-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GG5PTyIkw1TadzOMy3sEc6HCI4o5moyurTk32c4/lIiS13JR1LMb3AXf6dcrHxpD 12+p4OfHE9TKpik3SAb5yA== /in/edgar/work/20000815/0000912057-00-037766/0000912057-00-037766.txt : 20000922 0000912057-00-037766.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037766 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENRAD INC CENTRAL INDEX KEY: 0000040972 STANDARD INDUSTRIAL CLASSIFICATION: [3825 ] IRS NUMBER: 041360950 STATE OF INCORPORATION: MA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08045 FILM NUMBER: 702892 BUSINESS ADDRESS: STREET 1: 7 TECHNOLOGY PARK DR CITY: WESTFORD STATE: MA ZIP: 01886-0033 BUSINESS PHONE: 9785897000 MAIL ADDRESS: STREET 1: 7 TECHNOLOGY PARK DRIVE CITY: WESTFORD STATE: MA ZIP: 01886-0033 FORMER COMPANY: FORMER CONFORMED NAME: GENERAL RADIO CO DATE OF NAME CHANGE: 19760210 10-Q 1 a10-q.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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) ------------------------ 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)
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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GENRAD INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q THREE MONTHS ENDED JULY 1, 2000 TABLE OF CONTENTS
PAGE -------- 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
PART I ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS GENRAD INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------- ------------------- JULY 1, JULY 3, JULY 1, JULY 3, 2000 1999 2000 1999 -------- -------- -------- -------- 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 ======= ======= ======== =======
The Accompanying Notes are an Integral Part of These Condensed Consolidated Financial Statements. 1 GENRAD INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
JULY 1, JANUARY 1, 2000 2000 ----------- ---------- (UNAUDITED) 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 ======== ========
The Accompanying Notes are an Integral Part of These Condensed Consolidated Financial Statements. 2 GENRAD INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
SIX MONTHS ENDED ------------------- JULY 1, JULY 3, 2000 1999 -------- -------- 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 ======= =======
The Accompanying Notes are an Integral Part of These Condensed Consolidated Financial Statements. 3 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: 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
The Accompanying Notes are an Integral Part of These Condensed Consolidated Financial Statements. 4 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):
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- --------------------------- JULY 1, 2000 JULY 3, 1999 JULY 1, 2000 JULY 3, 1999 ------------ ------------ ------------ ------------ 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 ======= ======= ======= =======
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 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): 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 =======
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 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): 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 =======
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:
SIX MONTHS ENDED SIX MONTHS ENDED JULY 1, 2000 JULY 3, 1999 ---------------- ---------------- 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
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 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):
JULY 1, JANUARY 1, 2000 2000 -------- ---------- Raw materials............................................ $22,126 $13,247 Work in process.......................................... 25,238 17,891 Finished goods........................................... 25,454 17,930 ------- ------- $72,818 $49,068 ======= =======
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 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.
EMS ADS GRS TOTAL -------- -------- -------- -------- 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 ======== ======= ======= ========
9 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:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------- ------------------- JULY 1, JULY 3, JULY 1, JULY 3, 2000 1999 2000 1999 -------- -------- -------- -------- 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 ======= ======= ======= =======
- ------------------------ (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 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 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 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.
THREE MONTHS SIX MONTHS ENDED ENDED ------------------- ------------------- JULY 1, JULY 3, JULY 1, JULY 3, 2000 1999 2000 1999 -------- -------- -------- -------- 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% ===== ===== ===== =====
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 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 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 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 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 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 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 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 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 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 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 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 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 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:
NAME OF DIRECTOR FOR WITHHELD - ---------------- ---------- -------- Lowell B. Hawkinson......................................... 22,194,333 820,045 Adriana Stadecker........................................... 22,059,213 955,165
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.
AFFIRMATIVE VOTES NEGATIVE VOTES ABSTAINED ----------------- -------------- --------- 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
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) The following Exhibits are filed as part of this report: 10. Lease agreement dated July 26, 1996 between GenRad, Inc. and Michelson Farm-Westford Technology Park Trust, incorporated by reference to Exhibit 10 to the Company's report on Form 10-Q for the quarter ended June 29, 1996. 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.
26 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.
