10-K/A 1 a2057863z10-ka.txt 10-K/A -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K/A /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 30, 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 (I.R.S. Employer incorporation or organization) Identification Number) 7 TECHNOLOGY PARK DRIVE 01886-0033 WESTFORD, MASSACHUSETTS (Zip Code) (Address of principal executive offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 589-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of shares of Common Stock held by non-affiliates of the registrant as of March 26, 2001 was $239,658,438. 28,509,554 shares of the Common Stock of GenRad, Inc., $1.00 par value, were outstanding on March 26, 2001. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- REQUIRED INFORMATION In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended, GenRad, Inc. is filing this second amendment to its Annual Report on Form 10-K filed on March 30, 2001 to include an explanatory paragraph in the Report of Independent Accountants relating to GenRad's ability to continue as a going concern as described in Note 13 to the consolidated financial statements and a Consent of Independent Accountants as Exhibit 23.3. 2 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT REPORT Management is responsible for the preparation and integrity of the consolidated financial statements appearing in this Annual Report. The financial statements were prepared in conformity with generally accepted accounting principles. Management has included in the Company's financial statements, amounts that are based on estimates and judgement, which they believe are reasonable under the existing circumstances. Management believes that its established accounting procedures and related systems of internal control provide reasonable assurance, at an appropriate cost/benefit relationship, that assets are safeguarded, that the books and records properly reflect all transactions, and the policies and procedures are implemented by qualified personnel. Our independent accountants, PricewaterhouseCoopers LLP, have audited the consolidated financial statements. Their audit was conducted in accordance with generally accepted auditing standards and provides an independent opinion about fair presentation of the consolidated financial statements. When performing their audit, PricewaterhouseCoopers LLP considers the Company's internal control structure to the extent they deem necessary to issue their opinion on the financial statements. The Board of Directors appoints the independent accountants; ratification of the appointment is solicited annually from stockholders. The Board of Directors, through its Audit Committee, consisting solely of independent directors of the Company, is responsible for reviewing and monitoring the Company's financial reporting and accounting practices. PricewaterhouseCoopers LLP has full and free access to the Audit Committee, and meets with the Committee, with and without the presence of management. /s/ WALTER A. SHEPHARD -------------------------- Walter A. Shephard Chief Financial Officer, Vice President, Global Business Operations, Treasurer, and Clerk February 8, 2001 3 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of GenRad, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of GenRad, Inc. and its subsidiaries at December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2000 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 13 to the financial statements, the Company has incurred a net loss of $110.1 million (unaudited) during the six months ended June 30, 2001 and, as a result, is in continuing discussions with its banks with regards to potential loan covenant violations when its current waiver expires on September 28, 2001. These issues raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 13. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts February 8, 2001, except Note 13, for which the date is August 30, 2001 4 GENRAD, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial statements. 5 GENRAD, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 30, 2000 AND JANUARY 1, 2000 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial statements. 6 GENRAD, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 (IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial statements. 7 GENRAD, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 (IN THOUSANDS)

8 Cash outlay associated with the Company's acquisitions in 2000 totaled approximately $69.7 million, net of cash acquired. Fair value of assets, net of cash acquired, and liabilities assumed upon acquisition of Autodiagnos and NIS: 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......................................... (994) Deferred revenue............................................ (55) Current portion of long-term debt........................... (619) Accrued compensation and employee benefits.................. (1,111) Other long-term liabilities................................. (5,624) ------- Total....................................................... $ 7,493 =======

Stock issued in association with the Company's acquisition of Industrial Computer Corporation in 1998 totaled approximately $36.6 million. Fair value of assets, net of cash acquired, and liabilities assumed upon acquisition of Industrial Computer Corporation: Accounts receivable, net.................................... $ 2,893 Other current assets........................................ 71 Property and equipment, net................................. 341 Other assets................................................ 83 Trade accounts payable...................................... (498) Accrued liabilities......................................... (1,272) Accrued compensation and employee benefits.................. (59) Accrued income taxes........................................ (139) Other long-term liabilities................................. (2,370) ------- Total....................................................... $ (950) =======

