, comprehensive income
included changes in cumulative foreign currency translation adjustments of $0.3
and $0.5 million compared to $0.1 and $0.8 million for the three and six months
ended July 3, 1999. Total comprehensive income (loss) for the three and six
months ended July 1, 2000 totaled $(0.7) and $17.6 million compared to $8.1 and
$19.1 million for the three and six months ended July 3, 1999. At July 1, 2000,
accumulated other comprehensive loss totaled $1.3 million.
NOTE 2: ACQUISITIONS
NICOLET IMAGING SYSTEMS AND SIERRA RESEARCH TECHNOLOGY
On March 24, 2000, the Company acquired substantially all the assets of
Nicolet Imaging Systems and the outstanding capital stock of Sierra Research
Technology (collectively "NIS") located in San Diego,
5
<PAGE>
GENRAD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 2: ACQUISITIONS (CONTINUED)
California and Westford, Massachusetts, respectively. The NIS business consists
of two additional product suites for the Company, X-ray inspection technologies
and repair/re-work equipment.
Consideration paid for NIS totaled $40.0 million in cash. Direct costs
related to the acquisition totaled $0.5 million, primarily consisting of legal
and accounting fees. The consideration paid was funded through the Company's
credit facility. The transaction was accounted for as a purchase, and
accordingly, the purchase price was allocated to the assets and liabilities
assumed based on their respective fair values. Identified intangible assets are
being amortized on a straight-line basis over a period of 5 to 7 years. Goodwill
is being amortized on a straight-line basis over a period of 10 years. The
results of NIS are included in the condensed consolidated financial statements
beginning from the date of purchase.
The purchase price was allocated to the tangible and intangible assets of
NIS as follows (in thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $10,202
Developed technology........................................ 4,500
Assembled workforce......................................... 2,550
Patents and trademarks...................................... 6,400
Customer list............................................... 5,900
Acquired in-process research and development................ 500
Assets, primarily accounts receivable and inventory......... 13,645
Liabilities assumed......................................... (3,207)
-------
$40,490
=======
</TABLE>
AUTODIAGNOS AB
On April 12, 2000, the Company acquired substantially all of the outstanding
capital stock of Autodiagnos AB ("Autodiagnos"). Autodiagnos is an automotive
aftermarket diagnostic software and equipment vendor based in Stockholm, Sweden.
It also maintains sales offices in England, the Netherlands, Germany and the
United States.
Consideration paid for Autodiagnos totaled $26.7 million in cash. Direct
costs related to the acquisition totaled $0.7 million, consisting primarily of
legal and accounting fees. The consideration paid was funded through the
Company's credit facility. The transaction was accounted for as a purchase, and
accordingly, the purchase price was allocated to the assets and liabilities
assumed based on their respective fair values. Identified intangible assets are
being amortized on a straight-line basis over a period of 4 to 10 years.
Goodwill is being amortized on a straight-line basis over a period of 10 years.
The results of Autodiagnos are included in the condensed consolidated financial
statements beginning from the date of purchase.
6
<PAGE>
GENRAD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 2: ACQUISITIONS (CONTINUED)
The purchase price was allocated to the tangible and intangible assets of
Autodiagnos as follows (in thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $16,652
Developed technology........................................ 6,570
Assembled workforce......................................... 594
Patents and trademarks...................................... 1,686
Customer list............................................... 4,833
Assets, primarily accounts receivable, inventory and
property and equipment.................................... 3,239
Liabilities assumed......................................... (6,157)
-------
$27,417
=======
</TABLE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information presents the
combined results of operations of GenRad, NIS and Autodiagnos as if the
acquisitions had occurred at the beginning of fiscal 2000 and 1999,
respectively, after giving effect to the amortization of goodwill and other
intangible assets but excluding the effects of the charge for acquired
in-process research and development. The per share impact of the acquired
in-process research and development charge totals $(0.02) for the six months
ended July 1, 2000 and July 3, 1999. This unaudited pro forma financial
information is presented for illustrative purposes only and is not necessarily
indicative of the results of operations that actually would have been realized
had the Company, NIS and Autodiagnos been a combined company during the
specified periods. Additionally, they are not necessarily indicative of the
results of future combined operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JULY 1, 2000 JULY 3, 1999
---------------- ----------------
<S> <C> <C>
Revenue....................................... $159,386 $134,324
Net income.................................... $ 14,154 $ 15,572
Net income per share:
Basic....................................... $ 0.50 $ 0.55
Diluted..................................... $ 0.50 $ 0.53
</TABLE>
NOTE 3: RESTRUCTURING CHARGES (BENEFIT)
During the three months ended April 1, 2000, the Company implemented a
restructuring plan in an effort to improve operating efficiencies. The plan
involves closure of the Company's Portland, Oregon office and relocation of
employees from the United States and Switzerland for the purpose of centralizing
GRS segment operations in its current Atlanta, Georgia facility, and a
management restructuring of the ADS segment in the Manchester, UK facility. This
will result in a workforce reduction of approximately 25 employees, mainly
consisting of engineering, marketing and training functions. In accordance with
EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity", the Company recorded a restructuring charge
during the three months ended April 1, 2000. The charge totaled approximately
$1.0 million, and includes severance costs of $0.7 million to be completed
during fiscal 2001 and exit costs of $0.3 million related to the facility
closure with a lease term into fiscal
7
<PAGE>
GENRAD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 3: RESTRUCTURING CHARGES (BENEFIT) (CONTINUED)
2005. For the six months ended July 1, 2000, there were $0.2 million of
severance charges against the restructuring reserve.
During the three months ended April 1, 2000, the Company completed the
extension of a sublease entered into at a facility in Maidenhead, England to
include the Company's remaining lease obligation through 2013. As a result of
this extension, the Company reversed a charge recorded in a prior fiscal year
for excess facility reserves. This restructuring charge included accruals
related to the lease costs of the facility. The sublet of the facility resulted
in the reversal of approximately $3.5 million of the fiscal 1993 restructuring
accrual.
NOTE 4: REORGANIZATION CHARGES
During the three months ended July 1, 2000, the Company implemented a
reorganization plan in connection with the election of Robert M. Dutkowsky as
Chairman, President and Chief Executive Officer (collectively "CEO"). As a
result, the employment of certain members of management, including the then
current CEO, was terminated. A charge of $4.1 million for severance costs to be
completed during fiscal 2001 was recorded during the three months ended July 1,
2000. As of July 1, 2000, payments of $3.1 million were made against the
reserve.
NOTE 5: INVENTORY
Inventory consists of the following at July 1, 2000 and January 1, 2000,
respectively (in thousands):
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
-------- ----------
<S> <C> <C>
Raw materials............................................ $22,126 $13,247
Work in process.......................................... 25,238 17,891
Finished goods........................................... 25,454 17,930
------- -------
$72,818 $49,068
======= =======
</TABLE>
NOTE 6: CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to any such claims will not materially affect
the results of operations or the financial position of the Company.
NOTE 7: OPERATING SEGMENTS
The following table illustrates, (in thousands), each of the Company's
operating segments' operating income (loss) for the three and six months ended
July 1, 2000 and July 3, 1999. The amounts provided herein are those utilized by
the respective segment's President, in conjunction with the Company's President
and Chief Executive Officer, in allocating resources and evaluating performance.