(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 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENRAD, INC. By: /s/ WALTER A. SHEPHARD ----------------------------------------- Walter A. Shephard VICE PRESIDENT AND CHIEF FINANCIAL OFFICER AND CLERK
Date: August 15, 2000 28 EX-10.14 2 ex-10_14.txt EXHIBIT 10.14 Exhibit 10.14 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into effective as of April 10, 2000 (the "Effective Date") by and between GenRad, Inc., a Massachusetts corporation (including, for purposes of Sections 5, 6, 7 and 9, its direct and indirect subsidiaries, the "Company"), and Robert M. Dutkowsky, of Westboro, Massachusetts (the "Executive"). In consideration of the mutual promises, terms, provisions and conditions set forth in this Agreement, the parties hereby agree as follows: 1. EMPLOYMENT. Subject to the terms and conditions set forth in this Agreement, the Company hereby offers and the Executive hereby accepts employment by the Company on the Effective Date. 2. CAPACITY AND PERFORMANCE. (a) During his employment, the Executive shall serve as Chairman, President and Chief Executive Officer of the Company. In addition, if the Executive agrees to serve as a director of the Company or an officer and/or director of one or more of the Company's subsidiaries, he agrees to do so without further compensation. (b) During his employment, the Executive shall be employed by the Company on a full-time basis and shall have all powers and duties consistent with his position as the Chairman, President and Chief Executive Officer of the Company, reporting to and subject to the direction and control of the Company's Board of Directors (the "Board"), and shall perform such other duties and responsibilities on behalf of the Company and its subsidiaries as may reasonably be designated from time to time by the Board consistent with the position of President and Chief Executive Officer. (c) During his employment, the Executive shall devote substantially all of his business time and his best efforts, business judgment, skill and knowledge to the advancement of the business and interests of the Company and to the discharge of his duties and responsibilities hereunder. The Executive shall not engage in any other business activity or serve in any industry, trade, professional, governmental or academic position during his employment by the Company, except as may be expressly approved in advance by the Board in writing or to the extent that any such activity or service does not materially and adversely affect the discharge of his duties and responsibilities hereunder. 3. COMPENSATION AND BENEFITS. As compensation for all services performed by the Executive under this Agreement and during his employment by the Company and subject to performance of the Executive's duties and obligations, pursuant to this Agreement or otherwise: (a) BASE SALARY. The Company shall pay the Executive a base salary at the rate of Five Hundred Thousand Dollars ($500,000) per annum, payable at such time as base salaries are regularly paid to senior executives of the Company ("Base Salary"). (b) BONUS COMPENSATION. (i) The Company shall pay the Executive a one-time signing bonus equal to $125,000 (the "Signing Bonus") promptly following the execution and delivery of this Agreement by the Executive and the Company. Notwithstanding anything contained herein to the contrary, the Signing Bonus shall be subject to repayment by the Executive if the Executive terminates his employment without Good Reason (as defined below) or the Company terminates his employment for Cause (as defined below) within twelve months of the Effective Date. The amount of the Signing Bonus to be repaid shall be reduced by $10,416.67 for each full month during which the Executive's employment by the Company continues. Notwithstanding the foregoing, the Signing Bonus shall not be subject to repayment if (A) the Executive dies or his employment is terminated for disability pursuant to Section 4(b) below or (B) the Executive's employment is (x) terminated by the Company without Cause or (y) terminated by the Executive for Good Reason within thirty days after the occurrence of the event which gives rise to Good Reason. In the event that any portion of the Signing Bonus is to be repaid to the Company, the Executive shall repay such amount within five days of the termination of his employment or, at the Company's option, the amount shall be set off and deducted from other amounts, if any, owed by the Company to the Executive. (ii) The Executive shall have the opportunity to receive an annual bonus of up to one hundred percent (100%) of his Base Salary upon achievement of goals to be agreed upon by the Executive and the Compensation Committee of the Board. Any bonus shall be paid at such time as bonuses are regularly paid to senior executives of the Company. 2 (c) STOCK OPTION. The Executive shall receive a non-qualified stock option in the form attached to purchase five hundred thousand (500,000) shares of Common Stock of the Company on the second full business date following the date the Company publicly announces its financial results for the first quarter of fiscal 2000 (the "Stock Option"). (d) OTHER BENEFITS. During his employment and subject to any terms and conditions generally applicable to senior executives of the Company, the Executive shall be entitled to receive a car allowance and all employee benefits currently provided to senior executives of the Company so long as and to the extent any such benefit is provided by the Company and, with respect to benefits provided under benefit plans, provided that the Executive is otherwise eligible or insurable in accordance with the terms of the benefit plan. The Company may alter, modify, add to or delete any employee benefit maintained for its employees generally at any time as it, in its sole judgment, determines to be appropriate, without recourse by the Executive. (e) BUSINESS EXPENSES. The Company shall pay or reimburse the Executive for all reasonable and necessary business expenses incurred or paid by the Executive in the performance of his duties and responsibilities hereunder, subject to any maximum annual limit and other reasonable restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time consistent with the requirements imposed on other senior executives of the Company. 4. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. The Executive's employment hereunder shall terminate under the following circumstances: (a) DEATH. In the event of the Executive's death, the Executive's employment hereunder shall immediately and automatically terminate. The Company shall pay to the Executive's designated beneficiary or, if no beneficiary has been designated by the Executive, to his estate any Base Salary earned but unpaid through the date of death. (b) DISABILITY. (i) The Company may terminate the Executive's employment hereunder, upon notice to the Executive, in the event that the Executive becomes disabled through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of his duties and responsibilities hereunder for an aggregate of 180 days during any period of 365 consecutive calendar days. 3 (ii) The Board may designate another employee to act in the Executive's place during any period of the Executive's disability. Notwithstanding any such designation, the Executive shall continue to receive (A) Base Salary and (B) benefits in accordance with Section 3(d), to the extent permitted by the then-current terms of the applicable benefit plans and applicable law, until the earliest of the following: (1) the Executive becomes eligible for disability income benefits under any disability income plan maintained by the Company, (2) the Executive becomes employed by another employer or (3) the first anniversary of the termination of his employment. (iii) While receiving disability income payments under any disability income plan maintained by the Company, the Executive shall not be entitled to receive any Base Salary or bonus under Section 3(b), but shall continue to participate in the Company's benefit plans in accordance with Section 3(d) and the terms of such plans, until the termination of his employment. (iv) If any question shall arise as to whether during any period the Executive is disabled through any illness, injury, accident or condition of either a physical or psychological nature so as to be unable to perform substantially all of his duties and responsibilities hereunder, the Executive may, and at the request of the Company shall, submit to a medical examination by a physician selected by the Company to whom the Executive or his duly appointed guardian, if any, has no reasonable objection to determine whether the Executive is so disabled, and such determination shall for the purposes of this Agreement be conclusive of the issue. If such question shall arise and the Executive shall fail to submit to such medical examination, the Board's determination of the issue shall be binding on the Executive. (c) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the Executive's employment hereunder for Cause at any time upon notice to the Executive setting forth in reasonable detail the nature of such Cause. Upon the giving of notice of termination of the Executive's employment hereunder for Cause, the Company shall have no further obligation or liability to the Executive relating to the Executive's employment hereunder, or the termination thereof, other than for Base Salary earned but unpaid through the date of termination. (d) TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. The Company may terminate the Executive's employment hereunder other than for Cause at any time upon 30 days' notice to the Executive or, at the Company's option, payment to the Executive of 30 days' salary in lieu of such notice, in which case the "date of termination" for purposes of this Agreement shall be the last day of such 30-day period. In the event of such termination, the Company shall pay the Executive (i) 4 Base Salary earned but unpaid through the date of termination and (ii) the amount specified in Section 4(g). (e) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive may terminate his employment hereunder for Good Reason at any time upon notice to the Company setting forth in reasonable detail the nature of such Good Reason. In the event of termination in accordance with this Section, the Company shall pay the Executive (i) Base Salary earned but unpaid through the date of termination and (ii) the amount specified in Section 4(g). (f) TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON. The Executive may terminate his employment hereunder other than for Good Reason at any time upon 90 days' notice to the Company; provided, however, that the Board, in its sole discretion, may elect to waive the period of notice or any portion thereof. In the event of termination by the Executive pursuant to this Section, the Company will pay the Executive his Base Salary for the period of notice, except to the extent the period of notice (or any remaining portion thereof) is waived by the Board. Upon the giving of notice of termination of the Executive's employment hereunder pursuant to this Section, the Company shall have no further obligation or liability to the Executive relating to the Executive's employment hereunder, or the termination thereof, other than payment to the Executive of his Base Salary for the period (or portion of such period) indicated above in this Section. (g) SEVERANCE. (i) Except to the extent provided in subsection (ii) below, in the event that the Executive's employment is terminated (A) by the Company pursuant to Section 4(d) or (B) by the Executive in accordance with Section 4(e), the