================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-Q/A


   Amendment No. 1 to the Quarterly report pursuant to Section 13 of 15(d) of
                      The Securities Exchange Act of 1934.



                       For the Quarter Ended July 4, 1998


                           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, 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.

28,904,237 shares of the Common Stock, $1 par value, were outstanding on
August 14, 1998.

================================================================================


<PAGE>


Restatement of Financial Statements and Changes to Certain Information

The undersigned registrant hereby amends in its entirety Part I of its Quarterly
Report on Form 10-Q for the quarterly period ended July 4, 1998.

In April 1998, GenRad, Inc. ("the Company") acquired Industrial Computer
Corporation ("ICC") for approximately $38.2 million in a business combination
accounted for as a purchase. The Company allocated $21.7 million of the purchase
price to acquired in-process research and development. The Company believed the
original purchase price allocation and related acquired in-process research and
development charges applicable to its acquisition of ICC to be in accordance
with then widely recognized appraisal practices and generally accepted
accounting principles. Subsequent to the acquisition, in a letter dated
September 9, 1998 to the American Institute of Certified Public Accountants, the
Chief Accountant of the Securities and Exchange Commission ("the SEC")
reiterated the views of the staff of the SEC ("the Staff") on certain appraisal
practices employed in the determination of the fair value of acquired in-process
research and development and other intangible assets resulting from purchase
business combinations.

The Company has had discussions with the Staff concerning the valuation of
acquired in-process research and development and other intangible assets
resulting from its acquisition of ICC, and as a result of these discussions, the
Company has implemented a valuation methodology suggested by the SEC. The
Company has restated its previously issued results to reflect the discussions
with the Staff and to apply the appropriate guidance and policies. The purchase
price of ICC has been allocated by the Company based upon the application of the
recent guidance and, accordingly, the financial statements in this Quarterly
Report on Form 10-Q/A have been restated. After applying the appropriate
guidance and policy, the allocation of the ICC purchase price was changed for
acquired in-process research and development from $21.7 million to $8.4 million
and for developed technology from $4.9 million to $11.4 million, resulting in a
change to goodwill from $10.2 million to $17.0 million. As a result of these
changes, the net loss for the quarter ended July 4, 1998 decreased to $11.9
million from $24.8 million and basic and diluted net loss per share for the
quarter ended July 4, 1998 decreased to $(0.42) per share from $(0.88) per
share. Amortization of intangible assets increased by $0.4 million, or $0.01 per
share for the quarter ended July 4, 1998.

<PAGE>

                          GENRAD, INC. AND SUBSIDIARIES
                                Table of Contents


<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                      <C>
Part I.  Financial Information:

         Consolidated Statement of Operations .......................          1

         Consolidated Balance Sheet .................................      2 - 3

         Consolidated Statement of Cash Flows .......................          4

         Notes to Consolidated Financial Statements .................      5 - 9

         Management's Discussion and Analysis of
            Financial Condition and Results of Operations ...........    10 - 18

Part II. Other Information:

         Items 1, 4 and 6 ...........................................    19 - 20

         Signatures .................................................         21
</TABLE>
<PAGE>

                          PART I. FINANCIAL INFORMATION
                          GENRAD, INC. AND SUBSIDIARIES
                      Consolidated Statement of Operations
               (In thousands, except share and per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Three Months Ended              Six Months Ended
                                                 ----------------------------    ----------------------------
                                                   July 4,         June 28,         July 4,        June 28,
                                                    1998             1997            1998            1997
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>         
Sales:
      Sales of products                          $     41,163    $     47,894    $     76,752    $     85,700
      Sales of services                                17,777          13,156          31,260          27,850
                                                 ------------    ------------    ------------    ------------
               Total sales                             58,940          61,050         108,012         113,550
                                                 ------------    ------------    ------------    ------------

Cost of sales:
      Cost of products sold                            20,358          23,578          35,457          39,836
      Cost of services sold                            10,066           7,935          18,767          15,162
                                                 ------------    ------------    ------------    ------------
               Total cost of sales                     30,424          31,513          54,224          54,998
                                                 ------------    ------------    ------------    ------------

Gross profit                                           28,516          29,537          53,788          58,552

Selling, general and administrative                    17,456          16,037          35,890          33,514
Research and development                                5,444           4,565          10,363           9,245
Acquired in-process research and development           10,097              --          10,097              --
Restructuring charges                                   3,263              --           3,263              --
Loss from impairment of intangible assets               4,906              --           4,906              --
                                                 ------------    ------------    ------------    ------------
               Total operating expenses                41,166          20,602          64,519          42,759
                                                 ------------    ------------    ------------    ------------

Operating (loss) income                               (12,650)          8,935         (10,731)         15,793

Other income (expense):
      Interest, net                                      (173)           (134)           (282)             (8)
      Other, net                                          211             (74)           (101)            (56)
                                                 ------------    ------------    ------------    ------------
               Total other income (expense)                38            (208)           (383)            (64)
                                                 ------------    ------------    ------------    ------------