GenRad's chief
8
<PAGE>
GENRAD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 7: OPERATING SEGMENTS (CONTINUED)
operating decision makers do not utilize, nor does GenRad maintain, asset
information or capital expenditures by segment, accordingly, such information is
not presented herein.
<TABLE>
<CAPTION>
EMS ADS GRS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Three months ended July 1, 2000:
Revenue:
Products.......................................... $ 49,347 $17,772 $ 3,184 $ 70,303
Services.......................................... 8,791 6,231 1,999 17,021
-------- ------- ------- --------
Total revenue................................... $ 58,138 $24,003 $ 5,183 $ 87,324
======== ======= ======= ========
Operating income (loss)............................... $ 15,093 $ (540) $ (952) $ 13,601
======== ======= ======= ========
Three months ended July 3, 1999:
Revenue:
Products.......................................... $ 35,500 $ 9,055 $ 1,514 $ 46,069
Services.......................................... 8,241 5,876 3,432 17,549
-------- ------- ------- --------
Total revenue................................... $ 43,741 $14,931 $ 4,946 $ 63,618
======== ======= ======= ========
Operating income (loss)............................... $ 13,170 $ 2,596 $ (904) $ 14,862
======== ======= ======= ========
Six months ended July 1, 2000:
Revenue:
Products.......................................... $ 84,375 $30,507 $ 4,991 $119,873
Services.......................................... 16,565 12,970 4,289 33,824
-------- ------- ------- --------
Total revenue................................... $100,940 $43,477 $ 9,280 $153,697
======== ======= ======= ========
Operating income (loss)............................... $ 27,663 $ (481) $(2,663) $ 24,519
======== ======= ======= ========
Six months ended July 3, 1999:
Revenue:
Products.......................................... $ 65,198 $11,099 $ 6,455 $ 82,752
Services.......................................... 15,650 12,326 6,000 33,976
-------- ------- ------- --------
Total revenue................................... $ 80,848 $23,425 $12,455 $116,728
======== ======= ======= ========
Operating income...................................... $ 22,516 $ 3,816 $ 353 $ 26,685
======== ======= ======= ========
</TABLE>
9
<PAGE>
GENRAD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 7: OPERATING SEGMENTS (CONTINUED)
A reconciliation of the totals reported for the operating segments to net
income (loss) before income taxes in the condensed consolidated financial
statements is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating income:
Total for reportable segments......................... $13,601 $14,862 $24,519 $26,685
Corporate expenses (a)................................ (12,956) (5,876) (18,043) (10,962)
------- ------- ------- -------
Operating income per condensed consolidated financial
statements.......................................... 645 8,986 6,476 15,723
Other income (expense), net........................... (2,257) (132) (2,559) (435)
------- ------- ------- -------
Net income (loss) before income taxes................... $(1,612) $ 8,854 $ 3,917 $15,288
======= ======= ======= =======
</TABLE>
------------------------
(a) Includes amortization of capitalized software, corporate research and
development and other charges.
NOTE 8: TREASURY STOCK
During the second quarter of 1998, the Company commenced a stock repurchase
program whereby the Company will purchase, in the open market, shares of its
stock. On January 28, 2000, an additional 2,500,000 shares were authorized to be
repurchased, increasing the total shares authorized to 5,000,000. The Company
intends to buy back its stock at times when the market price of the stock
presents opportunities to do so, and depending on the Company's other cash
requirements. The Company's stock repurchase plan is intended as a means to
partially mitigate the dilutive impact of stock options. The Plan has been
funded entirely through operating cash flow, however, the Company may if it
considers it prudent, utilize its available credit facilities in connection with
its stock repurchase program. Through July 1, 2000 and July 3, 1999, the Company
had utilized approximately $36.0 and $18.7 million, respectively, to repurchase
2,195,600 and 1,225,600 shares of its common stock.
NOTE 9: CREDIT FACILITY
In March 2000, the Company re-negotiated its existing $50.0 million credit
facility, increasing the total borrowings available to $125.0 million (the "new
line"). The new line is supported by a syndicated group of banks and provides
for up to $75.0 million to be utilized for acquisitions and $50.0 million to be
used for general working capital purposes. The new line requires the Company to
maintain certain leverage, operating cash flow and operating income covenants as
well as non-financial operating covenants, as defined, and expires March 2004.
The new line is collaterized by substantially all of the Company's assets.
Certain borrowings on the line, primarily related to acquisitions, are payable
quarterly while the remaining borrowings are payable on demand. The line bears
interest at the lesser of the banks' prime rate plus 0.75% or LIBOR plus 1.75%,
as determined from time to time by the banks. The interest rates on the credit
facility at July 1, 2000 ranged from 8.06% to 9.75%. Under the terms of the new
line, the Company is required to pay a commitment fee on the unused portion of
the line ranging from 0.375% to 0.5% of the total unused portion of the line
dependent on the Company's operating performance. At July 1, 2000, borrowings
outstanding under the line totaled $104.7 million, of which $71.3 million was
related to acquisitions and $33.4 million related to general working capital.
10
<PAGE>
GENRAD INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 10: INCOME TAXES
During the three months ended April 1, 2000 and April 3, 1999, the Company
reversed a portion of its deferred tax asset valuation allowance resulting in a
tax benefit of $14.5 million and $4.5 million, respectively. These were recorded
due to management's expectations of future income and expected utilization of
the Company's domestic and foreign net operating loss carryforwards.
NOTE 11: IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FINANCIAL INSTRUMENTS
On June 15, 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). This Statement is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000 (December 31, 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
of the adoption of SFAS 133 to its operating results or financial position.
REVENUE RECOGNITION
In December 1999, the United States Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB 101
summarizes certain of the SEC's view in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company is
required to adopt SAB 101 no later than the fourth quarter of fiscal 2000.
STOCK COMPENSATION
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000.
11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed herein contain forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in Item 1
"Business" of the Company's Annual Report on Form 10-K for the year ended
January 1, 2000 as well as those discussed in this section and elsewhere in this
Quarterly Report on form 10-Q.
OVERVIEW
GenRad, Inc. ("GenRad" or "the Company") is a leading global manufacturing
solutions company. GenRad designs, manufactures and markets integrated hardware
and software solutions that enable the successful manufacture, test and service
for microprocessors and other electronic devices and components. The Company
operates primarily in the United States, Western Europe and Southeast Asia
through its three business segments, Electronic Manufacturing Solutions ("EMS"),
Advanced Diagnostic Solutions ("ADS") and GR Software ("GRS").
EMS focuses on the integration of hardware and software for process control
in the manufacture of printed circuit boards, emphasizing inspection
technologies. EMS provides its customers with leading-edge, cost effective
solutions used to collect data about its manufacturing process and provide
reliable, timely and useful information which can be used to optimize
manufacturing processes.
ADS is a global leader in developing and marketing diagnostic solutions
comprised of hardware, software and services which optimize the manufacturing
and service capabilities of leading transportation and equipment companies. ADS
solutions are used by its customers to maximize manufacturing efficiencies at
time of product build as well as to maintain efficient and effective service
operations throughout the product's life.