Executive will be entitled to (a) monthly severance payments, each in an amount equal to 1/12 of the sum of (1) the Base Salary at the time of such termination and (2) the Executive's target fiscal year bonus at the time of termination, pro-rated to the date of termination, and (b) the continuation of benefits for the Executive and his family as set forth in Section 3(d), to the extent permitted by the terms of such plans and by applicable law, in each case for a period of twelve months following such termination. In addition, the Repurchase Right in the Stock Option shall lapse as to 125,000 shares of Common Stock of the Company, adjusted in the event of a stock split, stock dividend or similar transaction. (ii) In the event that the Executive's employment is terminated following a Change of Control (A) by the Executive in accordance with Section 4(f) more than six months but less than twelve months following the Change of Control, (B) by the Executive in accordance with Section 4(e) within six months of the Change of Control or (C) by the Company in 5 accordance with Section 4(d) within six months of the Change of Control, the Executive shall be paid, within ten business days following termination of employment, a lump sum cash amount equal to three hundred percent (300%) of the sum of (A) the Executive's Base Salary immediately prior to the Change of Control and (B) the average of the bonuses paid to the Executive for the two fiscal years immediately preceding the Change of Control or, if two fiscal years have not elapsed, the bonus paid to the Executive for the fiscal year immediately preceding the Change of Control or, if one fiscal year has not elapsed, the target bonus for the not-yet elapsed fiscal year (collectively, the "Change of Control Payment"). In addition, to the extent the Company is able to do so under its existing plans and arrangements, the Company shall continue for a period of three years from the date of termination to provide the Executive with the benefits referred to under Section 3(d) of this Agreement (subject to any contributions required of plan participants generally). The Company's obligation to provide each such benefit shall terminate immediately upon the Executive's becoming eligible (either as a participant or a dependent) to participate in a plan providing comparable benefits sponsored by another employer, except that the Company shall pay any increase in the contribution to premiums required of Executive (or the plan participant of whom the Executive is a dependent, if applicable) in order to participate in such other employer's plan. (iii) The Executive may elect to reduce the total Change of Control Payment so that not more than 299% of the Executive's Base Compensation (for purposes of I.R.C. Section 280G) is payable to the Executive. (iv) The Company's obligation to pay and provide the severance benefits under this Section is conditioned on the Executive's prior execution and delivery (without subsequent revocation, to the extent permitted therein) of a release and waiver, in a form reasonably acceptable to the Executive, releasing all claims the Executive may have with respect to the termination of his employment by the Company except for claims based upon monies or benefits then earned or accrued and unpaid. 5. COVENANT NOT TO COMPETE. For a period of one (1) year from the date the Executive's employment with the Company terminates, regardless of the reason for such termination, the Executive will not engage or become interested, directly or indirectly, as an owner, employee, director, partner, consultant, through stock ownership, investment of capital, lending of money or property, rendering of services, or otherwise, either alone or in association with others, in the operation, management or supervision of any type of business or enterprise that directly or indirectly competes with the business of the Company, as the Company's business is constituted at the time the Executive's employment terminates (a "Competitive Business"); provided, however, that the foregoing shall not be deemed to prohibit the Executive from being employed by or providing services to a Competitive 6 Business if the nature of such employment or services do not directly or indirectly compete with the business engaged in by the Company at the time the Executive's employment terminates. In addition, during such period, the Executive will not, directly or indirectly, whether on his behalf or on behalf of anyone else, (a) solicit or accept orders from any present or past customer of the Company for a product or service offered or sold by, or competitive with a product or service offered or sold by, the Company; (b) induce or attempt to induce any such customer to cease or reduce such customer's business with the Company; (c) use for the benefit of the Executive or disclose the name and/or requirements of any such customer to any other person or persons, natural or corporate; or (d) solicit any of the Company's employees or consultants to leave the employ of the Company or hire any such employees. 6. CONFIDENTIAL INFORMATION. (a) The Executive acknowledges that (i) the Company will continually develop Confidential Information (as such term is defined in Section 9 below), (ii) the Executive may develop Confidential Information for the Company and (iii) the Executive may learn of Confidential Information during the course of his employment. The Executive agrees that, except as required for the proper performance of his duties for the Company, he will not, directly or indirectly, use or disclose any Confidential Information. The Executive understands and agrees that this restriction will continue to apply after his employment terminates, regardless of the reason for termination. (b) The Executive agrees that all Confidential Information which he creates, and to which he has access as a result of his employment, is and shall remain the sole and exclusive property of the Company. Except as required for the proper performance of his duties, the Executive will not copy any documents, tapes or other media containing Confidential Information ("Documents") or remove any Documents, or copies of Documents, from Company premises. The Executive will return to the Company immediately after his employment terminates, and at such other times as may be specified by the Company, all Documents and copies of Documents and all other property of the Company then in his possession or control. 