Income (loss) before income taxes                     (12,612)          8,727         (11,114)         15,729
Income tax (benefit) provision                           (672)            806          (8,082)         (3,909)
                                                 ------------    ------------    ------------    ------------
Net (loss) income                                $    (11,940)   $      7,921    $     (3,032)   $     19,638
                                                 ============    ============    ============    ============

Net (loss) income per common and common
      equivalent shares:
           Basic                                 $      (0.42)   $       0.30    $      (0.11)   $       0.74
                                                 ============    ============    ============    ============
           Diluted                               $      (0.42)   $       0.28    $      (0.11)   $       0.70
                                                 ============    ============    ============    ============


Weighted average common and common 
      equivalent shares used in computing per 
      share amounts:
           Basic                                   28,286,000      26,697,000      27,887,000      26,414,000
                                                 ============    ============    ============    ============
           Diluted                                 28,286,000      28,177,000      27,887,000      28,096,000
                                                 ============    ============    ============    ============
</TABLE>


        The accompanying notes are an integral part of these Consolidated
                             Financial Statements.


                                       1
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet
               (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                  July 4,   January 3,
                                                     1998         1998
                                                ---------    ---------
                                              (Unaudited)
<S>                                             <C>          <C>      
Assets
Current Assets:
    Cash and equivalents                        $  16,143    $  21,883
    Accounts receivable, net                       66,365       73,006
    Inventories:
        Raw materials                              18,327       18,378
        Work in process                             9,467        8,355
        Finished goods                              9,280        3,163
                                                ---------    ---------
           Total inventories                       37,074       29,896
                                                ---------    ---------

    Other current assets                            4,666        4,194
                                                ---------    ---------
           Total current assets                   124,248      128,979
                                                ---------    ---------

Property, plant and equipment:
    Buildings and leasehold improvements           15,769       14,612
    Machinery and equipment                        55,113       56,259
    Service parts                                  14,511       12,757
                                                ---------    ---------
                                                   85,393       83,628
    Accumulated depreciation                      (48,770)     (50,149)
                                                ---------    ---------
           Property, plant and equipment, net      36,623       33,479
                                                ---------    ---------

Deferred tax asset                                 15,368        7,868
Intangible assets                                  34,690        7,107
Other assets                                        1,083        1,524
                                                ---------    ---------
                                                $ 212,012    $ 178,957
                                                =========    =========
</TABLE>


        The accompanying notes are an integral part of these Consolidated
                             Financial Statements.


                                       2
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Consolidated Balance Sheet (continued)
               (In thousands, except share and per share amounts)


<TABLE>
<CAPTION>
                                                           July 4,   January 3,
                                                              1998         1998
                                                         ---------    ---------
                                                       (Unaudited)
<S>                                                      <C>          <C>      
Liabilities and Stockholders' Equity
Current Liabilities:
     Trade accounts payable                              $  10,182    $  12,730
     Accrued liabilities                                    16,067       12,445
     Accrued compensation and employee benefits              5,207        6,884
     Income taxes payable                                      252        1,029
     Current portion of long-term debt                       2,419        2,434
                                                         ---------    ---------
         Total current liabilities                          34,127       35,522
                                                         ---------    ---------

Long-term Liabilities:
     Long-term debt                                          7,227        8,519
     Accrued pensions and benefits                          10,933       11,239
     Future lease costs of unused facilities                 3,821        4,106
     Other long-term liabilities                             6,116        4,558
                                                         ---------    ---------
         Total long-term liabilities                        28,097       28,422
                                                         ---------    ---------


Stockholders' Equity:
     Common stock, $1 par value, 60,000,000 shares
      authorized; 28,901,000 and 27,349,000 issued and
      outstanding in 1998 and 1997, respectively            28,901       27,349
     Treasury stock, 80,000 and 0 shares held
      in 1998 and 1997, respectively                        (1,618)         --
     Additional paid-in capital                            210,524      172,026
     Accumulated deficit                                   (85,523)     (82,492)
     Cumulative translation adjustment                      (2,496)      (1,870)
                                                         ---------    ---------
         Total stockholders' equity                        149,788      115,013
                                                         ---------    ---------
                                                         $ 212,012    $ 178,957
                                                         =========    =========
</TABLE>


        The accompanying notes are an integral part of these Consolidated
                             Financial Statements.


                                       3
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                      Consolidated Statement of Cash Flows
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       Six Months Ended
                                                                  --------------------------
                                                                   July 4,          June 28,
                                                                      1998              1997
                                                                  --------          --------
<S>                                                               <C>               <C>     
Operating activities:
Net (loss) income                                                 $ (3,032)         $ 19,638
Adjustments to reconcile net income to net cash                                     
  provided by (used in) operating activities:                                       
    Depreciation and amortization                                    6,553             3,877
    Loss (gain) on disposition of property, plant and equipment        322               (66)
    Reserve for future lease costs of unused facilities               (745)             (628)
    Non-recurring charges                                           13,346               --
Increase (decrease) resulting from changes in                                       
  operating assets and liabilities:                                                 
    Accounts receivable                                              9,221           (13,539)
    Inventories                                                     (7,225)             (959)
    Other current assets                                              (403)             (687)
    Deferred tax asset                                              (7,500)           (5,388)
    Trade accounts payable                                          (3,031)            3,003
    Accrued liabilities                                              2,814            (1,975)
    Accrued compensation and employee benefits                      (1,952)           (2,718)
    Accrued income taxes                                              (968)              972
    Other, net                                                           4              (718)
                                                                  --------          --------
              Net cash provided by operating activities              7,404               812
                                                                  --------          --------
Investing activities:                                                               
Purchases of property, plant and equipment                          (8,070)          (13,269)
Purchase of subsidiary                                              (2,925)              --
Proceeds from sale of property, plant and equipment                   --                 133
Investment in intangible assets                                     (2,418)             (114)
                                                                  --------          --------
              Net cash used in investing activities                (13,413)          (13,250)
                                                                  --------          --------
                                                                                    