The accompanying notes are an integral part of these consolidated financial statements. 9 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 NOTE 1: DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF THE BUSINESS GenRad, Inc. ("GenRad" or "the Company") is a leading global manufacturing solutions company. GenRad develops, manufactures and markets advanced performance-assured technologies. GenRad's primary global markets for OEM and contract manufacturers include computers, advance telecommunications for e-commerce and internet services, ad diagnostic systems for the transportation/ automotive industry. The Company operates primarily in the United States, western Europe and Southeast Asia. GenRad is comprised of four lines of business bringing to market integrated hardware, software and service solutions that empower always-on services and un-interruptable business applications: Process Solutions ("PS"), Functional Solutions ("FS"), Diagnostic Solutions ("DS") and Support and Services ("SS"). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated. ACCOUNTING ESTIMATES The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses at and during the reporting periods covered by these consolidated financial statements. Significant estimates in these consolidated financial statements include restructuring and other unusual charges, allowance for doubtful accounts receivable, useful lives for depreciation and amortization, net realizable value of inventories, income taxes and valuation reserves and the determination of discount and other rate assumptions for pension and post-retirement employee benefit expenses. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with original or remaining maturities of three months or less to be cash equivalents. INVENTORY VALUATION Inventories include material, labor and overhead and are stated at the lower of cost (first-in, first-out method) or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 3 to 15 years for leasehold improvements, 3 to 8 years for machinery and equipment and purchased and internal-use software and 5 to 7 years for service parts. Gains and losses arising from the disposal of property, plant and equipment are included in earnings. Depreciation expense totaled $12.4 million in 2000, $9.7 million in 1999 and $10.7 million in 1998. 10 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 INTANGIBLE ASSETS Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired entities and is amortized on a straight-line basis over the period of expected benefit, generally ten years. Goodwill totaled $50.9 million at December 30, 2000 and $22.3 million at January 1, 2000. Accumulated amortization on goodwill totaled $7.6 million at December 30, 2000 and $3.3 million at January 1, 2000. Amortization expense totaled $4.3 million in 2000, $1.9 million in 1999 and $1.4 million in 1998. The Company capitalizes certain computer software development costs once technological feasibility is established. Capitalized computer software costs are amortized over the economic lives of the related products, generally three years, beginning when the product is available for general release to customers. Computer software costs capitalized totaled $4.2 million during 2000 and $4.8 million during 1999. Accumulated amortization totaled $5.8 million at December 30, 2000 and $2.8 million at January 1, 2000. Amortization expense totaled $2.9 million in 2000, $0.9 million in 1999 and $1.2 million in 1998. Intangible assets also includes the cost of developed technology, assembled workforce, patents and trademarks, tradenames and customer lists which are amortized on a straight-line basis over their estimated useful lives, generally three to ten years. These intangible assets totaled $49.2 million at December 30, 2000 and $16.0 million at January 1, 2000. Accumulated amortization totaled $10.7 million at December 30, 2000 and $4.8 million at January 1, 2000. Amortization expense totaled $5.9 million in 2000, $2.4 million in 1999 and $1.8 million in 1998. IMPAIRMENT OF LONG-LIVED ASSETS In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" the Company records impairment losses on long-lived assets to be held and used or to be disposed of when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the asset's carrying amount. In accordance with SFAS No. 86, "Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed" the Company records impairment losses on capitalized computer software costs when indicators of impairment are present and the estimated value of the assets is less than the assets' carrying amount. TREASURY STOCK Treasury stock is accounted for utilizing the cost method. REVENUE RECOGNITION In accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" revenue from product sales is generally recorded upon shipment to the customer, provided that no significant vendor obligations remain and that collection of the related receivable is reasonably assured. The Company accrues for warranty costs upon shipment. In the event significant post-shipment obligations and other uncertainties remain, revenue is deferred and recognized when such obligations are fulfilled by the Company or the uncertainties are resolved. Software license revenue is recognized, in accordance with Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition", upon delivery of the software and completion of a written agreement with the customer, provided fees are fixed or determinable, and that collection of the related receivable is deemed reasonably assured. Revenues from consulting and implementation are recognized as 11 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 services are performed. Service revenue is recognized ratably over applicable contract periods or as the services are performed. INCOME TAXES The Company records income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and the tax effect of net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to offset any net deferred tax asset if, based upon the available evidence, it is more likely that not that some or all of the deferred tax assets will not be realized. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS The Company performs ongoing credit evaluations of its customers' financial conditions and generally does not require collateral on accounts receivable. The Company maintains allowances for credit losses and such losses have been within management's expectations. At December 30, 2000 and January 1, 2000 one customer accounted for 22% and 16% of consolidated accounts receivable, respectively. During 2000, the same customer accounted for 20% of consolidated revenues. During 1999 and 1998, the same customer accounted for 31% and 11%, respectively, of consolidated revenues. No other customers accounted for greater than 10% of accounts receivable or revenues in 2000. FINANCIAL INSTRUMENTS As part of its overall risk management strategy the Company, from time to time, enters into forward foreign exchange contracts to hedge certain intercompany payables and receivables denominated in currencies other than the functional currency of the entity involved. The terms of the forward contracts are rarely more than six months. The purpose of the Company's intercompany foreign currency hedging activities is to protect the Company from the risk that the eventual net cash inflows and outflows resulting from these transactions will be adversely affected by changes in exchange rates. Forward contract gains and losses are recognized in other income (expense) at the end of each reporting period, with the resulting gain or loss offsetting any foreign exchange gains or losses on those transactions. The Company does not hold or issue financial instruments for trading purposes. The recorded amounts of financial instruments, including cash and cash equivalents, trade accounts receivable, trade accounts payable, debt and foreign exchange forward contracts approximate their fair values as of December 30, 2000. The notional amount of forward exchange contracts outstanding at December 30, 2000 was $18.4 million. In 2000, the Company entered into three interest rate swap agreements to mitigate fluctuations in the variable interest rates related to the credit facility. These agreements were entered into to replace variable rate payments with fixed rate payments. The swaps were designated for the first $22.5 million, second $22.5 million and next $15.0 million of the outstanding principal of the credit facility with fixed interest rates of 6.99%, 7.0% and 6.93%, respectively. The maturity dates of the agreements match that of the underlying credit facility which are March 2004. The differential between fixed and variable rates to be 12 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 paid or received is accrued as interest rates change in accordance with the agreements and recognized over the life of the agreements as an adjustment to interest expense. Upon implementation of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" with effect from the first quarter of 2001, changes in the fair value of the swaps are to be carried in accumulated other comprehensive income (loss) over the life of the related agreements. On maturity of the agreements, the appropriate gain or loss from the swaps is to be reclassified from accumulated other comprehensive income (loss) to the income statement in other income (expense). In the first quarter of 2001, the Company recorded a cumulative-effect-type adjustment of $1.0 million to recognize a reduction in the fair value of its swaps. STOCK-BASED COMPENSATION The Company's employee stock compensation plans are accounted for in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" and related interpretations. Under this method, no compensation expense is recognized as long as the exercise price equals the market price of the underlying stock on the date of the grant. The Company elected the disclosure-only alternative permitted under statement of Financial Accounting Standards No. 123, ("FAS 123") "Accounting for Stock-Based Compensation," for fixed stock-based awards to employees. EARNINGS PER SHARE Basic earnings per share ("EPS") is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding stock options using the "treasury stock" method. The following table presents the calculation for both basic and diluted EPS for 2000, 1999 and 1998 (in thousands, except per share amounts):