7. ENFORCEMENT OF COVENANTS. The Executive acknowledges that he has carefully read and considered all the terms and conditions of this Agreement, including, without limitation, the restraints imposed upon him pursuant to Sections 5 and 6 hereof. The Executive further agrees that all goodwill of the Company is its exclusive property. The Executive further acknowledges and agrees that, if he acts in breach of any of the covenants contained in Section 5 or 6 hereof, the damage will be irreparable. The Executive therefore agrees that the Company, in addition to any other remedies available to it, shall be entitled to preliminary and permanent injunctive relief against any breach or threatened breach by the Executive of any of said covenants, without having to post bond. 7 8. CONFLICTING AGREEMENTS. The Executive hereby represents and warrants that the execution of this Agreement and the performance of his obligations hereunder will not be in breach or be in conflict with any other agreement to which the Executive is a party or is bound and that the Executive is not subject to any covenants against competition or similar covenants that would affect the performance of his obligations hereunder. The Executive will not disclose or use any proprietary information of a third party without such party's consent. 9. DEFINITIONS. Words or phrases which are initially capitalized or are within quotation marks shall have the meanings provided in this Section 9 and as provided elsewhere herein. For purposes of this Agreement, the following definitions apply: (a) "CONFIDENTIAL INFORMATION" means any and all information, inventions, discoveries, ideas, research, engineering methods, practices, processes, systems, formulae, designs, concepts, products, projects, improvements and developments that are not generally known by others, developed by or known to the Executive during the term of his employment by the Company (and not previously) and relating in any respect to the Company, including its business, products or services (or learned by the Executive from a source known to the Executive to be violating an obligation to the Company not to disclose the same) or that are developed by the Executive during his employment by the Company and that have applicability to the business, products or services of the Company, including but not limited to (i) products and services, technical data, methods and processes, (ii) marketing activities and strategic plans, (iii) costs and sources of supply, (iv) the identity and special needs of customers and prospective customers and vendors and prospective vendors, and (v) the people and organizations with whom the Company has or plans to have business relationships and those relationships. Confidential Information also includes such information that the Company may receive or has received belonging to customers or others who do business with the Company and any publication or literary creation of the Executive, developed in whole or in significant part during his employment by the Company, in whatever form published, whose content in whole or in part is competitive in any material respect with the products or services offered by the Company (including, without limitation, as such products or services could reasonably be expected to evolve or be extended in the foreseeable future). (b) "PERSON" means an individual, a corporation, an association, a partnership, an estate, a trust and any other entity or organization. (c) "GOOD REASON" means (i) failure by the Company to maintain the Executive in the position described in Section 2, (ii) assignment to the Executive of duties materially inconsistent with his nominal position, or the removal of the authority and responsibility which is reasonably necessary for the Executive to carry out his duties in such position, (iii) relocation of the Executive's principal place of work to a location more than 50 miles from Westford, Massachusetts, (iv) failure by 8 the Company to provide the Executive with the compensation and benefits described in Section 3, in each case provided that (x) within 30 days following the date the Executive learns of the onset of such Good Reason, the Executive gives written notice of his resignation identifying the event or change constituting Good Reason and (y) the Company does not alleviate the Good Reason so identified within 30 days following its receipt of such notice from the Executive. (d) "CHANGE OF CONTROL" means the occurrence of any of the following events: (i) any Person becomes the owner of 20% or more of the Company's Common Stock; provided, however, that the Board may unilaterally amend this clause (i) to increase the 20% threshold to any percentage up to, but not exceeding, 50%; or (ii) individuals who, as of the Effective Date, constitute the Board (the "Continuing Directors") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual becoming a director after the Effective Date whose election or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the Continuing Directors will be deemed to be a Continuing Director, but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) approval by the shareholders of the Company of a reorganization, merger, consolidation or other transaction that will result in the transfer of