Financing activities:                                                               
Net change in long-term debt                                        (1,212)           11,864
Proceeds from employee stock option exercises                        3,454             3,915
Purchase of treasury stock                                          (1,618)             --
                                                                  --------          --------
              Net cash provided by financing activities                624            15,779
                                                                  --------          --------
Effects of exchange rates on cash                                     (355)              642
                                                                  --------          --------
(Decrease) increase in cash equivalents                             (5,740)            3,983
Cash and equivalents at beginning of period                         21,883            10,557
                                                                  --------          --------
Cash and equivalents at end of period                             $ 16,143          $ 14,540
                                                                  ========          ========
</TABLE>


        The accompanying notes are an integral part of these Consolidated
                             Financial Statements.


                                       4
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Note 1: Accounting Comments

Reference is made to the Company's 1997 Annual Report and Form 10-K which
contains, at pages 13 through 38, financial statements and the notes thereto,
including a summary of significant accounting policies.

With respect to the financial information for the interim periods included in
this report, which is unaudited, the management of the Company believes that all
adjustments necessary for a fair presentation of the results for such interim
periods have been included. All adjustments are of a normal and recurring
nature.

The results of any interim period are not necessarily indicative of the results
for the entire year.

Note 2: Reclassifications

Certain reclassifications were made to the 1997 consolidated financial
statements to conform to the 1998 presentation.

Note 3: Acquisitions

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. 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.

The purchase price was allocated to the tangible and intangible assets of ICC as
follows:

<TABLE>
     <S>                                                                      <C> 
     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)
                                                                              -------
                                                                              $38,199
                                                                              =======
</TABLE>

The Securities and Exchange Commission ("SEC") has recently issued guidance
related to the valuation of acquired in-process research and development as set
forth in its letter dated September 9, 1998 from the Chief Accountant of the SEC
to the American Institute of Certified Public Accountants. The Company has
corresponded with the staff of the SEC ("the Staff") concerning the valuation of
the incomplete technology and other intangible assets and has implemented the
methodology suggested by the SEC. As a result of the application of the
valuation methodology, the purchase price was allocated to acquired in-process
research and development, developed technology, assembled workforce and
tradename.

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 one time 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 


                                       5
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


Note 3: Acquisitions (continued)

use ICC's Shop Floor Data Manager (TM) ("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 fiscal 1999. GenRad will begin to benefit from the acquired
in-process research and development once completed product is sold. Failure to
reach successful completion of this project may result in impairment of the
associated capitalized intangible assets, i.e. goodwill and developed
technology, and/or may require the Company to accelerate the time period over
which the intangibles are being amortized, which may have a material adverse
effect on the Company's results of operations and financial condition.

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 expenses 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 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 July 4, 1998, the technological feasibility of the project had not yet
been reached and no significant departures from the assumptions included in the
valuation analysis have occurred.

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 and 1997, 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 $(0.30)
per share for the three and six months ended July 4, 1998, and June 28, 1997.
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 periods. Additionally, they are not indicative of
the results of future combined operations.

<TABLE>
<CAPTION>
                                                               (in thousands)
                                           Three months ended                  Six months ended 
                                      July 4, 1998     June 28, 1997    July 4, 1998    June 28, 1997
        <S>                             <C>              <C>             <C>              <C>
        Total sales                     $58,940          $63,615         $110,860         $118,654

        Net income (loss)               $(3,520)          $6,713           $4,371          $17,574

        Earnings per share:
          Basic                          $(0.12)           $0.24            $0.16            $0.64
          Diluted                        $(0.12)           $0.23            $0.15            $0.60
</TABLE>


                                       6
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


Note 3: Acquisitions (continued)

Manufacturing Execution Systems Business
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 totaled $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):

<TABLE>
       <S>                                     <C>
       Goodwill                                $2,100
       Customer lists                             900
       Employment contracts                       200
                                               ------
                                               $3,200
                                               ======
</TABLE>


                                       7
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


Note 4: Restructuring, Impairment and Other Non-Recurring Charges

In the second quarter ended July 4, 1998, the Company recorded non-recurring
charges of $18.2 million comprised of the following items (in millions):

<TABLE>
         <S>                                                <C>
         Purchased in-process technology related to the
           acquisition of Industrial Computer Corporation    $  8.4 (1)
         Impairment of goodwill and purchased software          4.9 (2)
         Purchase of in-process diagnostic software             1.7 (3)
         Severance costs & abandoned equipment and
           facility termination fees                            3.2 (4)
                                                             ------
                                                             $ 18.2
                                                             ======
</TABLE>

(1)  On April 7, 1998, the Company acquired Industrial Computer Corporation, as
     is more fully disclosed in Note 3. An independent third-party appraisal
     company conducted a valuation of the intangible assets acquired and
     determined that $8.4 million of the purchase price represented acquired
     in-process research and development that had not yet reached technological
     feasibility and had no alternative future use. Accordingly, a non-cash
     charge of $8.4 million was recorded in the second quarter of 1998, for
     which there will be no tax benefit. See Note 3.