GRS develops and markets product solutions and services to companies wishing
to achieve and maintain control over manufacturing processes. GRS' flagship
product, Shop Floor Data Manager-TM- ("SFDM"), manages a business's process
information necessary to manufacture products according to plan. SFDM also
enables the shop floor to communicate with a company's ERP systems to have a
real time direct impact on a business's manufacturing operations.
12
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenue represented by certain items in the Company's Condensed
Consolidated Statements of Operations.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
------------------- -------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenue............................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................................. 60.7% 51.7% 59.3% 49.2%
----- ----- ----- -----
Gross margin................................................ 39.3% 48.3% 40.7% 50.8%
Selling, general and administrative......................... 23.3% 25.7% 24.8% 27.9%
Research and development.................................... 8.3% 7.5% 8.5% 8.1%
Amortization of acquisition-related intangible assets....... 2.3% 1.0% 1.8% 1.3%
Acquired in-process research and development................ -- -- 0.3% --
Restructuring benefit, net.................................. -- -- (1.6)% --
Reorganization charges...................................... 4.7% -- 2.7% --
----- ----- ----- -----
Total operating expenses.............................. 38.6% 34.2% 36.5% 37.3%
----- ----- ----- -----
Operating income............................................ 0.7% 14.1% 4.2% 13.5%
Other income (expense)...................................... (2.6)% (0.2)% (1.6)% (0.4)%
Income tax benefit (expense)................................ 0.7% (1.4)% 8.5% 2.6%
----- ----- ----- -----
Net income (loss)........................................... (1.2)% 12.5% 11.1% 15.7%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JULY 1, 2000 VS. THREE MONTHS ENDED JULY 3, 1999
ORDERS AND BACKLOG
Orders for the Company's products and services decreased to $78.8 million
for the three months ended July 1, 2000 from $96.0 million for the three months
ended July 3, 1999. Excluding orders of Nicolet Imaging Systems and Sierra
Research Technology (collectively "NIS") and Autodiagnos AB ("Autodiagnos"),
which were completed on March 24, 2000 and April 12, 2000 respectively, orders
totaled $69.5 million for the three months ended July 1, 2000. EMS orders
totaled $59.0 million for the three months ended July 1, 2000 compared to
$43.8 million for the three months ended July 3, 1999. Excluding orders of NIS,
EMS orders totaled $51.2 million for the three months ended July 1, 2000. ADS
orders totaled $16.5 million for the three months ended July 1, 2000 compared to
$45.6 million for the three months ended July 3, 1999. Excluding orders of
Autodiagnos, ADS orders totaled $15.0 million for the three months ended
July 1, 2000. GRS orders totaled $3.3 million for the three months ended
July 1, 2000 compared to $6.6 million for the three months ended July 3, 1999.
EMS orders increased $7.4 million for the three months ended July 1, 2000
compared to the comparable period ended July 3, 1999 when excluding orders of
NIS. This was primarily due to strengthening demand for the segment's in-circuit
products and fixture programming business. Orders for these products increased
$6.2 million and $1.6 million, respectively, during the three months ended
July 1, 2000 as compared to the comparable period ended July 3, 1999. These
increases were partially offset by a $0.4 million decrease for orders of the
Company's functional test products. ADS orders decreased $30.6 million for the
three months ended July 1, 2000 compared to the comparable period ended July 3,
13
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1999 when excluding orders of Autodiagnos. This decrease is mainly attributable
to orders received during the three months ended July 3, 1999 related to the
launch of the Company's WDS 3500 product for The Ford Motor Company ("Ford").
This decrease was offset by an increase in orders of $3.0 million related to
additional WDS business, for which there were no orders in 1999. The decrease of
$3.3 million in GRS orders reflects the significant sales cycle for GRS's
products and the timing of significant customer orders.
North American orders totaled $44.4 million for the three months ended
July 1, 2000 compared to $58.8 million for the three months ended July 3, 1999.
European orders totaled $24.8 million for the three months ended July 1, 2000
compared to $31.7 million for the three months ended July 3, 1999. Asian orders
totaled $9.6 million for the three months ended July 1, 2000 compared to
$5.5 million for the three months ended July 3, 1999.
North American orders decreased $14.4 million for the three months ended
July 1, 2000 compared to the comparable period ended July 3, 1999. Excluding
orders of NIS, North American orders decreased $20.0 million. This decrease was
primarily due to the launch of the Company's WDS 3500 product for Ford during
the three months ended July 3, 1999. For the three months ended July 1, 2000,
there was an incremental decrease in Ford North American orders of
$27.4 million from the three months ended July 3, 1999. There were also
incremental decreases of orders in the non-WDS portion of the ADS business and
GRS of $0.6 million and $3.3 million. These decreases were offset by increased
EMS North American orders of $9.0 million due to strengthening demand in all
areas of the segment and a geographic shift of orders from the Company's large
contract manufacturers, and $2.3 million of non-Ford WDS orders, for which there
were no orders in 1999.
European orders decreased $6.9 million for the three months ended July 1,
2000 compared to the comparable period ended July 3, 1999. Excluding orders of
NIS and Autodiagnos, European orders decreased $8.8 million. This decrease was
partially attributable to the launch of the Company's WDS 3500 product for Ford
during the three months ended July 3, 1999. For the three months ended July 1,
2000, there was an incremental decrease in Ford European orders of $4.6 million
from the three months ended July 3, 1999. There were also incremental decreases
in European orders of other business in the ADS segment of $2.7 million, and in
the EMS segment of $2.0 million from a geographic shift of orders from the
Company's large contract manufacturers. These decreases were offset by European
orders of $0.5 million of other WDS business, for which there were no orders in
1999.
Backlog totaled $39.4 million at July 1, 2000 compared to $48.0 and
$30.9 million at April 1, 2000 and January 1, 2000. Excluding backlog of NIS and
Autodiagnos, ending backlog totaled $37.5 million at July 1, 2000 compared to
$45.3 million at April 1, 2000. The Company believes that a substantial portion
of backlog at July 1, 2000 will be shipped during the three months ended
September 30, 2000.
REVENUE
Product revenue increased to $70.3 million for the three months ended
July 1, 2000 from $46.1 million for the three months ended July 3, 1999.
Excluding revenue of NIS and Autodiagnos, product revenue totaled $61.1 million
for the three months ended July 1, 2000. EMS product revenue totaled
$49.3 million for the three months ended July 1, 2000 compared to $35.5 million
for the three months ended July 3, 1999. Excluding revenue of NIS, EMS product
revenue totaled $41.6 million for the three months ended July 1, 2000. ADS
product revenue totaled $17.8 million for the three months ended July 1, 2000
compared to $9.1 million for the three months ended July 3, 1999. Excluding
revenue of Autodiagnos, ADS product revenue totaled $16.3 million for the three
months ended July 1, 2000. GRS product revenue totaled
14
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$3.2 million for the three months ended July 1, 2000 compared to $1.5 million
for the three months ended July 3, 1999.
EMS product revenue increased $6.1 million for the three months ended
July 1, 2000 compared to the comparable period ended July 3, 1999 when excluding
product revenue of NIS. The increase was due to $6.4 million incremental product
revenue related to the Company's in-circuit test products and $0.9 million in
its fixture programming business primarily due to strengthening demand in those
areas. These increases were offset by a decrease of $1.2 million related to the
Company's functional test products.