ownership of more than 50% of the Company's outstanding shares of Common Stock; or (iv) liquidation or dissolution of the Company or sale of all or substantially all of the Company's assets. In addition, for purposes of this definition of Change of Control the following terms have the meanings set forth below: "COMMON STOCK" means the then outstanding Common Stock of the Company plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock which such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange 9 rights, warrants or options or otherwise. Notwithstanding the foregoing, the term "COMMON STOCK" does not include shares of preferred stock or convertible debt or options or warrants to acquire shares of Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board expressly so determines in any future transaction or transactions. A Person will be deemed to be the "OWNER" of any Common Stock of which such Person would be the "BENEFICIAL OWNER", as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act. "PERSON" has the meaning used in Section 13(d) of the Exchange Act, except that "Person" does not include (i) the Executive, an Executive Related Party, or any group of which the Executive or Executive Related Party is a member, or (ii) the Company or a wholly-owned subsidiary of the Company or an employee benefit plan (or related trust) of the Company or of a wholly-owned subsidiary. An "EXECUTIVE RELATED PARTY" means any affiliate or associate of the Executive other than the Company or a subsidiary of the Company. The terms "AFFILIATE" and "ASSOCIATE" have the meanings given in Rule 12b-2 under the Exchange Act; the term "REGISTRANT" in the definition of "associate" means, in this case, the Company. (e) "CAUSE" shall mean (i) conviction of the Executive for a fraudulent act involving the Company or a felony (other than negligent operation of a motor vehicle), (ii) willful misfeasance, illegal, dishonest or negligent conduct which constitutes a breach of the Executive's covenants and obligations under this Agreement or under any applicable legal principle or which involves funds or other assets of the Company, or (iii) any conduct which is likely to have an adverse effect upon the goodwill or business position of the Company; provided, that, with respect to either (ii) or (iii), if the Executive's conduct does not involve willful or dishonest conduct, then, prior to termination, the Company will give the Executive written notice of the conduct constituting "cause" and a reasonable opportunity to cure. 10. WITHHOLDING. All payments made under this Agreement shall be reduced by any tax or other amounts required to be withheld under applicable law. 11. ASSIGNMENT. Neither the Company nor the Executive may make any assignment of this Agreement or any interest herein, by operation of law or otherwise, without the prior written consent of the other; provided, however, that the Company may assign its rights and obligations under this Agreement without the consent of the Executive 10 in the event that the Company shall hereafter effect a reorganization, consolidate with, or merge into, any other Person or transfer all or substantially all of its properties or assets to any other Person. This Agreement shall inure to the benefit of and be binding upon the Company and the Executive, and their respective successors, executors, administrators, heirs and permitted assigns. 12. SEVERABILITY. If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 13. WAIVER. No waiver of any provision hereof shall be effective unless made in writing and signed by the waiving party. The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach. 14. NOTICES. Any and all notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be effective when delivered in person or deposited in the United States mail, postage prepaid, registered or certified, and addressed to the Executive at his last known address on the books of the Company or, in the case of the Company, at the Company's principal place of business, to the attention of the Chief Financial Officer, or to such other address as either party may specify by notice to the other actually received. 15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of the Executive's employment, including without limitation any agreements relating to employment between the Executive and any corporate predecessor or promoter of the Company, any such agreement being hereby terminated by the mutual agreement of the parties without liability to either party. 16. AMENDMENT. This Agreement may be amended or modified only by a written instrument signed by the Executive and by an expressly authorized representative of the Company. 17. HEADINGS. The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement. 11 18. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 19. GOVERNING LAW. This Agreement shall be construed and enforced under and be governed in all respects by the laws of the Commonwealth of Massachusetts, without regard to the conflict of laws principles thereof. IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Executive and by the Company by its duly authorized representative, as of the date first above written. Executive: GENRAD, INC. /s/ Robert M. Dutkowsky /s/ Ed Zschau By: - ----------------------- ----------------------- Robert M. Dutkowsky Name: Ed Zschau Title: Chair, Compensation Committee 12 EX-27 3 ex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AS OF JULY 1, 2000 AND THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JULY 1, 2000 FOR GENRAD, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. U.S. DOLLARS 3-MOS DEC-30-2000 JUL-01-2000 1 11,639 0 94,684 1,673 72,818 201,667 96,123 44,526 366,552 102,649 0 0 0 29,993 164,303 366,552 70,303 87,324 40,740 52,985 33,694 0 2,326 (1,612) 581 (1,031) 0 0 0 (1,031) (0.04) (0.04)
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