(2)  In fiscal 1996, the Company purchased Test Technology Associates, Inc. and
     Testware, Inc. These companies provide custom test programming, test
     fixture integration and other value-added services to manufacturers and
     users of electronic products. Additionally, GenRad acquired certain assets
     of Field Oriented Engineering, AG in fiscal 1996, consisting primarily of
     the software program known as Tracs III(R), which is sold to electronic
     manufacturing systems customers. The excess purchase price over the net
     assets acquired for these acquisitions was recorded as long-term
     intangibles, primarily goodwill.

     The historical financial performance of these entities has continued to be
     less than anticipated and the businesses have been negatively impacted by
     the recent decline in the in-circuit test market. Due to these factors as
     well as certain management changes during the second quarter of 1998, the
     Company prepared revised projections of future net cash flows relating to
     these businesses, which indicated that the businesses would not generate
     sufficient net cash flows to realize the carrying value of the intangible
     assets. This analysis was performed in accordance with the provisions of
     SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets", and as
     a result, a $4.9 million non-cash charge was recorded in the second quarter
     of 1998.

(3)  On July 2, 1998, the Company acquired the rights to certain diagnostic
     software for which technological feasibility had not been established. The
     software technology will be used in the diagnosis of increasingly complex
     mechatronic systems, in particular, in vehicle systems. The purchase
     price of $1.7 million was included as a non-recurring charge in the second
     quarter of 1998. Cash payments will be $1.0 million in the third quarter of
     1998 and $0.7 million in September 1999.

(4)  During the second quarter of 1998, the Company restructured current
     operations, which resulted in a workforce reduction of approximately 130
     employees or 9% of the Company's workforce. In accordance with EITF 94-3,
     "Liability Recognition for Certain Employee Termination Benefits and Other
     Costs to Exit an Activity", the Company will incur approximately $3.2
     million for severance costs, post-employment benefits and for the
     termination fees of certain equipment and real-estate leases. The impact on
     the Company's cash flow will be as follows: $0.6 million was paid in the
     second quarter of 1998, $2.1 million will be paid in the third and fourth
     quarters of fiscal 1998, and $0.5 million will be paid in fiscal 1999.

The Company continues to examine its operating efficiencies and it is likely
that it will incur an additional restructuring charge in the third quarter of
1998.

Note 5: 1997 Stock Option Award Plan

The Company has a 1997 Stock Option Award Plan for key employees excluding
directors and officers. In the first quarter of 1998, the Board of Directors
approved 1,250,000 additional shares for this plan. At July 4, 1998, there were
1,750,000 shares authorized for issuance under this plan. Options under this
plan generally vest over a four-year period and have a term of ten years.

Note 6: Contingencies

On April 28, 1998, the Company and James F. Lyons, President and Chief Executive
Officer were served with a lawsuit purported to be a class action suit on behalf
of persons who purchased Company stock in the open market over a specified
period of time. The lawsuit is entitled Duck Enterprises, LPV GenRad and James
F. Lyons, CA No. 98-10706-PBS, and was filed in the United States District Court
for the District of Massachusetts. The complaint seeks unspecified damages, as
well as costs and attorney's fees. The Company has reviewed the complaint


                                       8
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Note 6: Contingencies (continued)

and believes that the allegations are without merit. The Company intends to
vigorously defend the suit and has notified its insurance carrier of the claim.
Due to the preliminary nature of the action, it is not possible at this time to
assess the outcome of the suit.

On May 27, 1998, William E. Gaines, William E. Masskaker, Frank B. Wingate and
Heritage Investment Limited Partnership ("the plaintiffs") filed a Demand for
Arbitration with the American Arbitration Association in Boston (No. 11 168
00247 98) against the Company, James F. Lyons and Paul Pronsky, Jr., Vice
President and Chief Financial Officer. The claims arise out of the merger
transaction between GenRad and ICC. The plaintiffs are seeking damages of $13.6
million, plus interest charges and legal fees, based upon the decline in the
market price of GenRad's common stock subsequent to the merger. The Company
denies the allegations made in the Demand for Arbitration. The Company intends
to vigorously defend the claim and has notified its insurance carrier. Due to
the preliminary nature of the action, it is not possible at this time to assess
the outcome of the claim.

Note 7: Line of Credit

The Company has a credit facility under which there were no borrowings
outstanding on July 4, 1998. The Company increased its credit facility to $50
million on July 16, 1998. Borrowings under the revised credit facility will
expire on July 16, 2001 subject to compliance with specified financial and
operating covenants. Interest is payable at the lesser of (i) the prime interest
rate, or (ii) under a LIBOR option, with borrowing spreads of LIBOR plus 0.75%
to LIBOR plus 1.50%. The unused commitment fee ranges from 0.25% to 0.50% based
upon the Company's financial performance.