Options to purchase 3.5 million shares of common stock in 2000, 1.6 million shares in 1999 and 0.9 million shares in 1998 were outstanding but were not included in the computations of diluted EPS because the price of the options was greater than the average market price of the common stock for the period reported. There is no difference between basic and diluted EPS in 1998 since potential common shares from the exercise of stock options are anti-dilutive. FOREIGN CURRENCY The local currency is the functional currency (primary currency in which business is conducted) for the Company's subsidiaries with the exception of the Company's Mexican subsidiary whose functional currency is the U.S. dollar. All balance sheet accounts of foreign subsidiaries are translated at the current exchange rates and statement of operations items are translated at the average exchange rates during the year. Resulting translation adjustments are made directly to a separate component of stockholders' equity (deficit), accumulated other comprehensive income (loss). The effect of foreign currency transaction gains and losses is included in other income and expense in the Company's consolidated statements of operations and was immaterial for all years presented. 13 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under generally accepted accounting principles are recorded as an element of shareholders' equity but are excluded from net income. The Company's other comprehensive income (loss) is comprised of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency. This adjustment has no income tax impact to the Company. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to the current year presentation. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the statement of financial position and measurement of those instruments at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on the intended use of the derivative and the resulting designation. As amended by Statement No. 138, the aforementioned statement is effective for fiscal years beginning after June 15, 2000. The Company adopted SFAS 133 in the first quarter of 2001 and has recorded an accumulated effect type adjustment of $1.0 million. The adjustment was booked to other comprehensive income (loss) to recognize a reduction in the fair value of its swaps. NOTE 2: ACQUISITIONS 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 $1.3 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 consolidated financial statements beginning from the date of purchase. 14 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 The purchase price was allocated to the tangible and intangible assets of Autodiagnos as follows (in thousands): Goodwill.................................................... $17,058 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......................................... (6,019) ------- Total....................................................... $27,961 =======

ACQUISITION OF 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, 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 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) ------- Total....................................................... $40,490 =======

UNAUDITED 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 $(0.01) and (0.02) for 2000 and 1999, respectively. This unaudited pro forma financial information is presented for illustrative purposes 15 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 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 (in thousands):

ACQUISITION OF MANUFACTURING EXECUTION SYSTEMS On April 9, 1998, GenRad acquired certain assets of the Manufacturing Execution Systems ("MES") business of Valstar Systems Limited ("Valstar") located in Aberdeen, Scotland. Valstar's MES component provides integration services and support and distribution in Europe for ICC's Shop Floor Data Manager Software. Total consideration paid for Valstar's MES business was $3.2 million in cash, including acquisition costs, funded through internally generated funds. As part of the acquisition, the Company entered into a two-year consulting and services agreement with Valstar that includes securing certain Valstar personnel and other resources to transition the business to GenRad. Of the $3.0 million purchase price, $2.0 million was paid on April 9, 1998 and $1.0 million was released from escrow on October 7, 1998 as certain contingencies were achieved. Direct costs of the acquisition totaled approximately $0.2 million and consisted primarily of legal and accounting fees. The transaction was accounted for as a purchase, and accordingly, the purchase price was allocated to the intangible assets acquired based on their respective fair values. The purchase price was allocated to the intangible assets of Valstar's MES business as follows (in thousands): Goodwill.................................................... $2,100 Customer lists.............................................. 900 Employment contracts........................................ 200 ------ $3,200 ======

ACQUISITION OF INDUSTRIAL COMPUTER CORPORATION On April 7, 1998, GenRad acquired all of the then outstanding common shares of Industrial Computer Corporation ("ICC"), a software company providing real-time manufacturing execution systems to electronics manufacturers. ICC was established in 1980 and is located in Atlanta, Georgia. The transaction was accounted for as a purchase, and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. In connection with the acquisition of ICC, 1,237,917 shares of GenRad's common stock were issued for all of the then outstanding shares of ICC in a tax-free reorganization. The total consideration for the acquisition of ICC totaled approximately $36.6 million. Direct costs of the acquisition totaled approximately $1.6 million and consisted primarily of legal fees, accounting fees and broker fees. The results of ICC are included in the 1998 financial statements beginning from the date of purchase. 16 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 The purchase price was allocated to the tangible and intangible assets of ICC as follows (in thousands): Acquired in-process research and development................ $ 8,420 Goodwill.................................................... 16,982 Developed technology........................................ 11,370 Assembled workforce......................................... 1,280 Tradename................................................... 408 Assets, primarily accounts receivable and property and equipment................................................. 3,954 Liabilities assumed......................................... (4,215) ------- Total....................................................... $38,199 =======