ADS product revenue increased $7.2 million for the three months ended
July 1, 2000 compared to the comparable period ended July 3, 1999 when excluding
product revenue of Autodiagnos. The increase is attributable to non-Ford WDS
business of $6.6 million, for which there was no product revenue in 1999, and
incremental ADS revenues of $3.1 million. These increases were offset by an
incremental decrease of $2.5 million related to the Company's WDS 3500 product
with Ford, which contributed $4.0 million of product revenue during the three
months ended July 1, 2000. For the three months ended July 1, 2000 the Company
shipped approximately 670 WDS units. The Company expects to derive significant
revenues from Ford related to its WDS 3500 product for the remainder of 2000 and
beyond. However, the Company does not anticipate a unit count approaching the
unit count during the twelve months ended January 1, 2000 in any future twelve
month period, or compared to the Company's original estimate for the year 2000.
The increase of approximately $1.7 million in GRS product revenue reflects
the completion of significant customer orders, which have a lengthy sales cycle
involved in selling the segment's products.
Service revenue decreased to $17.0 million for the three months ended
July 1, 2000 from $17.5 million for the three months ended July 3, 1999.
Excluding revenue of NIS, service revenue totaled $16.2 million for the three
months ended July 1, 2000. EMS service revenue totaled $8.8 million for the
three months ended July 1, 2000 compared to $8.2 million for the three months
ended July 3, 1999. Excluding revenue of NIS, EMS service revenue totaled
$8.0 million for the three months ended July 1, 2000. ADS service revenue
totaled $6.2 million for the three months ended July 1, 2000 compared to
$5.9 million for the three months ended July 3, 1999. GRS service revenue
totaled $2.0 million for the three months ended July 1, 2000 compared to
$3.4 million for the three months ended July 3, 1999.
EMS service revenue decreased $0.2 million for the three months ended
July 1, 2000 compared to the comparable period ended July 3, 1999 when excluding
service revenues related to the acquisition of NIS. The decrease was
attributable to decrease of $0.6 million related to the Company's high-end
in-circuit test systems, partially offset by a $0.4 million increase in service
revenue from the Company's fixture programming business. The increase in ADS
service revenue of $0.3 million was due to $2.4 million of incremental service
revenue related to the WDS 3500 product, offset by a decline in ADS service
revenue of $2.1 million due to the completion of a service contract for a
product that preceded the WDS 3500 product. The decline in GRS service revenue
of $1.4 million reflects the timing of significant customer orders.
Revenue from international markets increased to $46.2 million, or 53.0% of
revenue, for the three months ended July 1, 2000 from $33.2 million, or 52.2% of
revenue, for the three months ended July 3, 1999. The increase in international
revenue in dollars, and as a percentage of total revenue, reflects revenues
related to the WDS 3500 product and the expansion of the Company's products and
services in Europe. Revenues from international markets are subject to the risks
of currency fluctuations.
15
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GROSS MARGINS
Product margins were $29.6 million, or 42.1%, for the three months ended
July 1, 2000 compared to $23.3 million, or 50.5%, for the three months ended
July 3, 1999. The increased product margins in dollars partially reflect the
acquisitions of NIS and Autodiagnos, which contributed $3.7 million in product
margins for the three months ended July 1, 2000. Additionally there were
increases in product margins of $3.4 million in the remaining EMS segment
primarily from improving margins in the Company's high-end in-circuit products
and $1.7 million in the GRS segment due to product sales during the three months
ended July 1, 2000, for which there were none during the three months ended
July 3, 1999. These increases were offset by a decline in ADS product margins of
$1.8 million and increased amortization costs of capitalized software and
product related intangible assets of $0.7 million during the three months ended
July 1, 2000 compared to the three months ended July 3, 1999.
As a percentage of product revenue, product margins declined to 42.1% for
the three months ended July 1, 2000 from 50.5% for the three months ended
July 3, 1999. The decrease reflects the significantly lower margins realized on
the WDS 3500 product compared to the Company's higher margin EMS and GRS
products.
Inventory turnover for the three months ended July 1, 2000 increased to 2.3
times (annualized) as compared to 2.1 times (annualized) for the three months
ended July 3, 1999. The increase is primarily related to turnover of the WDS
3500 product outside of the Ford contract. Excluding inventory related to the
Company's contract with Ford, inventory turnover for the three months ended
July 1, 2000 increased to 3.1 times (annualized) as compared to 2.7 times
(annualized) for the three months ended July 3, 1999.
Service margins were $4.8 million, or 28.1%, for the three months ended
July 1, 2000 compared to $7.5 million, or 42.7%, for the three months ended
July 3, 1999. The decrease in service margins, in dollars and as a percentage of
revenue, is primarily attributable to declining margins in the ADS segment which
reflects the competitive market conditions in the markets that ADS competes.
OPERATING EXPENSES
Selling, general and administrative expenses increased to $20.3 million, or
23.3% of total revenue, for the three months ended July 1, 2000 from
$16.3 million, or 25.7% of total revenue, for the three months ended July 3,
1999. Excluding expenses of NIS and Autodiagnos, selling, general and
administrative expenses totaled $18.3 million during the three months ended
July 1, 2000. The increase in selling, general and administrative expenses in
dollars is primarily attributable to additional expenses to support the
Company's increased revenues during the three months ended July 1, 2000 from the
comparable year ago period and the Company's new European office.
Research and development expenses increased to $7.2 million, or 8.3% of
total revenue, for the three months ended July 1, 2000 from $4.8 million, or
7.5% of total revenue, for the three months ended July 3, 1999. Excluding
expenses of NIS and Autodiagnos, research and development expenses totaled
$5.5 million for the three months ended July 1, 2000. The increase in research
and development expenses primarily reflects the Company's efforts to enter the
automotive aftermarket and on-going new product development efforts in the GRS
segment. There was a decrease in capitalized software costs of $0.9 million for
the three months ended July 1, 2000 compared to the three months ended July 3,
1999.
During the three months ended July 1, 2000, on-going research and
development projects continued for improvements in in-circuit and functional
test equipment software, and system enhancements to the
16
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company's GRS suite of products. The Company expects to continue to invest in
new product development and enhancements to its existing products.
Amortization of acquisition-related intangible assets totaled $2.0 million,
or 2.3% of total revenue, for the three months ended July 1, 2000, compared to
$0.7 million, or 1.0% of total revenue, for the three months ended July 3, 1999.
The increase in dollars, and as a percentage of revenue, is attributable to the
acquisitions of NIS and Autodiagnos in fiscal 2000. The Company anticipates that
amortization of acquisition-related intangible assets will increase for the
third quarter of fiscal 2000 in comparison to the three months ended July 1,
2000 and then stabilize.
Interest expense was $2.3 million for the three months ended July 1, 2000
compared to $0.3 million for the three months ended July 3, 1999 reflecting
increased borrowings on its credit facility.
The Company recorded a net tax benefit of $0.6 million for the three months
ended July 1, 2000 compared to a net income tax expense of $0.9 million for the
three months ended July 3, 1999. The decrease in the income tax provision is
caused by an increase of the effective tax rate in fiscal 2000 as compared to
fiscal 1999 and recording a net loss before income taxes during the three months
ended July 1, 2000 compared to net income before income taxes during the three
months ended July 3, 1999.
