<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1997
FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LECROY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2507777
(I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
LUTZ P. HENCKELS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
LECROY CORPORATION
700 CHESTNUT RIDGE ROAD
CHESTNUT RIDGE, NEW YORK 10977
(914) 425-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE AND REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
COPIES TO:
ROGER D. FELDMAN, ESQ. CRAIG B. BROD, ESQ.
BINGHAM, DANA & GOULD LLP CLEARY, GOTTLIEB, STEEN & HAMILTON
150 FEDERAL STREET ONE LIBERTY PLAZA
BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10006
(617) 951-8000 (212) 225-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 Par
Value.................. 2,300,000 shares(2) $34.75 $79,925,000 $24,220
</TABLE>
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(1) Calculated in accordance with Rule 457(c) based on the average of the high
and low prices reported on the Nasdaq National Market on February 19,
1997.
(2) Includes 300,000 shares of Common Stock subject to the Underwriters' over-
allotment option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED FEBRUARY 20, 1997
PROSPECTUS
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2,000,000 Shares
LECROY
Common Stock
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Of the 2,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering"), 658,838 shares are being sold by
LeCroy Corporation ("LeCroy" or the "Company") and 1,341,162 shares are being
sold by certain stockholders of the Company (the "Selling Stockholders").
Concurrent with the Offering, the Company will repurchase approximately 350,000
shares of Common Stock from the LeCroy Corporation Employee Stock Ownership
Trust (the "ESOT") at a price per share equal to the initial offering price of
the shares of Common Stock offered to the public in the Offering. See "Use of
Proceeds." The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
The Common Stock of the Company is included in The Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol "LCRY." On
February 19, 1997, the last reported sales price of the Common Stock on the
Nasdaq National Market was $33.25 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" ON PAGES 7 TO 11 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
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<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
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Total(3)...................... $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company, including the
expenses of the Selling Stockholders, estimated to be $ . See "Use of
Proceeds."
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 300,000 additional shares of the Common Stock on
the same terms and conditions as set forth above. If all such additional
shares are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be $ , the
total Proceeds to Company will be $ and the total Proceeds to Selling
Stockholders will be $ . See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is
expected to be made at the office of Prudential Securities Incorporated, One
New York Plaza, New York, New York, on or about March , 1997.
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
SALOMON BROTHERS INC
March , 1997
<PAGE>
[ART TO COME]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the Notes
thereto, appearing elsewhere or incorporated by reference in this Prospectus.
Except as otherwise noted herein or as presented in the Consolidated Financial
Statements, all information in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised and assumes for purposes of
calculating the number of shares issuable on exercise of certain warrants held
by the Selling Stockholders that such warrants will be exercised on a cashless
net issuance basis prior to the closing of the Offering at an assumed fair
market value of $33.25 per share of Common Stock. See "Principal and Selling
Stockholders." The Company's fiscal year ends on June 30 of the relevant year.
THE COMPANY
LeCroy Corporation develops, manufactures and sells signal analyzers,
principally high-performance digital oscilloscopes and related products.
Digital oscilloscopes capture electronic signals, convert them to digital form
and perform sophisticated measurements and analyses. The Company's digital
oscilloscope products are used by design engineers and researchers in a broad
range of industries, including electronics, computers and communications.
High-performance digital oscilloscopes have become an important enabling
technology as a result of the general shift in technology toward high-speed
digital electronics and faster and more complex electronic signals. The
analysis of such signals requires digital oscilloscopes with high sample rates
and long record lengths, two key performance measurements in the digital
oscilloscope market. The Company believes that certain models in its 9300
series and LC series of high-performance digital oscilloscopes offer the
highest sampling rate, and others the longest record length, available to date.
In 1985, the Company introduced its first digital oscilloscope product.
Commencing in fiscal 1994, the Company began to focus its digital oscilloscope
product offerings on the high-end market, which has resulted in a significant
increase in revenues. At that time, the Company began to concentrate its
digital oscilloscope product offerings on a single high-performance product
family, its 9300 series. In fiscal 1997, the Company expanded its high-end
market product offerings with a second family of products, the LC series of
digital oscilloscopes. The Company's total revenues were $63.8 million, $82.3
million and $101.5 million for the fiscal years ended June 30, 1994, 1995 and
1996, respectively, and $55.2 million for the six months ended December 31,
1996. Sales of digital oscilloscopes and related products grew from
approximately 75% of the Company's total revenues for fiscal year 1994 to
approximately 89% of the Company's total revenues for the six months ended
December 31, 1996. Further, the focus on the Company's high-performance product
families, together with management's continued emphasis on operational
improvements, have resulted in efficiency gains in product development,
manufacturing, marketing, sales and service. These factors, together with the
increase in revenues, have contributed to an increase in operating margin from
4.8% for fiscal 1994 to 8.5% for fiscal 1996 and 9.8% for the six months ended
December 31, 1996.
The Company's original digital oscilloscope technology was derived from its
historical efforts in developing products for high energy physics ("HEP")
research. Since its founding in 1964, the Company has designed and manufactured
instrumentation and signal analyzers for a number of leading HEP research
laboratories. The Company's signal analyzers were used in Nobel Prize winning
experiments at CERN (Centre Europeen pour la Recherche Nucleaire) near Geneva,
Switzerland and the Brookhaven National Laboratory in Upton, New York.
3
<PAGE>
Sales of HEP products have been declining and accounted for approximately 21%,
15% and 11% of the Company's total revenues for the fiscal years ended June 30,
1994, 1995 and 1996, respectively, and 7% of the Company's total revenues for
the six months ended December 31, 1996. The Company expects the decline in HEP
revenues to continue. As a consequence, in January 1997 the Company adopted a
strategic business plan to reduce costs and improve asset utilization in its
HEP business. Under this plan, the Company is redirecting its engineering
resources within this business unit to focus principally on the development and
sale of signal analysis chip sets and subsystems for HEP applications as well
as new commercial applications. In connection with the plan, the Company
expects to take a series of reorganization actions resulting in write-downs,
principally for inventory and other asset revaluations, and employee severance.
The restructuring plan is expected to be completed by the end of December 1997
and result in a charge to fiscal 1997 third quarter results of an estimated
$3.9 million ($2.5 million after taxes).
The Company's first business objective is to become a leading supplier of
high-performance digital oscilloscopes. According to Prime Data, Inc. ("Prime
Data"), total digital oscilloscope sales, excluding handhelds, grew from $586.5
million in 1992 to $755.0 million in 1996. The Company's second business
objective is to participate in broader markets by the use, directly and through
licensing and other arrangements with other manufacturers, of the Company's
core acquisition technology in dedicated signal analyzers. The Company believes
that market opportunities for such products are very broad, including
applications in data storage, networking and communications. The Company has
entered into an agreement to sell certain proprietary chip sets to Guzik
Technical Enterprises for use in dedicated instruments for data storage
devices, such as disk drives, and their components. The Company has also
entered into an agreement with Fluke Corporation under which the Company has
licensed Fluke to use LeCroy technology in certain handheld scopemeters and
low-end digital oscilloscopes. See "Business--Products and Services."
In addition to these agreements, the Company is using its signal analysis
technology in a new LAN monitor product currently under development. This
product would analyze electronic signals in communications networks in order to
provide better monitoring and failure-diagnosis capabilities than can be
achieved using existing products.
The Company operates internationally with manufacturing facilities in Geneva,
Switzerland and Chestnut Ridge, New York. The Company maintains a direct sales
force in the United States, Europe and Japan and uses manufacturers'
representatives as an extension of its direct selling efforts.
The Company was founded and incorporated in the State of New York in 1964 and
reincorporated in the State of Delaware in 1995. The Company's principal
executive offices are located at 700 Chestnut Ridge Road, Chestnut Ridge, New
York 10977, and its phone number at that location is (914) 425-2000.