The valuation of acquired in-process research and development was based on management's projections of the after tax net cash flows attributable to the acquired in-process research and development. Specifically, the valuation considers the following: (i) a fair market value premise; (ii) comprehensive due diligence concerning all potential intangible assets including trademarks and tradenames, patents, copyrights, non-compete agreements, assembled workforce and customer relationships and sales channel relationships; (iii) the value contribution of core technology to the acquired in-process technology, with a view toward ensuring the relative allocations to core technology and acquired in-process research and development were consistent with the relative contributions of each to the final product; and (iv) the calculation used to determine the value allocated to acquired in-process research and development considered only the efforts completed as of the transaction date and only the cash flow associated with the product development efforts in-process at the acquisition date. The charge for acquired in-process research and development relates to one development project in process at the date of the acquisition that had not reached technological feasibility, had no alternative future use, and for which ultimate successful development was uncertain. The conclusion that the development efforts in-process, or any material sub-component, had no alternative future use was reached in consultation with engineering personnel from ICC as well as the Company's valuation advisors. The in-process project consists of the development of ICC's existing UNIX based product using an object oriented design and standard programming language which will provide users of the product the ability to use ICC's Shop Floor Data Manager ("SFDM") product on varied operating platforms. The primary project tasks open at the time of acquisition included completion of the design of certain modules, or objects, which will house the program code, completion of program code written in the new language and preliminary quality assurance and testing of the product. At the time of acquisition, additional development remained on all tasks (management estimated that the project was approximately 69% complete) and costs to complete were estimated to total approximately $928,000. At the time of the acquisition, management believed that the product being developed would become available for sale late in 1999. Significant assumptions used to determine the value of the acquired in-process research and development included several factors. The first was a forecast of net cash flows that were expected to result from the in-process development effort using projections prepared by ICC management, portions of which (1998 and 1999) were provided to GenRad's Board of Directors. Net cash flow projections included projected revenue growth and trends in profit margins and selling, general and administrative expense that were consistent with recent historical trends prior to the acquisition. Second, a percentage complete of 69% for the project estimated by considering the costs invested to date relative to the expected total cost of the development effort, supported by the amount of technological progress completed as of the transaction 17 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 date relative to the overall technological achievements required to achieve the intended functionality of the eventual product. The technological issues were addressed primarily by engineering representatives from ICC along with the Company's independent valuation advisors. Third, a 24% discount rate, which represents a rate equivalent to that which would be employed in a fair value analysis, i.e., one that considers all cash flows associated with the project and resulting product, and therefore represents a blended rate of all the risks associated with the product. Lastly, a core technology charge reflected as one third of after tax net income related to the in-process project was utilized. This rate represents an amount that the Company would be required to pay in royalties assuming it had licensed the products expected to be derived from the acquired in-process development efforts. As of January 1, 2000, the technological feasibility of the project had been reached with the development effort on-going. No significant departures from the assumptions included in the valuation have occurred. SFDM v4.7.0 development was completed and made available for sale in November 2000 and the Company is now benefiting from the acquired in-process research and development. UNAUDITED PRO FORMA INFORMATION The following unaudited pro forma financial information presents the combined results of operations of GenRad and ICC as if the acquisition had occurred at the beginning of 1998 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 $(0.30) per share for 1998. 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 and ICC been a combined company during the specified period. Additionally, they are not indicative of the results of future combined operations (in thousands).

18 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 NOTE 3: RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES RESTRUCTURING AND OTHER CHARGES (BENEFITS) During the second quarter of 2000, the Company implemented a reorganization plan in connection with the election of Robert M. Dutkowsky as Chairman, President and Chief Executive Officer. As a result, the employment of certain members of management, including the then current Chief Executive Officer, was terminated. A charge of $4.1 million for severance costs was recorded during the second quarter. As of December 30, 2000 the remaining balance was $0.1 million. During the first quarter of 2000, the Company implemented a restructuring plan involving closure of the Company's Portland, Oregon office and a management restructuring of the DS segment in the Manchester, UK facility. The plan resulted 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 first quarter of 2000 of $1.0 million, which included severance costs of $0.7 million and facility closure costs of $0.3 million. As of December 30, 2000 the remaining reserve balance was $0.1 million. Additionally, during the first quarter of 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 the remaining $3.5 million of the 1993 restructuring accrual. During the second and third quarters of 1998, the Company restructured its operations, which resulted in a workforce reduction of approximately 230 manufacturing and general and administrative employees or 15% of the Company's workforce. In accordance with EITF 94-3, the Company recorded a charge for restructuring totaling approximately $6.8 million, including $5.2 million for severance costs and post-employment benefits, $1.0 million for write-offs of certain fixed assets which were no longer to be utilized and $0.6 million for the termination fees of certain equipment and real estate leases. Additionally, the Company ceased its manufacturing operations at its Manchester, UK facility. Inventory related to the manufacture of certain ADS products and the cessation of ADS' contract manufacturing business totaling $3.5 million was charged to cost of products sold. In addition, restructuring charges totaling approximately $0.5 million were recorded related to a workforce reduction of approximately 20 manufacturing people and certain fixed assets which were no longer to be utilized. During the third quarter of 1998, the Company completed an in depth analysis of the hardware portion of the Vision product line resulting in a decision to exit this business. Exiting the Vision hardware product line resulted in charges totaling $2.8 million. These charges related to fixed assets which no longer were to be utilized and were disposed of in 1998 and certain excess inventory, inventory purchase commitments and prepaid royalties. Of the total of $2.8 million, $1.4 million is recorded in costs of products sold and $1.4 million is recorded as restructuring charges in the accompanying consolidated financial statements. Through December 30, 2000, payments and adjustments made against the 1998 restructuring reserves totaled $8.7 million with a remaining balance of $0.1 million as of December 30, 2000. 19 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 ASSET IMPAIRMENT LOSS In 1996, the Company purchased TTA and Testware. These companies provide custom test programming, test fixture integration and other value-added services to manufacturers and users of electronic products. Additionally, GenRad acquired certain assets of Field Oriented Engineering, AG in 1996, consisting primarily of the software program known as TRACS III, which is sold to electronic manufacturing systems customers. The excess purchase price over the net assets acquired for these acquisitions was recorded as long-term intangibles, primarily goodwill. The financial performance of these entities was less than anticipated and negatively impacted by the decline in the in-circuit test market. Due to these factors as well as certain management changes during the second quarter of 1998, the Company prepared revised projections of future operating cash flows relating to these businesses, which indicated that the businesses would not generate sufficient operating cash flows to realize the carrying value of the intangible assets. This analysis resulted in a $4.9 million impairment loss, representing the net book value of goodwill, which was recorded during the second quarter of 1998 and is included in the accompanying consolidated financial statements. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT During the first quarter of 2000, the Company acquired the rights to certain X-ray technologies as part of its purchase of NIS for which technological feasibility had not been established and no alternative future uses were identified. Consequently, a portion of the purchase price relating to acquired in-process research and development was expensed at the time of the acquisition. The total of $0.5 million is included as acquired in-process research and development in the accompanying consolidated statements. During the third quarter of 1998, the Company acquired the rights to certain diagnostic software for which technological feasibility had not been established. The Company uses acquired technology in the development and diagnosis of increasingly complex mechatronic systems, particularly in vehicle systems. At the time of the acquisition, the acquired technology had not yet reached technological feasibility, had no alternative future uses and, accordingly, the entire purchase price was expensed. The total of $1.7 million is included in acquired in-process research and development in the accompanying consolidated financial statements. ARBITRATION SETTLEMENT On May 27, 1998, William E. Gaines, William E. Masskaker, Frank B. Wingate and Heritage Investment Limited Partnership ("the plaintiffs") filed a Demand for Arbitration ("the Demand") with the American Arbitration Association in Boston (No. 11 168 00247 98) against the Company, James F. Lyons and Paul Pronsky, Jr. The claims arise out of the acquisition of Industrial Computer Corporation ("ICC") by GenRad. The plaintiffs sought damages totaling $13.6 million, plus costs and attorneys' fees. On June 18, 1998, the Company filed a response to the Demand and on August 21, 1998, the Company filed an amended response and counter-claims, which arose from the acquisition of ICC and sought unspecified damages. On April 7, 1999, the parties agreed to settle all claims arising from the acquisition of ICC. In connection with the settlement, the Company paid $7.0 million, net of insurance proceeds, of $4.0 million. In 1998 the Company recorded a charge to operations totaling $7.7 million representing the cost of the settlement plus costs and attorney fees. 20 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 NOTE 4: DETAILS OF FINANCIAL STATEMENT BALANCES (IN THOUSANDS)