Note 8: Treasury Stock

On June 11, 1998, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 2,500,000 shares of its common stock,
which represents approximately 8% of the then issued and outstanding shares of
common stock of the Corporation. At July 4, 1998, the Company had repurchased
approximately 80,000 shares of common stock for $1.6 million. The Company
accounts for its treasury stock utilizing the cost method.

Note 9: Impact of Recently Issued Accounting Pronouncement

In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". This Statement
requires disclosure of comprehensive income and its components in interim and
annual reports. Total comprehensive income components included in stockholder's
equity include any changes in equity during a period that are not the result of
transactions with owners, including cumulative translation adjustments,
unrealized gains and losses on available-for-sale securities and minimum pension
liabilities. For the six months ended July 4, 1998 and June 28, 1997,
comprehensive income items included in stockholders' equity consisted of
translation adjustments of ($0.6) million and ($0.4) million, respectively.


                                       9
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

Operating Results

Orders for the Company's products and services decreased to $52.9 million and
$106.8 million for the three months and six months ended July 4, 1998,
respectively, from $56.9 million and $118.2 million for the comparable periods
in 1997. The decrease in orders between the periods occurred primarily in
Automotive Diagnostic Solutions ("ADS"), which had unusually high orders in 1997
from BMW AG Motorcycles Division, Claas and SAAB Automobiles AB. The overall
decrease was offset by increased orders in GR Software due to the acquisition of
ICC in the second quarter of 1998. Year to date 1998 orders increased in North
America and decreased in both Europe and Asia.

Backlog at the end of the 1998 second quarter was $23.7 million compared to
$24.9 million at year-end 1997 and $29.3 million at the end of the 1997 second
quarter. This decrease in backlog is consistent with the overall decline in
orders. The Company believes that a substantial portion of the 1998 second
quarter backlog will be shipped prior to the end of 1998.

Net product and service sales were $58.9 million and $108.0 million for the
three months and six months ended July 4, 1998, respectively, as compared to
$61.1 million and $113.6 million for the comparable periods in 1997. The
decrease is due primarily to decreased sales in ADS. Sales increased in
Electronic Manufacturing Systems ("EMS"), primarily in the GR Pilot and GENEVA
product groups, and in GR Software due to the acquisition of ICC. Sales
increased in North America, which was more than offset by a decrease in sales in
both Europe and Asia.

Sales from international markets decreased to 53.7% for the three months ended
July 4, 1998 from 56.9% in the comparable 1997 period, primarily as a result of
decreased European ADS revenue. Sales from international markets decreased to
53.4% for the six months ended July 4, 1998 from 56.1% in the comparable 1997
period. The decrease is a result of decreased European


                                       10
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Operating Results (continued)

ADS sales, which was partially offset by increased European EMS sales. Product
and service revenues from international markets are subject to the risks of
currency fluctuations.

Product margins were 50.5% and 53.8% for the three months and six months ended
July 4, 1998, respectively, as compared to 50.8% and 53.5% for the comparable
periods in 1997. Product margins were favorably impacted by a greater proportion
of sales from EMS products and the inclusion of ICC, which typically have higher
margins than ADS. This was offset by lower than planned manufacturing levels,
which resulted in under absorption of manufacturing overhead, and an unfavorable
mix of lower margin products in EMS. Management has taken steps in the 1998
second quarter, which will continue through the remainder of fiscal 1998, to
eliminate the excess capacity in manufacturing by downsizing the headcount to
improve future product margins.

Service margins increased to 43.4% for the three months ended July 4, 1998 from
39.7% in the comparable 1997 period. The increase is due to the inclusion of the
favorable service margins of ICC in the second quarter of 1998, as well as
improved utilization in the EMS service organization, primarily Board Test and
Integrated Customer Services. ADS service margins declined in the second quarter
of 1998 from 1997 due primarily to lower margin contracts in process. Service
margins decreased to 40.0% for the six months ended July 4,1998 from 45.6% in
the comparable 1997 period. The decrease is primarily due to an overall decline
in the service utilization rate and from competitive pricing pressure,
particularly in the first quarter of 1998.

Selling, general and administrative expenses increased in the three and six
month periods ended July 4, 1998 to $17.5 million and $35.9 million,
respectively, from $16.0 million and $33.5 million in the comparable periods in
1997. The increase in 1998 periods as compared to 1997 is primarily in global
selling and support infrastructure costs. For the six months ended July 4, 1998,
marketing and overhead expenses declined due to the restructuring measures that
occurred in the second quarter of 1998. Management is taking steps to reduce
selling, general and administrative expenses for the balance of 1998 and into
1999.

Research and development expenses increased for the three and six month periods
ended July 4, 1998 to $5.4 million and $10.4 million, respectively, from $4.6
million and $9.2 million in the comparable periods in 1997. As a percentage of
product and service sales, research and development expenses increased to 9.2%
and 9.6% for the three and six month periods ended July 4, 1998, respectively,
as compared to 7.5% and 8.1% in the comparable periods of 1997. The Company
continues to invest in new product development and enhancements to existing
products.