SIX MONTHS ENDED JULY 1, 2000 VS. SIX MONTHS ENDED JULY 3, 1999
ORDERS AND BACKLOG
Orders for the Company's products and services increased to $158.9 million
for the six months ended July 1, 2000 from $155.3 million for the six months
ended July 3, 1999. Excluding orders of NIS and Autodiagnos, orders totaled
$148.3 million for the six months ended July 1, 2000. EMS orders totaled
$101.9 million for the six months ended July 1, 2000 compared to $88.2 million
for the six months ended July 3, 1999. Excluding orders of NIS, EMS orders
totaled $92.8 million for the six months ended July 1, 2000. ADS orders totaled
$47.7 million for the six months ended July 1, 2000 compared to $53.1 million
for the six months ended July 3, 1999. Excluding orders of Autodiagnos, ADS
orders totaled $46.2 million for the six months ended July 1, 2000. GRS orders
totaled $9.3 million for the six months ended July 1, 2000 compared to
$14.0 million for the six months ended July 3, 1999.
EMS orders increased $4.6 million for the six months ended July 1, 2000
compared to the comparable period ended July 3, 1999 when excluding orders of
NIS. This increase was driven by strengthening demand for the segment's
in-circuit and functional test products. Orders for these products increased
$4.3 million and $2.1 million, respectively, during the six months ended
July 1, 2000 as compared to the comparable period ended July 3, 1999. These
increases were partially offset by a $1.5 million decrease in orders of the
Company's fixture programming business and an incremental decrease in orders of
$0.3 million for the Company's GR Pilot product. ADS orders decreased
$6.9 million for the six months ended July 1, 2000 compared to the comparable
period ended July 3, 1999 when excluding orders of Autodiagnos. The decrease is
attributable to orders received during the three months ended July 3, 1999
relating to the launch of the Company's WDS 3500 product for Ford. This was
offset by increases in orders of $12.5 million related to non-Ford WDS business,
for which there were no orders in 1999, and an incremental increase of
$2.0 million in the remainder of the ADS business. The decrease of $4.7 million
in GRS orders reflects the significant sales cycle for GRS's products and the
timing of significant customer orders.
North American orders totaled $79.4 million for the six months ended
July 1, 2000 compared to $90.6 million for the six months ended July 3, 1999.
European orders totaled $64.6 million for the six
17
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
months ended July 1, 2000 compared to $55.3 million for the six months ended
July 3, 1999. Asian orders totaled $14.9 million for the six months ended
July 1, 2000 compared to $9.4 million for the six months ended July 3, 1999.
North American orders decreased $11.2 million for the six months ended
July 1, 2000 compared to the comparable period ended July 3, 1999. Excluding
orders of NIS, North American orders decreased $18.0 million. This decrease was
primarily due to orders of the Company's WDS 3500 product for Ford, which
resulted in an incremental decrease of $25.5 million during the six months ended
July 1, 2000. In addition, there was an incremental decrease in GRS North
American orders of $5.2 million. These decreases were offset by increases in EMS
North American orders of $9.5 million due to strengthening demand in all product
areas and a geographic shift of orders from the Company's large contract
manufacturers, and $3.2 million of other business in the Company's ADS segment.
European orders increased $9.3 million for the six months ended July 1, 2000
compared to the comparable period ended July 3, 1999. Excluding orders of NIS
and Autodiagnos, European orders increased $7.4 million. This increase is
primarily attributable to orders of the Company's WDS 3500 product for Ford,
which contributed $1.9 million in incremental European orders during the six
months ended July 1, 2000, and additional non-Ford WDS orders of $5.4 million.
There were also incremental increases in European orders of other business in
the ADS segment of $4.7 million from increased demand for the segment's hardware
products, and in the GRS segment of $0.3 million. These increases were offset by
a decrease in EMS European orders of $4.9 million due to a decrease in orders in
the fixture programming business and the Company's GR Pilot product, as well as
a geographic shift of the Company's large contract manufacturers.
REVENUE
Product revenue increased to $119.9 million for the six months ended
July 1, 2000 from $82.8 million for the six months ended July 3, 1999. Excluding
revenue of NIS and Autodiagnos, product revenue totaled $108.9 million for the
six months ended July 1, 2000. EMS product revenue totaled $84.4 million for the
six months ended July 1, 2000 compared to $65.2 million for the six months ended
July 3, 1999. Excluding revenue of NIS, EMS product revenue totaled
$74.9 million for the six months ended July 1, 2000. ADS product revenue totaled
$30.5 million for the six months ended July 1, 2000 compared to $11.1 million
for the six months ended July 3, 1999. Excluding revenue of Autodiagnos, ADS
product revenue totaled $29.0 million for the six months ended July 1, 2000. GRS
product revenue totaled $5.0 million for the six months ended July 1, 2000
compared to $6.5 million for the six months ended July 3, 1999.
EMS product revenue increased $9.7 million for the six months ended July 1,
2000 compared to the comparable period ended July 3, 1999 when excluding product
revenue of NIS. The increase was due to $10.0 million in incremental product
revenue related to the Company's high-end in-circuit test products and
$1.3 million in its fixture programming business. These increases were offset by
decreases of the segment's GR Pilot product and functional test products of $0.7
and $0.9 million, respectively.
ADS product revenue increased $17.9 million for the six months ended
July 1, 2000 compared to the comparable period ended July 3, 1999 when excluding
product revenue of Autodiagnos. The increase in ADS product revenue is
attributable to revenues related to the Company's WDS 3500 product with Ford,
which contributed $6.3 million of incremental product revenue during the six
months ended July 1, 2000, other WDS business of $7.2 million and incremental
ADS revenues of $4.4 million. For the six months ended July 1, 2000, the Company
shipped approximately 2,000 WDS units. The Company expects to derive significant
revenues from Ford related to its WDS 3500 product for the remainder of 2000 and
beyond.
18
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
However, the Company does not anticipate a unit count approaching the unit count
during the twelve months ended January 1, 2000 in any future twelve month
period, or compared to the Company's original estimate for the year 2000.
The decline of approximately $1.5 million in GRS product revenue reflects
the timing of significant customer orders as well as the lengthy sales cycle
involved in selling the segment's products.
Service revenue decreased to $33.8 million for the six months ended July 1,
2000 from $34.0 million for the six months ended July 3, 1999. Excluding revenue
of NIS, service revenue totaled $32.9 million for the six months ended July 1,
2000. EMS service revenue totaled $16.6 million for the six months ended
July 1, 2000 compared to $15.7 million for the six months ended July 3, 1999.
Excluding revenue of NIS, EMS service revenue totaled $15.7 million for the six
months ended July 1, 2000. ADS service revenue totaled $12.9 million for the six
months ended July 1, 2000 compared to $12.3 million for the six months ended
July 3, 1999. GRS service revenue totaled $4.3 million for the six months ended
July 1, 2000 compared to $6.0 million for the six months ended July 3, 1999.