NOTE 5: INDEBTEDNESS 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 21 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 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 in March 2004. The new line is collaterized by substantially all of the Company's assets. Certain borrowings on the new line, primarily related to acquisitions are payable quarterly, while the remaining borrowings on the new line are payable on demand. The new line bears interest at the lesser of the banks' prime rate plus 1.0% or LIBOR plus 2.0%, as determined from time to time by the banks. The interest rates on the new line at December 30, 2000, ranged from 8.66% to 10.5%. Under the terms of the new line, the Company is required to pay a commitment fee on the unused portion of the new line of 0.75% of the total unused portion of the line dependent on the Company's operating performance. At December 30, 2000, borrowings outstanding under the line totaled $93.5 million, of which $63.8 million was related to acquisitions and $29.7 million related to general working capital. The new line requires the Company to maintain certain financial ratios. As of December 30, 2000, the Company was in compliance with these financial covenants (as amended). Given the downturn in the economy the Company anticipates a loss in the first quarter of 2001, which may violate the financial covenants attached to the new line. The Company is currently in discussion with its bankers to renegotiate the financial covenants on the new line and these discussions are on-going. On June 26, 1997, the Company entered into a five-year term loan totaling approximately $12.0 million. Proceeds were used primarily for the purchase of furniture and fixtures for the Company's corporate headquarters and manufacturing facilities in Westford, Massachusetts. In March 2000, the Company consolidated this term loan into our new line. The future minimum commitments as of December 30, 2000 for long-term debt are as follows (in thousands):

Interest paid amounted to $7.9 million in 2000, $1.2 million in 1999 and $0.9 million in 1998. NOTE 6: TREASURY STOCK During 1998, the Company commenced a stock repurchase program whereby the Company will purchase, in the open market, shares of its stock. During 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 its market value 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 2000 and 1999, the Company utilized $36.0 million and $33.7 million, cumulatively, to repurchase 2,195,600 and 2,044,600 shares, respectively, of its common stock. Through 2000 and 1999, the Company had reissued 312,000 shares of treasury stock repurchased. 22 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 NOTE 7: STOCK PLANS STOCK OPTION AND RESTRICTED STOCK AWARD PLANS The Company has three stock option plans: a 1991 plan for employees (as amended), (the "1991 Plan"), a 1991 non-employee director plan (as amended), (the "1991 Directors Plan") and a 1997 plan for employees excluding directors and officers (as amended), (the "1997 Plan"). Shares authorized for issuance under the 1991 Plan, 1991 Directors Plan and the 1997 Plan are 9,750,000, 250,000 and 4,500,000 respectively. Options under the 1991 Plan generally become vested over a three-year period, have a maximum term of ten years and can either be non-qualified stock options or incentive stock options. Options under the 1991 Directors Plan generally become vested upon issuance, have a maximum term of five years and are non-qualified stock options. Options under the 1997 Plan generally become vested over a three or four-year period, have a maximum term of ten years and are non-qualified stock options. Certain stock options issued under the 1991 Plan were granted in 1997 with an exercise price below the fair market value of the underlying stock. This resulted in the Company recording compensation expense, which is being recognized on a straight line basis over the vesting period. Compensation expense related to these grants totaled $0.2 million in 2000, $0.3 million in 1999 and $0.4 million in 1998. Stock option activity is summarized below (in thousands, except per share amounts):

23 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 The following table summarizes information about the Company's stock options outstanding at December 30, 2000 (in thousands, except per share amounts):

EMPLOYEE STOCK PURCHASE PLAN Under the Company's Employee Stock Purchase Plan (the "ESPP"), eligible employees may invest up to 10% of their base salary in shares of the Company's common stock. The purchase price of the shares is 85% of the fair market value of the stock on the offering commencement date or the offering termination date (typically three months after commencement date), whichever is lower. At December 30, 2000, there were 2,462,000 shares authorized under the ESPP. During 2000, 1999 and 1998, the Company issued approximately 120,000, 84,000 and 85,000 shares under the ESPP at a weighted-average exercise price of $8.62, $12.22 and $15.28, respectively. At December 30, 2000, there were 1,584,000 shares available for future issuance. STOCK BASED COMPENSATION Had compensation cost been determined based on the fair value of the options at the grant dates for awards in 2000, 1999 and 1998 on a basis consistent with the provisions of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share on a fully diluted basis would have been the pro forma amounts indicated below (in thousands, except per share amounts):