4
<PAGE>
THE OFFERING
Common Stock Offered by the Company(1)(2)..... 658,838 shares
Common Stock Offered by the Selling 1,341,162 shares
Stockholders(3)...............................
Common Stock to be Outstanding after the 6,551,982 shares
Offering(1)(2)(3)(4)(5)......................
Use of Proceeds by the Company................ Repayment of indebtedness,
including repayment of
indebtedness incurred to fund
the repurchase of ESOT shares;
to fund research and
development; for potential
acquisitions of complementary
businesses; and for working
capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol................. LCRY
- --------
(1) Does not include up to 300,000 shares of Common Stock to be issued if the
Underwriters' over-allotment option granted by the Company is exercised in
full.
(2) The Company will use a portion of the net proceeds of the Offering to repay
indebtedness incurred in connection with the repurchase of approximately
350,000 shares of Common Stock from the ESOT. Such repurchase will be
effected at a price per share equal to the initial offering price of the
shares of Common Stock offered to the public in the Offering. The
repurchased shares will be classified as treasury shares and are not
reflected as shares of Common Stock outstanding after the Offering. See
"Principal and Selling Stockholders--Repurchase by the Company of Shares
from the ESOT."
(3) Includes 583,011 shares of Common Stock issuable upon assumed conversion of
673,913 stock warrants with an exercise price of $4.485 per share. See
"Capitalization," "Principal and Selling Stockholders" and "Description of
Capital Stock."
(4) Includes 27,807 shares of Common Stock issued upon exercise of stock
options during January 1997 at a weighted average exercise price of $8.62
per share. Does not include (i) 1,248,649 shares of Common Stock issuable
upon exercise of stock options outstanding as of January 31, 1997 with a
weighted average exercise price of $11.22 per share, of which options to
purchase 462,225 shares were exercisable as of January 31, 1997 with a
weighted average exercise price of $8.48 per share and (ii) 21,739 shares
of Common Stock issuable upon exercise of warrants outstanding as of
January 31, 1997 with a weighted average exercise price of $4.485 per
share. See "Principal and Selling Stockholders."
(5) Does not include 791,873 shares of Common Stock reserved as of January 31,
1997 for future issuance under the Company's Amended and Restated 1993
Stock Incentive Plan, 1995 Non-Employee Director Stock Option Plan and 1995
Employee Stock Purchase Plan.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------ -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues
Digital oscilloscopes
and related products.. $42,486 $42,812 $47,627 $65,785 $ 86,061 $ 39,945 $ 49,016
High energy physics
products.............. 15,428 15,640 13,519 12,277 10,952 5,056 3,597
Service and other(1)... 2,003 2,835 2,696 4,210 4,478 2,212 2,546
------- ------- ------- ------- -------- -------- --------
Total.................. 59,917 61,287 63,842 82,272 101,491 47,213 55,159
Gross profit............ 33,349 34,357 35,590 44,495 55,946 25,774 31,201
Restructuring costs(2).. -- -- 930 -- -- -- --
Operating income........ 1,424 1,592 3,059 6,230 8,684 3,452 5,417
Technology dispute
settlement costs(3).... -- 278 2,073 -- -- -- --
Income (loss) before
extraordinary
charge(4).............. 200 (150) (1,039) 2,610 5,558 1,958 3,722
Net income (loss)....... $ 200 $ (150) $(1,039) $ 2,610 $ 4,258 $ 658 $ 3,722
Income (loss) per share
before extraordinary
charge................. .04 (.03) (.24) .56 .93 .36 .54
Net income (loss) per
share.................. $ .04 $ (.03) $ (.24) $ .56 $ .71 $ .12 $ .54
Weighted average number
of common shares and
common equivalent
shares(5).............. 4,628 4,418 4,407 4,683 5,953 5,383 6,899
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 (UNAUDITED)
JUNE 30, ---------------------------------
1996 ACTUAL AS ADJUSTED(6)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $32,041 $ 37,120 $ 38,129
Total assets........................ 62,400 70,487 70,769
Total debt and capitalized leases... 5,673 7,787 --
Total stockholders' equity.......... 37,472 40,936 49,005
</TABLE>
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(1) Service and other includes sales of product upgrades.
(2) Restructuring costs were incurred in fiscal 1994 due to a restructuring of
the Company's worldwide sales organization and the closure of its research
facility in the United Kingdom.
(3) Included in technology dispute settlement costs in fiscal 1993 and fiscal
1994 are certain legal fees and related expenses, and in fiscal 1994 a $1.5
million payment required pursuant to an agreement settling certain
litigation. See "Risk Factors--Technology Dispute Settlement and License
Agreement," "Selected Consolidated Financial Data" and "Business--
Intellectual Property Rights."
(4) The Company incurred an extraordinary charge of approximately $1.3 million
in the second quarter of fiscal 1996 due to the recognition of previously
deferred financing costs associated with the early retirement of long-term
debt. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(5) See "Per Share Information" in Note 1 to Consolidated Financial Statements.
(6) As adjusted total stockholders' equity gives effect to (i) the sale by the
Company of the 658,838 shares of the Common Stock offered hereby at an
assumed offering price of $33.25 per share (the last reported sales price
of the Common Stock on the Nasdaq National Market on February 19, 1997),
after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company and the application of the
estimated net proceeds therefrom, and (ii) the repurchase by the Company of
an estimated 350,000 shares of Common Stock from the ESOT at a price per
share equal to the initial offering price of the shares of Common Stock
offered to the public in the Offering. See "Use of Proceeds" and
"Capitalization."
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider carefully the following
risk factors, in addition to the other information set forth in this
Prospectus, in connection with an investment in the Common Stock offered
hereby.
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Those statements appear in a
number of places in this Prospectus and include statements regarding the
intent, belief or current expectations of the Company or its directors or
officers with respect to, among others things: (i) the licensing of the
Company's core acquisition technology for use in dedicated signal analyzers;
(ii) the targeting of additional high growth industries that require solution-
focused oscilloscopes; (iii) trends affecting the Company's financial
condition or results of operation, including the effect of foreign currency
exchange rates on revenues; (iv) the Company's business and growth strategies;
and (v) the results of the HEP restructuring plan. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected, expressed or implied, in
the forward-looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including without
limitation the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," identifies important factors that could cause such
differences. Such forward-looking statements speak only as of the date of this
Prospectus and the Company cautions potential investors not to place undue
reliance on such statements.
COMPETITION. The market for signal analyzers such as the Company's digital
oscilloscopes is highly competitive. The Company's principal competitors in
this market are Tektronix, Inc., Hewlett-Packard Company and Fluke
Corporation, some of which have substantially greater sales and marketing,
development and financial resources than the Company and some of which have a
greater market share than the Company.
The Company believes that the principal bases of competition in the signal
analyzer market are a product's performance (bandwidth, sample rate, record
length and processing power), its price and quality, the vendor's name
recognition and reputation, color display, product availability and the
availability and quality of post-sale support. The rapidly evolving nature of
the markets in which the Company competes may attract new entrants as they
perceive opportunities, and the Company's competitors may foresee the course
of market developments more accurately than the Company. In addition, the
Company's competitors may develop products that are superior to the Company's
products or may adapt more quickly than the Company to new technologies or
evolving customer requirements. The Company expects competition to increase
significantly in the future from existing competitors and other companies that
may enter the Company's existing or future markets. There can be no assurance
that the Company will be able to compete successfully with its existing
competitors or with new competitors. Failure to compete successfully could
adversely affect the Company's business, results of operations and financial
condition. See "Business--Industry Background" and "--Competition."