The stability of EMS service revenue was attributable to an increase of
$0.4 million related to the Company's fixture programming business, offset by
decreases in the segment's other products. The increase in ADS services revenue
of $0.6 million was due to $4.7 million service revenue related to the WDS 3500
product, offset by a decline in the remainder of the ADS business of
$4.1 million due to the completion of a service contract for a product that
preceded the WDS 3500 product. The decline in GRS service revenue of
$1.7 million reflects the timing of significant customer orders.
Revenue from international markets increased to $85.6 million, or 55.7% of
revenue, for the six months ended July 1, 2000 from $58.6 million, or 50.2% of
revenue, for the six months ended July 3, 1999. The increase in international
revenue in dollars, and as a percentage of total revenue, reflects the Company's
revenues related to the WDS 3500 product and the expansion of the Company's
products and services in Europe. Revenues from international markets are subject
to the risks of currency fluctuations.
GROSS MARGINS
Product margins were $51.9 million, or 43.3%, for the six months ended
July 1, 2000 compared to $45.6 million, or 55.1%, for the six months ended
July 3, 1999. The increase in product margins in dollars reflect the
acquisitions of NIS and Autodiagnos, which contributed $4.2 million in product
margins for the six months ended July 1, 2000, and an increase in product
margins of $7.2 million in the remaining EMS segment primarily from improving
margins in the Company's high-end in-circuit products. These increases were
offset by declines in GRS and ADS product margins of $1.3 million and
$2.1 million, respectively, and increased amortization costs of capitalized
software and product related intangible assets of $1.7 million during the six
months ended July 1, 2000 compared to the six months ended July 3, 1999.
As a percentage of product revenue, product margins declined to 43.3% for
the six months ended July 1, 2000 from 55.1% for the six months ended July 3,
1999. The decrease reflects the significantly lower margins realized on the WDS
3500 product compared to the Company's higher margin EMS and GRS products.
Inventory turnover for the six months ended July 1, 2000 increased to 2.1
times (annualized) as compared to 1.8 times (annualized) for the six months
ended July 3, 1999. The increase is primarily related to turnover of the WDS
3500 product. Excluding inventory related to the Company's contract with Ford,
inventory turnover was 2.6 (annualized) for the six months ended July 1, 2000
and July 3, 1999.
19
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Service margins were $10.6 million, or 31.4%, for the six months ended
July 1, 2000 compared to $13.8 million, or 40.5%, for the six months ended
July 3, 1999. The decrease in service margins, in dollars and as a percentage of
revenue, is primarily attributable to declining margins in the ADS segment which
reflects the competitive market conditions in the markets that ADS competes.
OPERATING EXPENSES
Selling, general and administrative expenses increased to $38.1 million, or
24.8% of total revenue, for the six months ended July 1, 2000 from
$32.6 million, or 28.0% of total revenue, for the six months ended July 3, 1999.
Excluding expenses of NIS and Autodiagnos, selling, general and administrative
expenses totaled $35.1 million during the six months ended July 1, 2000. The
increase in selling, general and administrative expenses in dollars is primarily
attributable to additional expenses to support the Company's increased revenues
during the six months ended July 1, 2000 from the comparable year ago period and
the Company's new European offices.
Research and development expenses increased to $13.0 million, or 8.5% of
total revenue, for the six months ended July 1, 2000 from $9.5 million, or 8.1%
of total revenue, for the six months ended July 3, 1999. Excluding expenses of
NIS and Autodiagnos, research and development expenses totaled $11.4 million for
the six months ended July 1, 2000. The increase in research and development
expenses primarily reflects the Company's efforts to enter the automotive
aftermarket and on-going new product development efforts in the GRS segment.
There was a decrease in capitalized software costs of $1.4 million for the six
months ended July 1, 2000 compared to the six months ended July 3, 1999.
During the six months ended July 1, 2000, on-going research and development
projects continued for improvements in in-circuit and functional test equipment
software, and system enhancements to the Company's GRS suite of products. The
Company expects to continue to invest in new product development and
enhancements to its existing products.
Amortization of acquisition-related intangible assets totaled $2.8 million,
or 1.8% of total revenue, for the six months ended July 1, 2000, compared to
$1.5 million, or 1.3% of total revenue, for the six months ended July 3, 1999.
The increase in dollars, and as a percentage of revenue, is attributable to the
acquisitions of NIS and Autodiagnos in fiscal 2000. The Company anticipates that
amortization of acquisition-related intangible assets will increase for the
third quarter of fiscal 2000 in comparison to the first two quarters of fiscal
2000 and then stabilize.
Interest expense was $2.7 million for the six months ended July 1, 2000
compared to $0.5 million for the six months ended July 3, 1999 reflecting
increased borrowings on its credit facility.
The Company recorded a net tax benefit of $13.1 million for the six months
ended July 1, 2000 compared to a net income tax benefit of $3.0 million for the
six months ended July 3, 1999. The recorded income tax benefit of $13.1 million
results primarily from a reversal of a portion of the Company's deferred tax
asset valuation allowance totaling $14.5 million which was recorded during the
three months ended April 1, 2000 due to management's expectations of future
income and expected utilization of the Company's domestic and foreign net
operating loss carryforwards. Excluding the reversal of a portion of the
deferred tax asset valuation allowance, the income tax provision decreased to
$1.4 million for the six months ended July 1, 2000 from $1.5 million for the six
months ended July 3, 1999. The decrease in the income tax provision is caused by
lower net income before income taxes during the six months ended July 1, 2000,
offset by an increase of the effective tax rate in fiscal 2000 as compared to
fiscal 1999.
20
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACQUISITION OF AUTODIAGNOS AB
On April 12, 2000, the Company acquired substantially all of the outstanding
capital stock of Autodiagnos AB ("Autodiagnos"). Autodiagnos is an automotive
aftermarket diagnostic software and equipment vendor based in Stockholm, Sweden.
It also maintains sales offices in England, the Netherlands, Germany and the
United States.
Consideration paid for Autodiagnos totaled $26.7 million in cash. Direct
costs related to the acquisition totaled $0.7 million, consisting primarily of
legal and accounting fees. The consideration paid was funded through the
Company's credit facility. The transaction was accounted for as a purchase, and
accordingly, the purchase price was allocated to the assets and liabilities
assumed based on their respective fair values. Consideration was allocated to
the tangible and intangible assets of Autodiagnos as follows: goodwill
($16.6 million), developed technology ($6.6 million), assembled workforce
($0.6 million), patents and trademarks ($1.7 million), customer list
($4.8 million), and the net assets and liabilities assumed ($2.9) million. The
results of Autodiagnos are included in the condensed consolidated financial
statements beginning from the date of purchase.
REORGANIZATION CHARGES
During the three months ended July 1, 2000, the Company implemented a
reorganization plan in connection with the election of Robert M. Dutkowsky as
Chairman, President and Chief Executive Officer (collectively "CEO"). As a
result, the employment of certain members of management, including the then
current CEO, was terminated. A charge of $4.1 million for severance costs to be
completed during fiscal 2001 was recorded during the three months ended July 1,
2000. As of July 1, 2000, payments of $3.1 million were made against the
reserve.