                                       11
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Operating Results (continued)

Net interest expense was $0.2 million and $0.3 million for the three and six
month periods ended July 4, 1998, respectively, from $0.1 million and $0 million
in the comparable periods in 1997. The 1998 interest expense relates to the five
year term loan entered into on June 26, 1997 that provided approximately $12
million for the purchase of furniture and fixtures for the Company's new
corporate headquarters and manufacturing facilities in Westford, Massachusetts.

A net income tax benefit of $7.5 million was recorded in the first quarter of
1998 as compared to $5.4 million in the comparable period in 1997. The tax
benefit represents a reduction in the Company's valuation allowance for deferred
taxes and was recorded due to management's expectations of future income and
expected utilization of the Company's domestic net operating loss carryforwards.

The income tax benefit for the three months ended July 4, 1998 was $0.7 million
as compared to income tax expense of $0.8 million in the comparable period in
1997. Excluding the deferred tax benefits, the income tax benefit was $0.6
million for the six months ended July 4, 1998 as compared to income tax expense
of $1.5 million for the comparable period in 1997. Income taxes decreased year
to date 1998 as compared to 1997 due to lower pre-tax income levels.

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. 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.

The Securities and Exchange Commission ("SEC") has recently issued guidance
related to the valuation of acquired in-process research and development as set
forth in its letter dated September 9, 1998 from the Chief Accountant of the SEC
to the American Institute of Certified Public Accountants. The Company has
corresponded with the staff of the SEC ("the Staff") concerning the valuation of
the incomplete technology and other intangible assets and has implemented the
methodology. As a result of the application of the valuation methodology, the
purchase price was allocated to acquired in-process research and development,
developed technology, assembled workforce and tradename.

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 one time 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 


                                       12
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Operating Results (continued)


use ICC's Shop Floor Data Manager (TM) ("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 fiscal 1999. GenRad will begin to benefit from the acquired
in-process research and development once completed product is sold. Failure to
reach successful completion of this project may result in impairment of the
associated capitalized intangible assets, i.e. goodwill and developed
technology, and/or may require the Company to accelerate the time period over
which the intangibles are being amortized, which may have a material adverse
effect on the Company's results of operations and financial condition.

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 expenses 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 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 July 4, 1998, the technological feasibility of the project had not yet
been reached and no significant departures from the assumptions included in the
valuation analysis have occurred.


                                       13
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Operating Results (continued)


Acquisition of Manufacturing Execution Systems Business of Valstar Systems
   Limited
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 totaled $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.


                                       14
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Operating Results (continued)


Impairment loss
In fiscal 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 fiscal 1996, consisting
primarily of the software program known as TRACS (R) 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 historical financial performance of these entities has continued to be less
than anticipated and the businesses have been negatively impacted by the recent
decline in the in-circuit test market. Due to these factors as well as certain
management changes during the second quarter of 1998, the Company prepared
revised projections of future net cash flows relating to these businesses,
which indicated that the businesses would not generate sufficient net cash
flows to realize the carrying value of the intangible assets. This analysis was
performed in accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Assets to be Disposed Of." As a result, a $4.9 million impairment loss,
representing the net book value of goodwill, was recorded during the second
quarter of 1998 and is included in the accompanying statements of operations.

Acquired in-process diagnostic software
On July 2, 1998, the Company acquired the rights to certain diagnostic software
for which technological feasibility had not been established. The Company plans
to use 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
feasability, 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.

Restructuring and other non-recurring charges
During the second quarter of 1998, the Company restructured its operations,
which resulted in a workforce reduction of approximately 130 employees or 9% of
the Company's workforce. In accordance with EITF 94-3, "Liability Recognition
for Certain Employee Termination Benefits, and Other Costs to Exit an Activity,"
the Company recorded a charge for restructuring totaling approximately $3.2
million for severance costs, post-employment benefits and for the termination
fees of certain equipment and real estate leases.

As of July 4, 1998, the Company had made cash payments totaling approximately
$0.6 million related to restructuring charges recorded in the second quarter of
1998. The Company expects to make cash payments totaling approximately $2.1 in
the third and fourth quarters of 1998 and $0.5 million in fiscal 1999.

As a result of the above, the Company reported a net loss of $11.9 million for
three months and $3.0 million for the six months ended July 4, 1998, as
compared to net income of $7.9 million and $19.6 million, respectively, for the
comparable periods in 1997.

Liquidity and Sources of Capital

Cash and equivalents at the end of the second quarter of 1998 totaled $16.1
million as compared to $21.9 million at year-end 1997 and $14.5 million at the
end of the 1997 second quarter. The Company's current ratio increased to 3.6 at
the end of the second quarter of 1998, which was consistent with year-end 1997,
as compared to 3.3 at the end of the 1997 second quarter.

Cash provided by operating activities was $7.4 million in the second quarter of
1998. The net loss of $3.0 million for the six months ended July 4, 1998
included a $7.5 million non-cash benefit resulting from the deferred tax asset
that was recorded in the first quarter of 1998 and $13.3 million of
non-recurring non-cash charges. The decrease in accounts receivable provided
cash of $9.2 million as a result of significant collections during 1998.
Increases in inventory used cash of $7.2 million as a result of work in process
for the Ford WDS project, and the maintenance of higher inventory levels due to
a decrease in sales volume. A decrease in current liabilities used cash of $3.1
million as a result of the timing of payments to employees and vendors.