The fair value of options at date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

The fair value of options granted under the Company's plans in 2000, 1999 and 1998 was $5.47, $10.08 and $12.62, respectively. 24 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 DIRECTOR RESTRICTED STOCK PLAN In 1994, the Company adopted the 1994 Director Restricted Stock Plan (as amended), (the "1994 Plan") which contains provisions for restricted stock awards. Up to 100,000 shares of the Company's common stock may be issued under the 1994 Plan. On August 31 of each year each eligible director is granted a restricted stock award of 2,500 shares of the Company's common stock for no consideration. The awards are subject to certain restrictions that generally prohibit the transfer of any shares except upon the director's death or disability, upon the director's resignation with the consent of the Board of Directors, upon a change in control of the Company as defined under the 1994 Plan, or prior to the third anniversary of the award with certain restrictions remaining through the fifth anniversary. During 2000, 1999 and 1998, the Company granted restricted stock awards for 15,000, 15,000 and 17,500 shares, respectively. Compensation expense related to these awards totaled $0.3 million in 2000, $0.3 million in 1999 and $0.2 million in 1998. At December 30, 2000 there were 6,500 shares available for future issuance. NOTE 8: INCOME TAXES The components of income (loss) before income taxes consist of the following (in thousands):

The provision (benefit) for income taxes consists of the following (in thousands):

A reconciliation of tax on income at the federal statutory rate to the recorded income tax (benefit) provision is presented below (in thousands):

25 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 The temporary differences and carryforwards that gave rise to the significant deferred tax assets and liabilities as of December 30, 2000 and January 1, 2000 were as follows (in thousands):

Deferred income taxes are provided to reflect the future tax consequences of differences between the book and the tax basis of assets and liabilities. At December 30, 2000 and January 1, 2000, the Company had a net deferred tax asset of $30.2 million and $40.0 million, before valuation allowance, respectively. At December 30, 2000, $0.7 million of the Company's deferred tax asset was applicable to net operating losses generated by the disqualified disposition of stock options. When realized, the related tax benefit will be credited to additional paid-in capital. The Company's net deferred tax asset consists primarily of the future tax benefits from domestic net operating loss carryforwards and other tax credits. Realization of the net deferred tax asset and future adjustments of the valuation allowance depend on the Company's ability to generate taxable income during the respective carryforward periods. Under SFAS No. 109, "Accounting for Income Taxes" the Company is required to recognize all or a portion of its net deferred tax asset if it is believed that it is more likely than not that all or a portion of the benefits of the carryforward losses and tax credits will be realized. In establishing the valuation reserve, management considers positive factors, including positive earnings in recent years, and negative factors including the tax basis losses incurred for eleven consecutive years through 1995, the scheduled expiration of certain tax credit and net operating loss carryovers, the competitive nature of the industry in which the Company sells its products and services, and uncertainties relating to the tax jurisdiction in which income will be generated. Based on all of these factors, primarily the positive taxable income in 1999, 1998 and 1997, the Company reduced $14.5 million, $16.8 million and $9.3 million of the valuation allowance during 2000, 1999 and 1998, respectively. 26 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 It has been the practice of the Company to reinvest unremitted earnings of foreign subsidiaries outside the United States. Accordingly, the Company does not provide for federal income taxes that would result from the remittance of such earnings. At December 30, 2000 the Company had, for tax purposes, domestic and foreign unused net operating loss carryforwards of $74.8 million and $11.6 million, respectively. Domestic net operating loss carryforwards are available to offset future income and will begin expiring in 2003 through 2010. In the case of foreign net operating loss carryforwards, generally in the United Kingdom, such amounts are available to offset future income indefinitely provided there are no substantial changes in the manner in which the Company does business in foreign countries. The Tax Reform Act of 1986 contains provisions that limit the net operating loss carryforwards available to be used in any given year upon the occurrence of certain events, including significant changes in ownership interests. For tax purposes, the Company has $834,000 of research credit carryforwards at December 30, 2000, which will expire beginning in 2012. Net taxes paid were $2.1 million in 2000, $2.1 million in 1999 and $1.1 million in 1998. NOTE 9: RETIREMENT BENEFITS U.S. PENSION PLAN The Company maintains a noncontributory defined benefit pension plan which covered substantially all domestic employees. On January 31, 1995, the Company ceased all benefit accruals under this plan as part of redesigning the Company's employee benefit plans. The Company's funding policy is to contribute amounts to the Plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company determined to be appropriate from time to time. In December 1999, the Company utilized plan assets to purchase non-participating group annuity contracts for a group of participants representing approximately two-thirds of the remaining plan liability. The purchase resulted in a gain of $1.2 million in the fourth quarter of 1999 utilizing a 7.5% discount rate, which is included in selling, general and administrative expenses in 1999. 27 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 The following tables provide a reconciliation of the changes in the plan's benefit obligations and fair value of assets for 2000 and 1999 and a statement of the funded status as of December 30, 2000 and January 1, 2000 (in thousands).