LIQUIDITY AND SOURCES OF CAPITAL
SOURCES AND USES OF CASH
Cash and cash equivalents at July 1, 2000 totaled approximately
$11.6 million, compared to approximately $7.0 million at January 1, 2000. The
current ratio at July 1, 2000 decreased to 2.0 from 2.9 at January 1, 2000. Net
cash used in operating activities, net of effects of acquisitions, was
$12.5 million for the six months ended July 1, 2000, compared to net cash used
in operating activities of $13.1 million for the six months ended July 3, 1999.
Net cash used in operating activities during the six months ended July 1,
2000 is primarily driven by a significant inventory investment of
$16.9 million, which used incremental cash of $8.8 million related to the Ford
WDS 3500 contract, an incremental change in deferred tax assets of
$13.8 million, mainly from a reversal of a portion of the deferred tax asset
valuation allowance, and an increase in accounts receivable of $6.6 million due
to the increase in sales volume. These investments were partially funded by net
income of $17.0 million and depreciation/amortization of $10.6 million.
During the six months ended July 1, 2000, net cash used in investing
activities was $83.6 million, compared to $12.9 million for the six months ended
July 3, 1999. Capital expenditures totaled $12.8 million for the six months
ended July 1, 2000 compared to $10.0 million for the six months ended July 3,
1999. Cash used in acquisitions, net of cash acquired, totaled $69.2 million for
the six months ended July 1, 2000. Cash used in the development of certain
intangible assets, including software, totaled $1.6 million for the six months
ended July 1, 2000 compared to $3.0 million for the six months ended July 3,
1999.
21
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The increase in capital expenditures for the six months ended July 1, 2000
compared to the six months ended July 3, 1999 is primarily attributable to
investments in bringing production of the Ford WDS 3500 product in-house during
the six months ended July 1, 2000. Through January 1, 2000, the Company was
outsourcing production of the WDS 3500 unit to a contract manufacturer. Total
capital expenditures for the six months ended July 1, 2000 related to bringing
the production in-house were approximately $2.7 million.
Beginning in 1998, the Company began implementation of SAP R/3-TM- ("SAP"),
an enterprise resource planning system. During the six months ended July 1,
2000, total capital expenditures related to the SAP implementation totaled
$4.1 million. At the end of 1998, the Company had completed Phase I of this
project with the successful implementation of selected accounting and finance
modules. During the three months ended April 3, 1999, the Company began Phase II
of this project, which involves the implementation of certain other modules,
including human resources, sales, manufacturing and distribution related
modules. While the Phase II go-live date of July 3, 2000 was achieved, the
Company expects to continue to incur certain capital expenditures and on-going
expenses related to the implementation of SAP, however, such expenditures are
expected to be significantly less than those made in 1999 and in 2000 through
the go-live date.
Net cash provided by financing activities was $97.8 million for the six
months ended July 1, 2000 compared to net cash provided by financing activities
of $19.3 million for the six months ended July 3, 1999. The change in cash
provided by financing activities compared to the prior year six-month period is
attributable to the Company's significant additional borrowings for the purpose
of funding strategic acquisitions. Six-month net borrowings totaled
$99.2 million of which $71.3 million were related to acquisitions and
$27.9 million related to general working capital requirements, principally
inventory demands.
STOCK REPURCHASE PROGRAM
During the second quarter of 1998, the Company commenced a stock repurchase
program whereby the Company will purchase, in the open market, shares of its
stock. On January 28, 2000, an additional 2,500,000 shares were authorized to be
repurchased, increasing the total shares authorized to 5,000,000. The Company
intends to buy back its stock at times when the market price of the stock
presents opportunities to do so and depending the Company's other cash
requirements. The Company's stock repurchase plan is intended as a means to
partially mitigate the dilutive impact of stock options. The Plan has been
funded entirely through operating cash flow, however, the Company may if it
considers it prudent, utilize its available credit facilities in connection with
its stock repurchase program. Through July 1, 2000 and July 3, 1999, the Company
had utilized approximately $36.0 and $18.7 million, respectively, to repurchase
2,195,600 and 1,225,600 shares of its common stock.
CREDIT FACILITY
In March 2000, the Company re-negotiated its existing $50.0 million credit
facility, increasing the total borrowings available to $125.0 million (the "new
line"). The new line is supported by a syndicated group of banks and provides
for up to $75.0 million to be utilized for acquisitions and $50.0 million to be
used for general working capital purposes. The new line requires the Company to
maintain certain leverage, operating cash flow and operating income covenants as
well as non-financial operating covenants, as defined, and expires March 2004.
The new line is collaterized by substantially all of the Company's assets.
Certain borrowings on the line, primarily related to acquisitions, are payable
quarterly while the remaining borrowings are payable on demand. The line bears
interest at the lesser of the banks' prime rate plus
22
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
0.75% or LIBOR plus 1.75%, as determined from time to time by the banks. The
interest rates on the credit facility at July 1, 2000 ranged from 8.06% to
9.75%. Under the terms of the new line, the Company is required to pay a
commitment fee on the unused portion of the line ranging from 0.375% to 0.5% of
the total unused portion of the line dependent on the Company's operating
performance. At July 1, 2000, borrowings outstanding under the line totaled
$104.7 million, of which $71.3 million was related to acquisitions and
$33.4 million related to general working capital.
SUMMARY
The Company's primary source of liquidity is internally generated funds and
available credit facility. For the remainder of 2000, the Company anticipates it
will fund its working capital and capital expenditure requirements, make
principal and interest payments on its borrowings and meet its cash obligations
from internally generated funds and from its available credit facility. As the
Company continues to invest in new product developments and enhancements to
existing products, it expects research and development expenditures to continue
at approximately the same percentage of sales as prior fiscal years.
EFFECTS OF INFLATION AND FOREIGN EXCHANGE
Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe inflation has had a material
effect on its revenues or its results of operations. The Company attempts to
mitigate inflationary cost increases by continuously improving manufacturing
methods and technologies. Management does not expect inflation to have a
significant impact on operations in the foreseeable future.
The Company maintains development, sales and support facilities in several
locations worldwide, including England, France, Germany, Switzerland, Singapore,
and Mexico. A significant amount of the Company's business is conducted with
companies located in these and other countries and certain transactions may be
denominated in currencies other than the US dollar. As a result, the Company may
experience transaction gains and losses as a result of currency fluctuations. In
order to minimize its exposure to loss from changes in foreign currency exchange
rates, the Company mitigates its risk using foreign currency forward exchange
contracts. The Company's currency risk mitigation strategies are designed to
reduce the Company's vulnerability to certain foreign currency exchange
exposures. In executing its strategies, the Company actively monitors foreign
currency exchange rates and executes foreign currency forward exchange
contracts, primarily with financial institutions. These contracts serve to
offset the impact of actual foreign currency changes, e.g. if currency rates
changed with respect to a certain transaction resulting in a loss to the
Company, the forward contract would be structured to result in a gain, thereby
minimizing the actual loss incurred, if any.
The Company may be subject to losses resulting from unanticipated changes in
foreign currency exchange rates. The market factors that expose the Company in
this regard include economic conditions in which the Company conducts business
as well as the Company's ability to effectively and efficiently engage in
foreign currency forward exchange contracts at competitive rates with financial
institutions or others. The Company expects to continue these or similar
practices in the future to the extent appropriate. Historically, actual results
of the Company's foreign currency risk management procedures have been in line
with management's expectations and have not resulted in significant gains or
losses, however, there can be no assurance that these results will continue in
the future.