TECHNOLOGICAL CHANGE; RISKS OF PRODUCT OBSOLESCENCE AND FAILURE TO DEVELOP
NEW PRODUCTS. The market for the Company's products is characterized by
rapidly changing technology and frequent new product introductions
particularly by the Company's principal competitors. See "Business--
Competition." The Company's success will depend, in part, upon its continued
ability to provide products with the advanced technological qualities desired
by its customers, to enhance and expand its existing product offerings and to
develop in a timely manner new products that achieve market acceptance. Any
failure or delay in accomplishing these goals could have a material adverse
effect on the Company's business, results of operations and financial
condition. In addition, current competitors or new market entrants may develop
new products with features that could adversely affect the competitive
position of the Company's products. Further, no assurance can be given that
the Company will be able to leverage its core technology into new product
markets. See "Business--Strategy."
7
<PAGE>
FLUCTUATIONS IN REVENUES AND RESULTS OF OPERATIONS. The growth experienced
by the Company in its fiscal years ended June 30, 1995 and 1996 and the six
months ended December 31, 1996 is not necessarily indicative of future growth.
There can be no assurance that the Company's revenues will continue to
increase or that it will continue to be profitable. The Company's annual and
quarterly operating results may fluctuate due to factors such as the timing of
new product introductions by the Company and its competitors, market
acceptance of new or enhanced versions of the Company's products, changes in
the product mix of sales, changes in the relative proportions of sales
denominated in currencies other than United States dollars, changes in the
relative proportions of sales among distribution channels, changes in
manufacturing costs or other expenses, competitive pricing pressures, the gain
or loss of significant customers or distribution channels, increased research
and development expenses and general economic conditions. In addition, it is
possible that in some future periods, the Company's results of operations,
including gross margins, will be below the expectations of public market
analysts and investors. In any such event, the market price of the Common
Stock could be materially and adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY EXCHANGE RISKS. The Company
has manufacturing facilities in both the United States and Switzerland,
purchases parts, components and sub-assemblies from suppliers around the world
in a variety of currencies and sells its products around the world in a
variety of currencies. As a consequence, the Company is exposed to risks from
fluctuations in foreign currency exchange rates with respect to a number of
currencies, changes in government policies and legal and regulatory
requirements, political instability, transportation delays and the imposition
of tariffs and export controls.
Among the more significant potential risks to the Company of relative
fluctuations in foreign exchange rates is the relationship among and between
the United States dollar, Swiss franc and Japanese yen, and, to a lesser
extent, the German deutschemark, British pound, French franc and Italian lira.
During the fiscal year ended June 30, 1996, approximately half of the
Company's revenues and half of its costs and expenses were denominated in
currencies other than the United States dollar, the Company's financial
reporting currency. Local currency expenses resulting from manufacturing and
the worldwide sourcing of parts, components and sub-assemblies are not
generally offset by related local currency revenues, if any. The Company does
not attempt to reduce its foreign currency exchange risks by entering into
foreign currency management programs or hedging transactions and has no plans
to do so in the near term. As a consequence, there can be no assurance that
the Company's results of operations will not be adversely affected by
fluctuations in foreign currency exchange rates in the future, as a result of
mismatches between local currency revenues and expenses, the translation of
foreign currencies into the United States dollar, or otherwise. Moreover,
fluctuations in exchange rates could affect demand for the Company's products.
Based on exchange rates as of the date of this Prospectus, the Company expects
that its revenues for the third quarter of fiscal 1997 will continue to be
adversely impacted by the strength of the U.S. dollar. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CERTAIN SINGLE-SOURCE SUPPLIERS; DIFFICULTY IN DEVELOPING ALTERNATIVE
SOURCES OF SUPPLY; POSSIBLE INCREASES IN COSTS OF MATERIALS. The Company
obtains certain parts, components and sub-assemblies from single sources. This
has particularly been the case for several key integrated circuits made by
certain single-source suppliers (Motorola, Philips, TRW and LSI Logic). The
Company has generally been able to obtain adequate supplies of components in a
timely manner from current vendors. The Company believes that, for the printed
circuit board assemblies and integrated circuits in particular, alternative
sources of supply would be difficult to develop. A reduction or interruption
of supply of these components could result in delays or reductions in product
shipments that could have a material adverse effect on the Company's business,
results of operations and financial condition and could damage its
relationships with customers. The Company may also be subject to cost
increases for such parts, components and sub-assemblies, which could have a
material adverse effect on its business, results of operations and financial
condition. See "Business--Manufacturing and Supplies."
8
<PAGE>
POTENTIAL INABILITY TO MANAGE FUTURE GROWTH AND CHANGING BUSINESS. The
Company's revenues from sales of digital oscilloscopes and related products
grew significantly in the fiscal year ended June 30, 1996, increasing by
approximately $20.3 million to approximately $86.1 million from approximately
$65.8 million in the fiscal year ended June 30, 1995. Such revenues increased
$9.1 million to approximately $49.0 million for the six months ended December
31, 1996 from $39.9 million in the comparable prior year period. There can be
no assurance that the Company's recent growth rate can be sustained or that
the Company will be able to manage any future growth successfully. To manage
growth effectively requires that the Company continue to improve its
operational, financial and management information systems, to integrate new
products into its product line, to train, motivate and manage its employees
and to attract and retain senior managers. If the Company's management is
unable to manage any future growth effectively, the Company's business,
results of operations and financial condition could be materially and
adversely affected. See "Dependence on Key Employees," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Employees" and "Management--Executive Officers and Directors."
The Company's HEP product revenues have declined from approximately $15.4
million in the fiscal year ended June 30, 1992 to approximately $11.0 million
in the fiscal year ended June 30, 1996 and declined from approximately $5.1
million for the six months ended December 31, 1995 to approximately $3.6
million for the six months ended December 31, 1996. These declines were due to
a variety of factors including a decline in United States government funding
for defense and the phase-out of the Company's digitizer products. The Company
expects the decline in HEP revenues to continue. As a consequence, in January
1997 the Company adopted a strategic business plan to reduce costs and improve
asset utilization in its HEP business. Under this plan, the Company is
redirecting its engineering resources within this business unit to focus
principally on the development and sale of signal analysis chip sets and
subsystems for HEP applications as well as new commercial applications. In
connection with the plan, the Company expects to take a series of
reorganization actions resulting in write-downs, principally for inventory and
other asset revaluations, and employee severance. The restructuring plan is
expected to be completed by the end of December 1997 and result in a charge to
fiscal 1997 third quarter results of an estimated $3.9 million ($2.5 million
after taxes). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON KEY EMPLOYEES. The Company's success depends to a significant
degree upon the continuing contributions of its key management, sales,
marketing, research and development and manufacturing personnel, many of whom
would be difficult to replace. The Company does not have long-term employment
contracts with its key personnel, although four of the Company's senior
officers have entered into noncompetition agreements with the Company. The
Company maintains key-man insurance only on the life of Lutz P. Henckels, the
President and Chief Executive Officer, in the amount of $1.5 million. The
Company believes that its future success will depend in large part upon its
ability to continue to attract and retain skilled management, sales,
marketing, research and development and manufacturing personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Employees" and "Management--Executive Officers and Directors."
DEPENDENCE ON HIGH-PERFORMANCE DIGITAL OSCILLOSCOPE PRODUCTS . The Company
is primarily engaged in the development, manufacture and sale of high-end
digital oscilloscopes and derives a substantial portion of its revenues from
sales of its principal product families of digital oscilloscopes, the 9300
series and the LC series. Sales of models in the Company's 9300 series and LC
series (including sales of products in the 9400 series, the predecessor to the
9300 series) accounted for 58%, 65% and 79% of the Company's total revenues in
its fiscal years ended June 30, 1994, 1995 and 1996, respectively, and 85% for
the six months ended December 31, 1996. The 9300 series and the LC series are
expected to continue to account for a substantial portion of the Company's
total revenues. A reduction in demand for these products, whether due to the
introduction of competing products or otherwise, would have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Products and Services."