The following table provides the components of net periodic pension benefit cost for the plan for 2000, 1999 and 1998 (in thousands):

The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25% and 7.5% at December 30, 2000 and January 1, 2000, respectively. There was no rate increase in future compensation levels to determine the actuarial present value of the projected benefit obligation at January 1, 2000 and January 2, 1999, as the Company ceased all benefit accruals on January 31, 1995. The expected long-term rate of return on plan assets was 9.0% in 2000, 9.0% in 1999 and 8.0% in 1998. No contributions were required from the Company for 2000, 1999 or 1998. DEFINED CONTRIBUTION PLAN The Company also sponsors a defined contribution plan. The plan covers employees who work at least 1,000 hours per year and provides for contributions by the employee between 1% and 15% of an 28 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 employee's salary, which is capped by the maximum amount permitted by the Internal Revenue Code. Through July 1, 1998, the Company had matched 50% of the first 6% of an employee's contributions. Commencing on July 1, 1998, the Company increased its match to 50% of the first 10% of an employee's contributions. Pension expense recognized for the defined contribution plan totaled $2.0 million in 2000, $1.8 million in 1999 and $1.5 million in 1998. NON-U.S. PLANS The Company has a defined benefit pension plan for one of its subsidiaries outside the U.S. The following tables provide a reconciliation of the changes in the plan's benefit obligations and fair value of assets for 2000 and 1999, and a statement of the funded status as of December 30, 2000 and January 1, 2000 (in thousands).

The following table provides the components of net periodic benefit cost for the plan for 2000, 1999 and 1998 (in thousands):

The discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 6.25% and 3.0% at December 30, 2000 and January 1, 2000, respectively. ACCRUED POSTRETIREMENT BENEFITS The Company put in place the provisions of SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions" for its postretirement benefit plan. The Company provides 29 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 certain health care and life insurance benefits for retired U.S. employees. Employees become eligible for these benefits when they reach normal retirement age while working for the Company. Prior to the adoption of this Statement, the cost was recognized as claims were paid. The Company's postretirement benefit plans were modified at the end of 1995 and include a limit on the cost of the Company's contributions for all retirees. The Plan is not funded. The following tables provide a reconciliation of the changes in the plan's benefit obligations and fair value of assets for 2000 and 1999, and a statement of the funded status as of December 30, 2000 and January 1, 2000 (in thousands).

30 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 The following table provides the components of net periodic benefit cost for the plans for 2000, 1999 and 1998 (in thousands):

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A 1% change in assumed health care cost trend rates would have the following effects (in thousands):

For measurement purposes, a 9.0%, 7.0% and 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000, 1999 and 1998, respectively. The Company's annual per capita cost commitment for retiree medical care is capped at 1995 levels. As a result, the health care cost trend rate assumption does not have a significant effect on the amounts reported. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.25% at December 30, 2000 and 7.5% at January 1, 2000. NOTE 10: COMMITMENTS The Company leases certain manufacturing facilities, sales and service offices and equipment under operating leases. Total rental expense for these leases amounted to $9.4 million in 2000, $7.5 million in 1999 and $7.0 million in 1998. The future minimum commitments as of December 30, 2000 for noncancelable operating leases are as follows (in thousands):

31 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 NOTE 11: OPERATING SEGMENTS AND OTHER GEOGRAPHIC INFORMATION OPERATING SEGMENTS The Company elected to change the reporting of its operating segments effective the third quarter of 2000 as part of the reorganization plan implemented by the CEO. Prior period operating results have been restated to conform to current period presentation. The Company is comprised of the following four business units bringing to market integrated hardware, software, and service solutions that empower always-on services and un-interruptable business applications: - Process Solutions ("PS") focuses on in-circuit test, x-ray test and re-work solutions as well as plant and line management solutions for electronic product manufacturers. - Functional Solutions ("FS") focuses on functional test platforms for manufacturers of telecommunications, computers and automotive electronics. - Diagnostic Solutions ("DS") focuses on service bay and manufacturing solutions for transportation OEMs and independent service providers. - Support and Services ("SS") focuses on maintenance programs, on-site and remote support, programming services and training to help customers optimize their hardware and software solutions. GenRad's reportable segments each represent strategic business units that offer different, yet related, products and services. They are managed differently because each requires differing technology development, sales strategies, service capabilities and time to market considerations. Each segment is led by a chief operating decision maker, who, in coordination with the Company's Chief Executive Officer and President, utilizes the information reported below in evaluating results and allocating resources pertaining to segment operations. Each segment is evaluated based on contribution margin, or operating income, derived from transactions with external third parties, i.e. net income (loss) before interest income and expense, other income (expense) and income taxes. These segment amounts are determined in accordance with the accounting policies noted below. Intercompany revenues and expenses are excluded from the contribution margin, or operating income, utilized by the chief operating decision makers in determining resource allocation and evaluating performance. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1. The following table illustrates, (in thousands), each of the Company's operating segments' operating income (loss) for the 2000, 1999 and 1998. The amounts provided herein are those utilized by senior management, in allocating resources and evaluating performance. GenRad's chief operating decision 32 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 makers do not utilize, nor does GenRad maintain, asset information or capital expenditures by segment, accordingly such information is not presented herein.

33 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 A reconciliation of the totals reported for the operating segments to income (loss) before income taxes in the consolidated financial statements is as follows:

------------------------ (a) Includes amortization of capitalized software, corporate research and development and other charges. 34 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 GEOGRAPHIC DATA GenRad sells and supports its products primarily through its own sales and support organizations. The Company maintains sales offices and support centers in the United States, Mexico, the United Kingdom, Germany, France, Switzerland, Italy, Sweden, the Netherlands, Singapore and Malaysia. GenRad also contracts with independent representatives throughout the world to provide sales and support services, primarily in areas not covered directly by a GenRad sales and support center. The following table summarizes certain geographic information based on location of customers for 2000, 1999 and 1998 (in thousands):

No other individual countries accounted for greater than 10% of consolidated revenues.