                                       15
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Liquidity and Sources of Capital (continued)

During the six months ended July 4, 1998, $8.1 million of cash was used for the
purchase of property, plant and equipment. Capital expenditures were primarily
for equipment used in manufacturing and in research and development. The
purchase of ICC and MES in the second quarter of 1998 used cash of $2.9 million.
Investments in intangible assets of $2.4 million were primarily for capitalized
software.

The issuances of stock under the Company's employee stock plans provided cash of
$3.5 million for the six months ended July 4, 1998, while the purchase of
treasury stock used $1.6 million of cash.

The Company's primary source of liquidity is internally generated funds. The
Company also has an existing unsecured line of credit up to $50 million, against
which there were no borrowings outstanding on July 4, 1998. Borrowings under the
credit facility are subject to compliance with specified financial and operating
covenants. The credit facility expires on July 16, 2001. The Company also has a
five year term loan which provided approximately $12 million for the purchase of
furniture and fixtures for the Company's new corporate headquarters and
manufacturing facilities in Westford, Massachusetts. The principal of the loan
is repayable in twenty equal quarterly payments of $0.6 million to be paid
through the second quarter of 2002. Interest is payable quarterly in arrears at
LIBOR plus 1.25%.

The Company anticipates that in fiscal 1998 it will fund its working capital and
capital expenditure requirements, make interest payments on its borrowings and
meet its cash obligations from internally generated funds, and from the
available credit facility. The Company expects to make cash payments of
approximately $3.1 million in the third and fourth quarters of fiscal 1998 and
$1.2 million in fiscal 1999 in connection with the unusual charges, previously
described. The Company also plans to continue its stock repurchase plan.

The Company buys and sells foreign currencies using forward contracts intended
to hedge payables and receivables denominated in foreign currencies. The Company
primarily operates in U.S. dollars and European currencies. At July 4, 1998, the
Company had forward exchange contracts to sell approximately $33.4 million of
foreign currencies.

Inflation during the periods presented did not have a significant effect on the
operations of the Company. The Company attempts to mitigate inflationary cost
increases by continuously improving manufacturing methods and technologies.

This Quarterly Report contains certain forward-looking statements which involve
risks and uncertainties. The Company's actual results of operations and future
financial conditions may differ materially from those expressed in any such
forward-looking statements as a result of many factors that may be beyond the
Company's control. Factors that might cause such differences include, but are
not limited to, those discussed below.

Factors That May Affect Future Results

While the Company's sales cycle varies substantially from customer to customer,
a high percentage of the Company's revenues are expected to be realized in the
third month of each fiscal quarter. The Company's backlog at the beginning of a
quarter will not generally be large enough to assure that it will meet its
revenue targets for any particular quarter. In addition, the Company's operating
expenses are


                                       16
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Factors That May Affect Future Results (continued)

based on expected future revenue and are relatively fixed for the short term.
Accordingly, the Company's quarterly results may be difficult to predict until
late in the quarter and a shortfall in shipments or contract orders at the end
of any particular quarter may cause the results for that quarter to fall short
of anticipated levels.

The market for the Company's products is characterized by rapid technological
change, an increased demand for specific feature requests by customers, evolving
industry standards, and frequent new product introductions. The introduction of
products embodying new technology or the emergence of new industry standards or
practices could render the Company's existing products obsolete or otherwise
unmarketable. Future operating results are dependent upon the Company's ability
to develop, design, manufacture and market technologically innovative products
that meet customer needs.

Competition in the markets where the Company operates is intense. The Company
continues to invest in manufacturing productivity to try to minimize the impact
of competitive pricing pressures, fluctuations within the Company's product mix,
potential inventory obsolescence exposure and start-up manufacturing costs for
new product introductions.

The Company is dependent upon a number of suppliers for several key components
of its products. The loss of certain of the Company's suppliers, supply
shortages or increases in the costs of key raw materials could have a material
adverse effect on the Company.

The Company is subject to various legal proceedings and claims related to
products, contracts, employees and other matters that arise in the ordinary
course of business. An adverse result beyond the Company's current insurance
coverage could have a material adverse effect on the Company's financial
condition, results of operations and liquidity.

The Year 2000 issue is the result of a computer program being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company is in the process of rectifying the Year 2000 issue
in its core business systems, and it is projected to be complete by the first
quarter of 1999. Both internal and external resources will be utilized, and the
projected costs, which are expected to be minimal, will be expensed as incurred.
The Company has established a task force to ensure that the software utilized
within its currently produced products is Year 2000 compliant and any vendor or
customer related issues are addressed. At this point, the Company cannot project
when it will be completed nor the estimated total costs associated with the
remediation plan.

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
inflations.