9
<PAGE>
UNCERTAINTIES REGARDING PATENTS AND PROTECTION OF PROPRIETARY
TECHNOLOGY. The Company currently relies on a combination of patents, trade
secrets, technical expertise and continuing technological research and
development to establish and protect proprietary rights in its products. There
can be no assurance that competitors will not develop similar or functionally
equivalent technology or expertise.
There can be no assurance that third parties will not allege infringement by
the Company of patents and proprietary rights of such parties in the future.
If infringement is alleged, there is no assurance that the necessary licenses
would be available on acceptable terms, if at all, or that the Company would
prevail in any such challenge. In any event, patent and proprietary rights
litigation can be extremely protracted and expensive. See "Technology Dispute
Settlement and License Agreement" and "Business--Intellectual Property
Rights."
LIMITED HISTORY OF PROFITABILITY. The Company reported net income of
approximately $4.3 million, $2.6 million and $200,000 for its fiscal years
ended June 30, 1996, 1995 and 1992, respectively, and $3.7 million for the six
months ended December 31, 1996. The Company reported net losses of
approximately $1.0 million and $150,000 for its fiscal years ended June 30,
1994 and 1993, respectively. There can be no assurance that the growth in
total revenues and the ability to report net income as opposed to a net loss
that the Company has previously experienced can be sustained or that the
Company will be profitable in the future. The Company's multicurrency
revolving credit facility contains a covenant including the requirement that
the Company not incur any net loss during any fiscal year. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
REGULATION. As the Company manufactures its products in the United States
and Switzerland and sells its products and purchases parts, components and
sub-assemblies in a number of countries, the Company is subject to legal and
regulatory requirements, particularly the imposition of tariffs and customs
and export controls, in a variety of countries. In addition, the export of
digital oscilloscopes from both the United States and Switzerland is subject
to regulation under the Treaty for Nuclear Non-Proliferation by such
countries.
TECHNOLOGY DISPUTE SETTLEMENT AND LICENSE AGREEMENT. In February 1994, the
Company settled litigation with Tektronix, Inc. ("Tektronix") involving
allegations that the Company's digital oscilloscope products infringed patents
held by Tektronix. As part of the settlement, the Company entered into a
license agreement with respect to such patents. Pursuant to the license
agreement the Company made an initial payment in fiscal 1994 of approximately
$1.5 million. In addition, the Company is required to make future royalty
payments in a minimum aggregate amount of $3.5 million over ten years ending
June 30, 2004 and may be required to make up to an additional $3.5 million in
contingent royalty payments depending on its sales of certain products in
certain territories over the life of the patents. Royalty expense was
approximately $781,000 and $963,000 in fiscal 1995 and 1996, respectively. See
"Business--Intellectual Property Rights." The settlement agreement provides
that Tektronix may terminate the license in the event that the Company
acquires 20% or more of the stock of, or a controlling interest in, any of a
number of specified companies participating in the oscilloscope market or any
of their respective affiliates (each, a "Restricted Company"), or a Restricted
Company acquires 20% or more of the stock of, or a controlling interest in,
the Company or an affiliate of the Company, or any attempt to transfer the
Tektronix license to a Restricted Company is made. This provision of the
settlement could preclude the Company from making an investment in or
acquisition of such companies, and it also could discourage such companies or
another third party from attempting to acquire control of the Company or limit
the price that such a third party might be willing to pay for the Common
Stock. In addition, this provision could limit the price that investors might
be willing to pay in the future for the Common Stock.
EFFECT OF ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's
Certificate of Incorporation and Amended and Restated By-Laws, as well as the
provisions of the settlement described above under the caption "Technology
Dispute Settlement and License Agreement," could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Such provisions could
limit the price that investors might be willing to pay in the future for the
Common Stock. Certain of these provisions allow the Company to issue preferred
stock with rights senior to those of the Common Stock without any further vote
or action by the stockholders, eliminate the right of
10
<PAGE>
stockholders to act by written consent and impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. These provisions could also have the effect of
delaying or preventing a change in control of the Company. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock and could adversely affect the
rights and powers, including voting rights, of the holders of the Common
Stock. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Common Stock. See "Description of Capital
Stock."
VOLATILITY OF STOCK PRICE. Since the completion of the Company's initial
public offering in October 1995, the market price of the Common Stock has
fluctuated significantly. The Company believes that factors such as
announcements of developments related to the Company's business, announcements
of technological innovations or new products or enhancements by the Company or
its competitors, sales by competitors, including sales to the Company's
customers, sales of the Common Stock into the public market, including by
members of management, developments in the Company's relationship with its
customers, partners, distributors and suppliers, shortfalls or changes in
revenue, gross margins, earnings or losses or other financial results from
analysts' expectations, regulatory developments, fluctuations in results of
operations, seasonality and general conditions in the Company's market or the
markets served by the Company's customers or the economy could cause the price
of the Common Stock to fluctuate, perhaps substantially. In addition, in
recent years the stock market in general, and the market for shares of
technology stocks in particular, have experienced extreme price fluctuations,
which have often been unrelated to the operating performance of affected
companies. There can be no assurance that the market price of the Common Stock
will not decline substantially, or otherwise continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to the Company's operating performance. See "Price Range of Common
Stock."
NO PRESENT INTENTION TO PAY DIVIDENDS. The Company has never declared or
paid cash dividends on its Common Stock and intends to retain all available
funds for use in the operation and expansion of its business. The Company
therefore does not anticipate that any cash dividends will be declared or paid
in the foreseeable future. See "Dividend Policy."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 658,838 shares of
Common Stock offered by the Company hereby, at an assumed public offering
price of $33.25 per share (the last reported sales price of the Common Stock
on the Nasdaq National Market on February 19, 1997), and after deducting
underwriting discounts and commissions and estimated offering expenses, are
estimated to be $19,706,514 ($29,132,889 if the Underwriters' over-allotment
option to purchase up to 300,000 shares is exercised in full). The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
The Company anticipates using a portion of the net proceeds of the Offering
(i) to repay borrowings under its multicurrency revolving credit facility to
be used to repurchase an estimated 350,000 shares of Common Stock held by the
ESOT, a greater than 5% stockholder of the Company, at a price per share equal
to the initial offering price of the shares of Common Stock offered to the
public in the Offering, see "Principal and Selling Stockholders--Repurchase by
the Company of Shares from the ESOT," and (ii) to repay the then remaining
outstanding advances under its multicurrency revolving credit facility ($7.0
million as of December 31, 1996, bearing interest at an interest rate of 8.25%
as of such date). Amounts repaid under the multicurrency revolving credit
facility may be reborrowed subject to the terms and conditions thereof. Any
remaining net proceeds will be used for general corporate purposes and may be
used to fund development or acquisitions of complementary businesses, products
or technologies, although there are no existing commitments with respect to
any such transactions. Pending such uses, the Company intends to invest the
remaining net proceeds in United States government securities or other short-
term, investment-grade, interest-bearing securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PRICE RANGE OF COMMON STOCK
The Common Stock is included in the Nasdaq National Market under the symbol
"LCRY." The following table sets forth, for the periods indicated, the range
of high and low sales prices of the Common Stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1996
Second Quarter(1)........................................... $19.25 $10.50
Third Quarter............................................... 19.25 13.50
Fourth Quarter.............................................. 22.25 14.00
FISCAL YEAR 1997
First Quarter............................................... $26.25 $15.25
Second Quarter.............................................. 38.75 26.00
Third Quarter (through February 19, 1997)................... 37.50 32.00
</TABLE>
- --------
(1) From October 5, 1995, the effective date of the Company's initial public
offering.