35 GENRAD, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000 AND JANUARY 2, 1999 NOTE 12: SUPPLEMENTAL INFORMATION (UNAUDITED) QUARTERLY INFORMATION The following table summarizes reported quarterly data for 2000, 1999 and 1998 (in thousands, except per share amounts):

NOTE 13: SUBSEQUENT EVENTS RESTRUCTURING PLAN In February 2001, the Company announced a restructuring plan in an effort to improve operating efficiencies. The plan involves outsourcing all of the Company's printed circuit board manufacturing, consolidation of X-ray and Rework manufacturing to its Westford, MA facility and integration of some administrative functions related to European acquisitions to its main Diagnostic Solutions facility. This will result in a workforce reduction of approximately ten percent mainly consisting of manufacturing, administrative and support functions. The Company will record a restructuring charge in the first quarter of 2001 related to this transaction. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. During the six months ended June 30, 2001, the Company has incurred a net loss of $110.1 million (unaudited) and has violated certain financial covenants under its bank line of credit (Note 5). The Company has been in ongoing discussions with its bankers and during June 2001 obtained a waiver which extends through September 28, 2001. The waiver contains conditions which include the achievement of certain revenue levels for the second quarter (which have been achieved) and the attainment of certain other benchmarks. On August 1, 2001, the Company announced the signing of a definitive merger agreement to be acquired by Teradyne, Inc. Under the terms of the proposed acquisition, each outstanding share of the Company's common stock would be converted into 0.1733 shares of Teradyne common stock. The acquisition is subject to approval by the Company's shareholders, expiration of the Hart-Scott-Rodino waiting period and other closing conditions. With the execution of the definitive merger agreement discussed above, the Company has achieved the remaining benchmarks contained in the most recent bank waiver. However, the Company likely will not be in compliance with the financial covenants of the new line when the existing waiver expires on September 28, 2001 and will need to seek a further waiver at that date. The Company is currently in discussions with its bankers in this regard. In the past, the Company has obtained waivers from its banks for similar covenant defaults, however, there can be no assurance that the banks will grant any additional waivers in the future. If the Company is in default, the banks may demand immediate payment of the full outstanding balance under the bank line and prohibit new borrowings under the revolving line of credit. If this were to occur, the Company would have no ability to satisfy the demand for payment or fund continuing operations without access to the revolving line of credit. The Company currently has no plans to obtain additional or alternative debt or equity financing. These issues raise substantial doubt about the Company's ability to continue as a going concern. The going concern basis of accounting assumes the realization of asset values and the liquidation of liabilities in the normal course of business. Should the Company be unable to continue as a going concern, it may not be able to realize its recorded asset values, including its intangible assets and deferred tax assets, and liquidate its liabilities at recorded amounts. The ultimate outcome of these uncertainties is not presently determinable. OTHER EVENTS On August 1, 2001, the Company announced it had received an offer to purchase its Diagnostic Solutions business unit, headquartered in Manchester, UK. The Company has received an offer from a British investment consortium. The offer is under consideration by management and Board of Directors. The potential sale transaction would be subject to the customary process of due diligence and the negotiation of a definitive agreement. Completion of the sale of the Diagnostics Solutions business unit is not a condition to the Company's acquisition by Teradyne. 36 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(2) The following schedules to the Consolidated Financial Statements of GenRad, Inc. and Subsidiaries are filed as part of this report: A. Schedule II & Valuation and Qualifying Accounts (Previously filed) REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of GenRad, Inc.: Our audits of the consolidated financial statements referred to in our report dated February 8, 2001 appearing in this Form 10-K also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP Boston, Massachusetts March 30, 2001 All other schedules not listed above are inapplicable or are not required under Securities and Exchange Commission regulations and therefore have been omitted. (a)(3) The following Exhibits are filed as part of this report: 3.1 Articles of Organization of GenRad, Inc. as amended to May 21, 1980, incorporated by reference to Exhibit 3.1 to the Company's report on Form 10-K for the year ended January 3, 1981. 3.2 Articles of Amendment to the Articles of Organization of GenRad, Inc., incorporated by reference to Exhibit 3.1 to the Company's report on Form 10-K for the year ended December 31, 1983. 3.3 Articles of Amendment to the Articles of Organization of GenRad, Inc., incorporated by reference to Exhibit 3.1 to the Company's report on Form 10-K for the year ended January 2, 1988. 3.4 Articles of Amendment and Restatement of the By-Laws of GenRad, Inc. as of October 20, 2000, incorporated by reference to Exhibit 3.1 to the Company's report on Form 10-Q for the quarter ended September 30, 2000. 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. 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 to 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 to 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 to 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 to 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, incorporated by reference to Exhibit 10.14 to the Company's report on Form 10-Q for the quarter ended July 1, 2000. 10.15 Severance agreement between GenRad, Inc. and Ronald W. Lindell effective as of February 15, 2001.** 10.16 Severance agreement between GenRad, Inc. and Brian C. Quirk effective as of August 21, 1998.** 21 List of Subsidiaries.** 23.1 Consent of PricewaterhouseCoopers LLP.** 23.2 Consent of PricewaterhouseCoopers LLP.** 23.3 Consent of PricewaterhouseCoopers LLP, attached. 99.1 Financial Statements as of and for the years ended December 31, 2000 and 1999 and Additional Information Required for Form 5500 for the year ended December 31, 2000.** (b) None (c) See Item 14(a)(3) above. (d) See Item 14(a) (2) above. ** ------------------------ * The Company has requested confidential treatment of the redacted positions of this exhibit pursuant to the Rule 24b-2 under the Securities Exchange Act of 1934, as amended, and has separately filed a complete copy of this exhibit with the Securities and Exchange Commission. ** Previously filed. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this second amendment to its annual report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized on this the 30th day of August, 2001. GENRAD, INC. By: /s/ WALTER A. SHEPHARD ----------------------------- Walter A. Shephard Chief Financial Officer 37

GENRAD INC 10-K/A