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.
\
                                       17
<PAGE>


                          GENRAD, INC. AND SUBSIDIARIES
                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


Impact of Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board issued Statement No. 131, "Disclosure
about Segments of an Enterprise and Related Information". This Statement
requires an enterprise to report financial and descriptive information about its
reportable operating income. Operating segments are components that are
evaluated regularly by chief operating decision makers in deciding how to
allocate resources and in assessing performance. This Statement requires a
business enterprise to report a measure of segment profit or loss, certain
specific revenue and expense items (including interest, depreciation, and income
taxes), and segment assets. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Financial Accounting Standards Board issued Statement No. 132, "Employers'
Disclosure about Pensions and Other Postretirement Benefits". This statement
revises employer's disclosures about pensions and other postretirement plans.
The Statement does not change the measurement or recognition of those types of
plans. These Statements are required to be adopted in the Company's fiscal
year-end 1998. These statements will not affect the Company's consolidated
financial position or results of operations as they impact disclosure only.

On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company) and requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company is currently
determining the impact that the adoption of this Statement will have on its
earnings or statement of financial position.


                                       18
<PAGE>


                           PART II. OTHER INFORMATION


Item 1. Legal Proceeding

On April 28, 1998, the Company and James F. Lyons, President and Chief Executive
Officer were served with a lawsuit purported to be a class action suit on behalf
of persons who purchased Company stock in the open market over a specified
period of time. The lawsuit is entitled Duck Enterprises, LPV GenRad and James
F. Lyons, CA No. 98-10706-PBS, and was filed in the United States District Court
for the District of Massachusetts. The complaint seeks unspecified damages, as
well as costs and attorney's fees. The Company has reviewed the complaint and
believes that the allegations are without merit. The Company intends to
vigorously defend the suit and has notified its insurance carrier of the claim.
Due to the preliminary nature of the action, it is not possible at this time to
assess the outcome of the suit.

On May 27, 1998, William E. Gaines, William E. Masskaker, Frank B. Wingate and
Heritage Investment Limited Partnership ("the plaintiffs") filed a Demand for
Arbitration with the American Arbitration Association in Boston (No. 11 168
00247 98) against the Company, James F. Lyons and Paul Pronsky, Jr., Vice
President and Chief Financial Officer. The claims arise out of the merger
transaction between GenRad and ICC. The plaintiffs are seeking damages of $13.6
million, plus interest charges and legal fees, based upon the decline in the
market price of GenRad's common stock subsequent to the merger. The Company
denies the allegations made in the Demand for Arbitration. The Company intends
to vigorously defend the claim and has notified its insurance carrier. Due to
the preliminary nature of the action, it is not possible at this time to assess
the outcome of the claim.

Item 4. Submissions of Matters to a Vote of Security Holders

(a) The Annual Meeting of Shareholders of GenRad, Inc. was held on May 14, 1998
    (the "Annual Meeting").

(b) Not required pursuant to instructions No. 3.

(c) Votes were cast or withheld in connection with the election of directors at
    the Annual Meeting as follows:

<TABLE>
<CAPTION>
Name of Director                            For            Withheld
----------------                        ----------         --------
<S>                                     <C>                 <C>    
William S. Antle III                    21,487,675          755,462
Richard G. Rogers                       21,491,025          752,112
Ed Zschau                               21,486,751          756,386
</TABLE>

Votes were cast or withheld in connection with the following proposals, more
fully described in the Company's Proxy Statement dated April 13, 1998 at the
Annual Meeting.

<TABLE>
<CAPTION>
                                                           Affirmative        Negative
                                                              Votes             Votes        Abstained
                                                           -----------        --------       ---------
<S>                                                        <C>               <C>              <C>    
1)  To amend the Company's 1991 Equity
    Incentive Plan by increasing by
    500,000 the shares of Common Stock
    available for issuance.                                16,352,596        5,604,012        286,529

2)  To amend the Company's 1991
    Directors' Stock Option Plan by
    increasing by 50,000 the shares of
    Common Stock available for
    issuance.                                              20,348,915        1,627,128        267,094

3)  To amend the Company's 1994 Director
    Restricted Stock Plan by increasing
    by 50,000 the shares of Common Stock
    available for issuance.                                20,225,330        1,740,048        277,759
</TABLE>


                                       19
<PAGE>


                     PART II. OTHER INFORMATION (continued)


Item 6. Exhibits and Reports on Form 8-K

(a)(3) The following Exhibits are filed:

       10.  Amended and restated revolving credit agreement dated July 16, 1998
            between GenRad, Inc. and BankBoston, N.A., attached.

       10.1 Agreement and Plan of Merger dated April 7, 1998 by and among
            GenRad, Inc., Industrial Computer Corporation, Frank B. Wingate,
            William E. Massaker, William E. Gaines and Heritage Investment
            Limited Partnership, incorporated by reference to the Company's
            Registrations Statement on Form S-3 (File No. 333-57251).

       11.  Statement re: Computation of Earnings Per Share.

       27.  Financial Data Schedule.

(b)    The Company filed a Current Report on Form 8-K dated July 10, 1998
       reporting the acquisition of Industrial Computer Corporation.



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<PAGE>



                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                            GenRad, Inc.


                            By: /s/ Walter A. Shephard
                                ---------------------------------------------
                                    Walter A. Shephard
                                    Vice President,
                                    Chief Financial Officer and Secretary





Date:  August 18, 1998


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