On February 19, 1997, the last reported sales price of the Common Stock on
the Nasdaq National Market was $33.25 per share. As of February 19, 1997,
there were 203 holders of record of the Common Stock.
12
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and intends to retain all available funds for use in the operation and
expansion of its business. The Company therefore does not anticipate that any
cash dividends will be declared or paid in the foreseeable future. Any
determination to declare or pay cash dividends in the future will be at the
discretion of the Company's Board of Directors and will depend on, among other
things, the Company's financial condition and results of operations, the terms
of any outstanding shares of preferred stock, requirements of applicable law
and other considerations deemed relevant by the Company's Board of Directors.
See "Description of Capital Stock."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on an actual basis and as adjusted to give effect to (i) the
sale of 658,838 shares of Common Stock offered by the Company hereby at an
assumed offering price of $33.25 per share (the last reported sales price of
the Common Stock on the Nasdaq National Market on February 19, 1997), after
deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company and the application of the estimated net
proceeds therefrom, (ii) the repurchase by the Company of an estimated 350,000
shares of Common Stock from the ESOT at a price per share equal to the initial
offering price of the shares of Common Stock offered to the public in the
Offering and (iii) the issuance of 583,011 shares of Common Stock upon the
assumed conversion of 673,913 stock warrants held by the Selling Stockholders
with an exercise price of $4.485 per share at an assumed offering price of
$33.25 per share. See "Use of Proceeds" and "Principal and Selling
Stockholders." This table should be read in conjunction with the Consolidated
Financial Statements and Notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
(UNAUDITED)
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt and capitalized leases, less current
portion.................................................. $ 7,060 $ --
Stockholders' equity:
Preferred Stock, $.01 par value per share; 5,000,000
shares authorized, none outstanding.................... -- --
Common Stock, $.01 par value per share; 45,000,000
shares authorized; 5,877,732 and 7,119,581 shares
issued, 5,632,326 and 6,524,175 shares outstanding(1).. 59 71
Additional paid-in capital.............................. 22,860 42,555
Foreign currency translation adjustment................. (267) (267)
Retained earnings....................................... 19,695 19,695
Less: Treasury Stock at cost, 245,406 and 595,406
shares............................................... (1,411) (13,049)
------- --------
Total stockholders' equity............................ 40,936 49,005
------- --------
Total capitalization............................... $47,996 $ 49,005
======= ========
</TABLE>
- --------
(1) Excludes (i) 27,807 shares of Common Stock issued upon exercise of stock
options during January 1997, (ii) the issuance of 1,248,649 shares of
Common Stock issuable at January 31, 1997 upon the exercise of outstanding
options, of which options to purchase 462,225 shares were exercisable as
of January 31, 1997, and (iii) 21,739 shares of Common Stock issuable upon
exercise of warrants outstanding as of January 31, 1997. See Note 6 of
Notes to Consolidated Financial Statements.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated Statements of Operations data for the
five years ended June 30, 1996 and the Balance Sheet data at June 30, 1992,
1993, 1994, 1995 and 1996 are derived from the Consolidated Financial
Statements of the Company which have been audited by Ernst & Young LLP,
independent auditors. The Statement of Operations and Balance Sheet data for
the six months ended December 31, 1995 and 1996 were derived from the
Company's unaudited financial statements, which appear elsewhere in this
Prospectus, and in the opinion of management of the Company, include all
adjustments of a normal and recurring nature necessary for a fair presentation
of the results of the periods. Results for the six months ended December 31,
1996 are not necessarily indicative of the results to be expected for the full
year. The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and related Notes and other financial data included
herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- -------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues
Digital oscilloscopes
and related products.. $42,486 $42,812 $ 47,627 $65,785 $ 86,061 $ 39,945 $ 49,016
High energy physics
products.............. 15,428 15,640 13,519 12,277 10,952 5,056 3,597
Service and other (1).. 2,003 2,835 2,696 4,210 4,478 2,212 2,546
------- ------- -------- ------- -------- -------- --------
Total.................. 59,917 61,287 63,842 82,272 101,491 47,213 55,159
Cost of sales (2)....... 26,568 26,930 28,252 37,777 45,545 21,439 23,958
------- ------- -------- ------- -------- -------- --------
Gross profit........... 33,349 34,357 35,590 44,495 55,946 25,774 31,201
Selling, general and
administrative
expenses............... 22,626 23,029 22,831 27,950 34,623 16,006 18,505
Research and development
expenses............... 9,299 9,736 8,770 10,315 12,639 6,316 7,279
Restructuring costs
(3).................... -- -- 930 -- -- -- --
------- ------- -------- ------- -------- -------- --------
Operating income....... 1,424 1,592 3,059 6,230 8,684 3,452 5,417
Technology dispute
settlement costs (4)... -- 278 2,073 -- -- -- --
Other (income) expenses,
net.................... 1,100 1,434 1,694 2,212 134 439 (303)
------- ------- -------- ------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary charge.. 324 (120) (708) 4,018 8,550 3,013 5,720
Provision for income
taxes.................. 124 30 331 1,408 2,992 1,055 1,998
------- ------- -------- ------- -------- -------- --------
Income (loss) before
extraordinary charge.. 200 (150) (1,039) 2,610 5,558 1,958 3,722
Extraordinary charge for
early retirement of
debt (5)............... -- -- -- -- (1,300) (1,300) --
------- ------- -------- ------- -------- -------- --------
Net income (loss)...... $ 200 $ (150) $ (1,039) $ 2,610 $ 4,258 $ 658 $ 3,722
======= ======= ======== ======= ======== ======== ========
Income (loss) per share
before extraordinary
charge................. $ .04 $ (.03) $ (.24) $ .56 $ .93 $ .36 $ .54
Extraordinary charge.... -- -- -- -- (.22) (.24) --
------- ------- -------- ------- -------- -------- --------
Net income (loss) per
share................. $ .04 $ (.03) $ (.24) $ .56 $ .71 $ .12 $ .54
======= ======= ======== ======= ======== ======== ========
Weighted average number
of common shares and
common equivalent
shares (6)............. 4,628 4,418 4,407 4,683 5,953 5,383 6,899
======= ======= ======== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......... $16,056 $16,818 $13,120 $21,791 $32,041 $37,120
Total assets............. 36,398 35,252 39,477 49,836 62,400 70,487
Total debt and
capitalized leases...... 12,607 12,530 15,235 18,042 5,673 7,787
Total stockholders'
equity.................. 13,477 12,518 12,820 17,440 37,472 40,936
</TABLE>
- --------
(1) Service and other includes sales of product upgrades.
(2) Included in cost of sales since 1995 are recurring technology license
royalties pursuant to an agreement settling certain litigation. See "Risk
Factors--Technology Dispute Settlement and License Agreement" and
"Business--Intellectual Property Rights."
14
<PAGE>
(3) Restructuring costs were incurred in fiscal 1994 due to a restructuring of
the Company's worldwide sales organization and the closure of its research
facility in the United Kingdom.
(4) Included in technology dispute settlement costs in fiscal 1993 and fiscal
1994 are certain legal fees and related expenses and also in fiscal 1994 a
$1.5 million payment related to the settlement referred to in Note 2
above.
(5) Reflects the write-off in the second quarter of 1996 of $1.3 million of
deferred financing costs due to the early retirement of debt.
(6) See "Per Share Information" in Note 1 of Notes to Consolidated Financial
Statements.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since the Company's founding in 1964, the Company has been designing,
manufacturing and selling high performance signal analyzers to scientists
engaged in HEP research. Since calendar year 1983, the Company has applied its
HEP technology to the design and development of digital oscilloscopes, its
principal product. Digital oscilloscopes are signal analyzers that capture
electronic signals, convert them to digital form and perform sophisticated
measurements and analyses. The Company's digital oscilloscope products are
used by design engineers and researchers in a broad range of industries,
including electronics, computers and communications.