23
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE INTRODUCTION OF THE EURO
The Company is aware of and has developed systems designed to handle the
introduction of the Euro as an effective currency in Europe. Although the
Company believes the systems that have been implemented are sufficient for the
Company to be able to process Euro denominated transactions, there can be no
assurances that such systems will continue to function as designed. If they do
not so function, GenRad's financial results could be adversely affected. To
date, the Company has not encountered any significant processing issues related
to the introduction of the Euro. The introduction of the Euro has not materially
affected the manner in which the Company conducts its operations, nor has it
required the Company to alter any significant contracts with suppliers and/or
financial institutions.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report may contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results of operations and
future financial condition 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 include, but
are not limited to, those discussed below.
The Company has experienced and expects to continue to experience
fluctuations in its results of operations, particularly on a quarterly basis.
The Company's expense levels are based, in part, on expectations of future
revenues. If revenue levels in a particular period do not meet expectations, due
to the timing of the receipt of orders from customers, customer cancellations or
delays of shipments, then operating results could be adversely impacted.
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.
OTHER FACTORS
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.
24
<PAGE>
GENRAD, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
FINANCIAL INSTRUMENTS
On June 15, 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). This Statement is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000 (December 31, 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
of the adoption of SFAS 133 to its operating results or financial position.
REVENUE RECOGNITION
In December 1999, the United States Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" subsequently updated by SAB 101A and SAB 101B ("SAB 101"). SAB 101
summarizes certain of the SEC's view in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company is
required to adopt SAB 101 no later than the fourth quarter of fiscal 2000.
STOCK COMPENSATION
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of GenRad, Inc. was held on May 11,
2000 (the "Annual Meeting").
(b) Not required pursuant to instructions No. 3.
(c) Votes were cast or withheld in connection with the election of directors
at the Annual Meeting as follows:
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD
---------------- ---------- --------
<S> <C> <C>
Lowell B. Hawkinson......................................... 22,194,333 820,045
Adriana Stadecker........................................... 22,059,213 955,165
</TABLE>
Votes were cast or withheld in connection with the following proposals, more
fully described in the Company's Proxy Statement dated May 11, 2000 at the
Annual Meeting.
<TABLE>
<CAPTION>
AFFIRMATIVE VOTES NEGATIVE VOTES ABSTAINED
----------------- -------------- ---------
<S> <C> <C> <C>
1) To amend the Company's 1991 Equity Incentive Plan by
increasing by 500,000 the shares of Common Stock
available for issuance............................... 14,498,478 8,295,655 220,244
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this report:
<TABLE>
<S> <C>
10. Lease agreement dated July 26, 1996 between GenRad, Inc. and
Michelson Farm-Westford Technology Park Trust, incorporated
by reference to Exhibit 10 to the Company's report on
Form 10-Q for the quarter ended June 29, 1996.
10.1 Facility agreement dated June 26, 1997 between GenRad
Limited and BankBoston, N.A. London Branch, incorporated by
reference to Exhibit 10.1 to the Company's report on
Form 10-Q for the quarter ended June 28, 1997.
10.2 Amended and restated revolving credit agreement dated
May 6, 1997 between GenRad, Inc. and BankBoston, N.A.,
incorporated by reference to Exhibit 10.2 to the Company's
report on Form 10-Q for the quarter ended June 28, 1997.
10.3 Severance Agreement between GenRad, Inc. and Kevin R.
Cloutier effective as of May 9, 1997, incorporated by
reference to Exhibit 10.3 to the Company's report on
Form 10-Q for the quarter ended September 27, 1997.
10.4 Severance Agreement between GenRad, Inc. and Paul Geere
effective as of May 9, 1997, incorporated by reference to
Exhibit 10.4 to the Company's report on Form 10-Q for the
quarter ended September 27, 1997.
10.5 Severance Agreement between GenRad, Inc. and Lori B. Hannay
effective as of May 9, 1997, incorporated by reference to
Exhibit 10.5 to the Company's report on Form 10-Q for the
quarter ended September 27, 1997.
10.6 Severance Agreement between GenRad, Inc. and Sarah H. Lucas
effective as of May 9, 1997, incorporated by reference to
Exhibit 10.6 to the Company's report on Form 10-Q for the
quarter ended September 27, 1997.
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
10.7 Severance Agreement between GenRad, Inc. and James F. Lyons
effective as of May 8, 1997, incorporated by reference to
Exhibit 10.7 to the Company's report on Form 10-Q for the
quarter ended September 27, 1997.
10.8 Severance Agreement between GenRad, Inc. and Paul
Pronsky, Jr. effective as of May 9, 1997, incorporated by
reference to Exhibit 10.8 to the Company's report on
Form 10-Q for the quarter ended September 27, 1997.
10.9 Severance Agreement between GenRad, Inc. and Michael W.
Schraeder effective as of May 9, 1997, incorporated by
reference to Exhibit 10.9 to the Company's report on
Form 10-Q for the quarter ended September 27, 1997.
10.10 Severance Agreement between GenRad, Inc. and Walter A.
Shephard effective as of October 24, 1997, incorporated by
reference to Exhibit 10.10 of the Company's report on
Form 10-K for the year ended January 3, 1998.
10.11 Severance Agreement between GenRad, Inc. and Gary H. Mueller
effective as of October 24, 1997, incorporated by reference
to Exhibit 10.11 of the Company's report on Form 10-K for
the year ended January 3, 1998.
10.12 Agreement dated February 12, 1997 between GenRad Limited and
Ford Motor Company, incorporated by reference to
Exhibit 10.12 of the Company's report on Form 10-K for the
year ended January 2, 1999.
10.13 Settlement agreement and Mutual General Release dated
April 7, 1999 between William E. Gaines, William E.
Massaker, Frank B. Wingate and Heritage Investment Limited
Partnership and GenRad, Inc., James F. Lyons and Paul
Pronsky Jr., incorporated by reference to Exhibit 10.13 of
the Company's report on Form 10-K for the year ended
January 2, 1999.
10.14 Employment Agreement by and between GenRad, Inc, and Robert
M. Dutkowsky effective as of April 10, 2000, filed herewith.
27. Financial Data Schedule.
</TABLE>
(b) The following reports were filed under Form 8-K during the three months
ended July 1, 2000:
1. On April 4, 2000, the Company filed a Form 8-K to announce the Company's
acquisition of substantially all of the assets of Nicolet Imaging Systems, a
division of ThermoSpectra Corporation and all of the outstanding Capital
Stock of Sierra Research and Technology, Inc., a wholly owned subsidiary of
ThermoSpectra Corporation, pursuant to a Purchase and Sale Agreement dated
March 24, 2000.
2. On April 27, 2000, the Company filed a Form 8-K to announce the closing of a
tender offer for approximately 95% of the outstanding share capital of
Autodiagnos AB, a publicly traded company in Sweden.
27
<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.
<TABLE>
<S> <C> <C>
GENRAD, INC.
By: /s/ WALTER A. SHEPHARD
-----------------------------------------
Walter A. Shephard
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER AND CLERK
</TABLE>
Date: August 15, 2000
28