In 1985, the Company introduced its first digital oscilloscope product.
Commencing in fiscal 1994, the Company began to focus its digital oscilloscope
product offerings on the high end market, which has resulted in a significant
increase in revenues. The Company's total revenues were $63.8 million, $82.3
million and $101.5 million for the fiscal years ended June 30, 1994, 1995 and
1996, respectively, and $55.2 million for the six months ended December 31,
1996. Sales of digital oscilloscopes and related products grew from
approximately 75% of the Company's total revenues for fiscal year 1994 to
approximately 89% of the Company's total revenues for the six months ended
December 31, 1996.
In 1993, the Company adopted a performance improvement strategy pursuant to
which the Company hired new managers, including a new Chief Executive Officer,
to supplement the existing management team. As part of the performance
improvement strategy, the Company's worldwide sales organization was
restructured, the Company's United Kingdom research and development facility
was closed and the Company's product offerings were streamlined to focus
primarily on a single family of high-performance digital oscilloscopes, the
9300 series. In fiscal 1997, the Company expanded its high-end market product
offerings with a second family of products, the LC series of digital
oscilloscopes. The primary focus on high-performance products, together with
management's continued emphasis on operational improvements, have resulted in
efficiency gains in product development, manufacturing, marketing, sales and
service. These factors, together with an increase in revenues, have
contributed to an increase in operating margin from 4.8% for fiscal year 1994
to 8.5% for fiscal year 1996 and 9.8% for the six months ended December 31,
1996. The Company believes that certain models of its 9300 series and LC
series offer the highest sampling rate, and others the longest record length,
available to date in the digital oscilloscope market.
The Company's original digital oscilloscope technology was derived from its
historical efforts in developing products for high energy physics ("HEP")
research. Since its founding in 1964, the Company has designed and
manufactured signal analyzers for a number of leading HEP research
laboratories. The Company's signal analyzers were used in Nobel Prize winning
experiments at CERN (Centre Europeen pour la Recherche Nucleaire) near Geneva,
Switzerland and the Brookhaven National Laboratory in Upton, New York. Sales
of HEP products have been declining and accounted for approximately 21%, 15%
and 11% of the Company's total revenues for the fiscal years ended June 30,
1994, 1995 and 1996, respectively, and 7% of the Company's total revenues for
the six months ended December 31, 1996. The Company expects the decline in HEP
revenues to continue. As a consequence, in January 1997 the Company adopted a
strategic business plan to reduce costs and improve asset utilization in its
HEP business. Under this plan, the Company is redirecting its engineering
resources within this business unit to focus principally on the development
and sale of signal analysis chip sets and subsystems for HEP applications as
well as new commercial applications. In connection with the plan, the Company
expects to take a series of reorganization actions resulting in write-downs,
principally for inventory and other asset revaluations, and employee
severance. The restructuring plan is expected to be completed by the end of
December 1997 and to result in a charge to fiscal 1997 third quarter results
of an estimated $3.9 million ($2.5 million after taxes).
The Company has manufacturing facilities in both the United States and
Switzerland and purchases parts, components and sub-assemblies from a variety
of vendors around the world in a variety of currencies and sells its products
around the world in a variety of currencies. This subjects the Company to
certain risks including
16
<PAGE>
fluctuations in foreign currency exchange rates, changes in government
policies and legal and regulatory requirements, political instability,
transportation delays and the imposition of tariffs and export controls. For
information with respect to the risks arising from fluctuations in foreign
currency exchange rates and certain measures adopted by the Company in an
effort to mitigate to a degree such risks, see "Risk Factors--International
Operations and Foreign Currency Exchange Risks" and "Business--Foreign
Currency Exchange."
In response to the continuing decline in HEP manufacturing and revenues and
in an effort to increase absorption of the fixed costs of its Chestnut Ridge
facility, in June 1995, the Company commenced manufacturing at such facility
its Model 935X digital oscilloscope to supplement its manufacturing operations
in Geneva. In fiscal 1996 and 1997, the Company has increased oscilloscope
production at Chestnut Ridge to include its Model 938X and its newest digital
model oscilloscope, the Model LC574. This higher production volume has
increased operating efficiencies at Chestnut Ridge and has generated operating
income for the six months ended December 31, 1996, as opposed to an
approximately break-even level of area operating income (loss) for fiscal 1996
in such geographic area. See Note 8 of Notes to Consolidated Financial
Statements. However, the reorganization actions anticipated in the third
quarter of fiscal 1997 related to the HEP business, together with costs
associated with continued investment in research and development for the LAN
monitor product, are expected to result in an operating loss for the Company's
U.S. operations for the full fiscal year ended June 30, 1997.
The Company anticipates using a portion of the net proceeds of the Offering
to repay borrowings under its multicurrency revolving credit facility to be
used to repurchase an estimated 350,000 shares of Common Stock held by the
ESOT, see "Principal and Selling Stockholders--Repurchase by the Company of
Shares from the ESOT," and to pay down the then remaining outstanding advances
under its floating-rate multicurrency revolving credit facility ($7.0 million
as of December 31, 1996, bearing interest at an interest rate of approximately
8.25% as of such date). Amounts repaid under the multicurrency revolving
credit facility may be reborrowed subject to the terms and conditions thereof.
Any remaining net proceeds from the Offering will be used for general
corporate purposes and may be used to fund development or acquisitions of
complementary businesses, products or technologies, although there are no
commitments or understandings with respect to any such transactions. Pending
such uses, the Company intends to invest the net proceeds in United States
government securities or other short-term, investment-grade, interest-bearing
securities.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by each line item in the Company's statement of
operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------- ------------------
1994 1995 1996 1995 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Digital oscilloscopes and
related products............... 74.6% 80.0% 84.8% 84.6% 88.9%
High energy physics products.... 21.2 14.9 10.8 10.7 6.5
Service and other............... 4.2 5.1 4.4 4.7 4.6
------ ------ ------ -------- --------
Total......................... 100.0 100.0 100.0 100.0 100.0
Cost of sales..................... 44.3 45.9 44.9 45.4 43.4
------ ------ ------ -------- --------
Gross profit.................... 55.7 54.1 55.1 54.6 56.6
Selling, general and
administrative expenses.......... 35.8 34.0 34.1 33.9 33.6
Research and development
expenses......................... 13.7 12.5 12.5 13.4 13.2
Restructuring costs............... 1.4 -- -- -- --
------ ------ ------ -------- --------
Operating income................ 4.8 7.6 8.5 7.3 9.8
Technology dispute settlement
costs............................ 3.2 -- -- -- --
Other (income) expenses, net...... 2.7 2.7 0.1 0.9 (0.6)
------ ------ ------ -------- --------
Income (loss) before income
taxes and extraordinary
charge......................... (1.1) 4.9 8.4 6.4 10.4
Provision for income taxes........ 0.5 1.7 2.9 2.2 3.7
------ ------ ------ -------- --------
Income (loss) before
extraordinary charge........... (1.6) 3.2 5.5 4.2 6.7
Extraordinary charge for early
retirement of debt............... -- -- (1.3) (2.8) --
------ ------ ------ -------- --------
Net income (loss)............... (1.6)% 3.2% 4.2% 1.4% 6.7%
====== ====== ====== ======== ========
</TABLE>
Comparison of Six Months Ended December 31, 1996 and 1995
Total revenues increased to $55.2 million in the six months ended December
31, 1996 from $47.2 million for the six months ended December 31, 1995, or
17%, and represented record mid-year revenues for the Company. Revenues
increased primarily as a result of an increase in unit sales of digital
oscilloscopes and related products. For the six months ended December 31,
1996, an increase in revenues in the United States and the rest of the world
other than Europe (principally Japan and the rest of Asia) was partially
offset by a decrease in revenues in Europe, as compared to the six months
ended December 31, 1995. The trends with respect to geographic area revenues
have continued to date in the Company's third fiscal quarter.
The increase in revenues was also offset in part by approximately $2.3
million for the six months ended December 31, 1996 attributable to the net
impact of the strengthening of the United States dollar versus the Japanese
yen, Swiss franc, French franc and German deutschemark, as compared to the
exchange rates prevailing in the same period of the prior fiscal year. Based
on exchange rates as of the date of this Prospectus, the Company expects that
revenues will continue to be adversely impacted by the strengthening of the
U.S. dollar.
Revenues from sales of digital oscilloscopes and related products increased
to $49.0 million for the six months ended December 31, 1996 from $39.9 million
for the six months ended December 31, 1995, an increase of 23%. This increase
in revenues was primarily attributable to a 25% increase in unit sales of the
higher-end products in the Company's 9300 series of digital oscilloscopes,
including the Model 938X introduced in June 1996, together with sales of the
LC334/534 series of color digital oscilloscopes first introduced in the second
quarter of fiscal 1997. In addition, there was a marginal increase in average
selling prices for the Company's digital oscilloscopes and related products.
18
<PAGE>
Revenues from sales of HEP products declined 29% to $3.6 million in the six
months ended December 31, 1996 from $5.1 million in the comparable prior year
period. The Company in recent years has experienced a continuing decrease in
HEP revenues due to a variety of factors, including a decline in United States
government funding for defense and the phase-out of the Company's digitizer
products. The Company believes that revenues from sales of HEP products, which
represented approximately 7% of total revenues for the six months ended
December 31, 1996 as compared to approximately 11% of total revenues in the
same period of fiscal 1996, are expected to continue to represent a declining
portion of its total revenues in the future, attributable in part to lower
anticipated order volumes. As a consequence, in January 1997 the Company
adopted a strategic business plan to reduce costs and improve asset
utilization in its HEP business. Under this plan, the Company is redirecting
its engineering resources within this business unit to focus principally on
the development and sale of signal analysis chip sets and subsystems for HEP
applications as well as new commercial applications. In connection with the
plan, the Company expects to take a series of reorganization actions resulting
in write-downs, principally for inventory and other asset revaluations, and
employee severance. The restructuring plan is expected to be completed by the
end of December 1997 and result in a charge to fiscal 1997 third quarter
results of an estimated $3.9 million ($2.5 million after taxes).
Service and other revenues increased to $2.5 million for the six months
ended December 31, 1996 from $2.2 million in the comparable prior year period,
or 15%, due primarily to the increase in sales of digital oscilloscopes and
related products.
Gross profit for the six months ended December 31, 1996 was 56.6% of
revenues, compared to 54.6% for the comparable prior year period. This growth
was due primarily to increased revenues from higher sales volume of certain
higher margin 9300 series and LC series digital oscilloscopes and reduced HEP
sales, which carry a lower margin, coupled with reduced material costs and
increased operating efficiencies at the Company's manufacturing facility in
Chestnut Ridge, New York.
As a percentage of total revenues, selling, general and administrative
expenses declined to 33.6% for the six months ended December 31, 1996 compared
to 33.9% for the six months ended December 31, 1995. Selling, general and
administrative expenses increased in absolute dollar terms as the Company
expanded sales management and staff at each of its regional sales headquarters
and incurred additional sales commissions due to higher sales volume and the
expansion of administrative management and support staff.
Research and development expenses increased to $7.3 million in the six
months ended December 31, 1996 from $6.3 million for the six months ended
December 31, 1995, or 15%. This higher level of research and development
expenses reflected an increase in connection with introductions of new digital
oscilloscopes and related products and continued development of a LAN monitor.
See "Business--Research and Development." As a percentage of total revenues,
research and development expenses were 13.2% in the six months ended December
31, 1996 compared to 13.4% for the six months ended December 31, 1995.
Operating income increased 57% to $5.4 million for the six months ended
December 31, 1996 from $3.5 million for the six months ended December 31,
1995. As a percentage of total revenues, operating income was 9.8% for the six
months ended December 31, 1996 as compared to 7.3% for the six months ended
December 31, 1995. The increase in operating income was due primarily to
increased revenues in the current year coupled with improved operating
efficiencies and other factors listed above.
Net interest and financing charges, included in other (income) expenses,
net, decreased to $306,000 for the six months ended December 31, 1996 compared
to $576,000 for the six months ended December 31, 1995. The decrease was due
primarily to reduced levels of outstanding debt, paid with funds received in
the second quarter of fiscal 1996 from the Company's initial public offering.
Other (income) expenses, net, in the six month periods ended December 31, 1996
and 1995 included currency exchange gains of approximately $609,000 and
$137,000, respectively.
19
<PAGE>
The Company's effective income tax rate for the six months ended December
31, 1996 was 35%. Currently, the Company's Swiss subsidiary operates under a
tax agreement with the Canton of Geneva pursuant to which the effective tax
rate on income with respect to such subsidiary is approximately 15%. This
agreement is in effect through the fiscal year ended June 30, 2000.
Income before extraordinary charge increased 90% to $3.7 million for the
first half of fiscal 1997 compared to $2.0 million in the comparable prior
year period. Income before extraordinary charge for the first half of fiscal
1997 as a percentage of total revenues was 6.7% compared to 4.2% for the
comparable prior year period. The improvement in fiscal 1997 was due primarily
to increased revenues, improved gross margins, lower interest costs and
favorable exchange gains.
Comparison of Fiscal Years 1996 and 1995
Total revenues increased to $101.5 million in 1996 from $82.3 million in
1995, or 23%, and represented record full-year revenues for the Company.
Revenues increased primarily as a result of an increase in sales of higher
margin digital oscilloscopes and related products. On a geographic basis,
total revenues increased to $42.2 million in 1996 from $35.8 million in 1995,
or 18%, in the United States, to $42.3 million in 1996 from $33.3 million in
1995, or 27%, in Europe and to $17.0 million in 1996 from $13.2 million in
1995, or 29%, in the rest of the world, principally Japan and the rest of
Asia.
Revenues from sales of digital oscilloscopes and related products increased
to $86.1 million in 1996 from $65.8 million in 1995, or 31%. Sales of digital
oscilloscopes and related products, in terms of units, increased to
approximately 6,000 in 1996 from approximately 5,100 in 1995, or 18%. This
increase in revenues and units was primarily attributable to an increase in
sales of the higher-end products in the Company's 9300 series of digital
oscilloscopes which, in terms of units, increased to approximately 5,300 in
1996 from approximately 4,000 in 1995, or 33%. Average selling prices of
digital oscilloscopes and related products increased by 11% as compared to
1995 principally as a result of a continuing change in the Company's product
mix towards higher-end products.
Revenues from sales of HEP products decreased to $11.0 million in 1996 from
$12.3 million in 1995, or 11%. The Company in recent years has experienced a
continuing decrease in HEP revenues due to a variety of factors, including a
decline in United States government funding for defense and the phase-out of
the Company's digitizer products. The Company believes that revenues from
sales of HEP products, which represented approximately 11% of total revenues
in 1996 as compared to approximately 15% of total revenues in 1995, are likely
to continue to represent a declining portion of its total revenues in the
future, attributable in part to lower anticipated order volumes.
Service and other revenues increased to $4.5 million in 1996 from $4.2
million in 1995, or 6%, due primarily to the continued increase in marketing
of service and support programs for digital oscilloscopes and related products
and increased sales of upgrades for such products.
Gross profit for fiscal 1996 was 55.1% of revenues compared to 54.1% for the
prior year. This growth was due primarily to increased revenues from higher
sales volume of certain higher margin 9300 series digital oscilloscopes,
coupled with increased operating efficiencies at the Company's manufacturing
facility in Chestnut Ridge, New York. Approximately $933,000 of the increase
in cost of sales for 1996 was attributable to the weakening United States
dollar versus the Swiss franc as compared to the exchange rates prevailing in
1995.
Selling, general and administrative expenses increased to $34.6 million in
1996 from $28.0 million in 1995, or 24%. As a percentage of total revenues,
selling, general and administrative expenses was 34.1% in 1996 compared to
34.0% in 1995. These expenses increased as the Company expanded sales
management and support staff at its European, Asian and United States regional
sales headquarters and incurred additional sales commissions due to higher
sales volume and the hiring of additional administrative support staff.
Approximately $781,000 of the increase in selling, general and administrative
expense in 1996 was attributable to the weakening of the U.S. dollar versus
the Swiss franc as compared to the exchange rates prevailing in 1995.
20
<PAGE>
Research and development expenses increased to $12.6 million in 1996 from
$10.3 million in 1995, or 22%. This higher level of research and development
expenses reflects an increase in expenditures for prototype and development
costs of custom integrated circuits for use in digital oscilloscopes and
related products and initial development of a LAN monitor. As a percentage of
total revenues, research and development expenses were 12.5% in both 1996 and
1995. The Company's objective is to maintain annual research and development
expenses at approximately 12% to 13% of total revenues.
Operating income increased to $8.7 million in 1996 from $6.2 million in
1995, or 39%. As a percentage of total revenues, operating income was 8.5% in
1996 as compared to 7.6% in 1995. The increase in operating income was due
primarily to increased revenues in 1996 as compared to 1995 coupled with
improved operating efficiencies and other factors listed above.
Net interest and financing charges, included in other (income) expenses,
net, decreased to $672,000 in 1996 from $1.5 million in 1995, or 56%. The
decrease in fiscal 1996 was due primarily to reduced levels of debt, paid down
from funds received in the second quarter of fiscal 1996 from the Company's
initial public offering. Average borrowing levels were $7.6 million in 1996 as
compared to $16.6 million in 1995. Operating results in fiscal 1996 and 1995
included currency exchange gains (losses) of approximately $539,000 and
($684,000), respectively.
The Company's effective income tax rate for 1996 was 35%. Currently, the
Company's Swiss subsidiary operates under a tax agreement with the Canton of
Geneva pursuant to which the effective tax rate on income with respect to such
subsidiary was approximately 15% in 1996. This agreement is in effect through
the fiscal year ended June 30, 2000.
During fiscal 1996, an extraordinary charge of $1.3 million was incurred
relating to the write-off of deferred financing costs associated with the
early retirement of debt paid from the proceeds received from the Company's
initial public offering.
Income before extraordinary charge increased 113% to $5.6 million in 1996,
representing record full-year earnings for the Company, compared to net income
of $2.6 million for 1995. Income before extraordinary charge in 1996, as a
percentage of total revenues, was 5.5% compared to 3.2% in 1995. The
improvement in 1996 was due primarily to increased revenues, improved
operating efficiencies and operating margins and the gain on currency
exchange.
Comparison of Fiscal Years 1995 and 1994
Total revenues increased to $82.3 million in 1995 from $63.8 million in
1994, or 29%, primarily as a result of an increase in sales of digital
oscilloscopes and related products. On a geographic basis, total revenues
increased to $35.8 million in 1995 from $29.4 million in 1994, or 22%, in the
United States, to $33.3 million in 1995 from $26.1 million in 1994, or 28%, in
Europe and to $13.2 million in 1995 from $8.4 million in 1994, or 58%, in the
rest of the world, principally Japan and the rest of Asia.
Revenues from sales of digital oscilloscopes and related products increased
to $65.8 million in 1995 from $47.6 million in 1994, or 38%. Sales of digital
oscilloscopes and related products, in terms of units, increased to
approximately 5,100 in 1995 from approximately 3,900 in 1994, or 30%. This
increase in revenues and units was primarily attributable to an increase in
sales of the Company's 9300 series of digital oscilloscopes which, in terms of
units, increased to approximately 4,000 in 1995 from approximately 2,900 in
1994, or 37%. Average selling prices of digital oscilloscopes and related
products increased by 7% as compared to 1994 principally as a result of a
change in the Company's product mix towards higher-end products.
Revenues from sales of HEP products decreased to $12.3 million in 1995 from
$13.5 million in 1994, or 9%. The Company in recent years has experienced a
continuing decrease in HEP revenues due to a variety of factors, including a
decline in United States government funding for defense and the phase-out of
the Company's
21
<PAGE>
digitizer products. Revenues from sales of HEP products represented
approximately 15% of total revenues in 1995 as compared to approximately 21%
of total revenues in 1994.
Service and other revenues increased to $4.2 million in 1995 from $2.7
million in 1994, or 56%, due primarily to increased marketing of service and
support programs for digital oscilloscopes and related products and increased
sales of upgrades for such products.
Approximately $3.3 million of the increase in total revenues for 1995 was
attributable to the net impact of the weakening of the United States dollar
versus the Japanese yen, Swiss franc and German deutschemark, offset in part
by the strengthening of the United States dollar versus the Italian lira, in
each case as compared to the exchange rates prevailing in 1994.
Gross profit increased to $44.5 million in 1995 from $35.6 million in 1994,
or 25%. This growth was due primarily to increased revenues from sales of the
Company's 9300 series of digital oscilloscopes, manufactured at the Company's
facility in Geneva, Switzerland. The gross profit margin decreased to 54.1% in
1995 from 55.7% in 1994 due principally to the inclusion in 1995 of technology
license royalties of approximately $700,000, or 1% of total revenue, the
under-utilization of the Company's Chestnut Ridge, New York manufacturing
facility resulting from the phase-out of older generation oscilloscopes, the
reduction in sales of digitizer products produced in Chestnut Ridge and a
change in product mix (including service revenues). In an effort to increase
absorption of the fixed costs of the Chestnut Ridge facility, in June 1995 the
Company commenced manufacturing at such facility of its Model 935x digital
oscilloscope to supplement its manufacturing operations in Geneva.
Approximately $1.6 million of the increase in cost of sales for 1995 was
attributable to the weakening of the United States dollar versus the Swiss
franc and the Japanese yen as compared to the exchange rates prevailing in
1994.
Selling, general and administrative expenses increased to $28.0 million in
1995 from $22.8 million in 1994, or 22%. However, as a percentage of total
revenues, selling, general and administrative expenses decreased to 34.0% in
1995 from 35.8% in 1994. Selling expenses increased approximately $2.4 million
as the Company expanded management and support staff at its European, Asian
and United States regional sales headquarters and hired additional sales
engineers in Japan. General and administrative expenses also increased by
approximately $800,000 due principally to the hiring of additional
administrative support staff and improvements made to the Company's
information systems. In addition, selling, general and administrative expenses
increased by approximately $700,000 principally due to higher advertising and
promotional expenses related to the 9300 series of digital oscilloscopes.
Approximately $1.3 million of the increase in selling, general and
administrative expenses in 1995 was attributable principally to the weakening
of the United States dollar versus the Swiss franc and Japanese yen as
compared to the exchange rates prevailing in 1994.
Research and development expenses increased to $10.3 million in 1995 from
$8.8 million in 1994, or 17%. This higher level of research and development
expenses reflects an increase in expenditures for the development of custom
integrated circuits for use in digital oscilloscopes and related products to
$1.5 million in 1995 from $700,000 in 1994. As a percentage of total revenues,
research and development expenses decreased to 12.5% in 1995 from 13.7% in
1994. This percentage decrease was due primarily to a significant growth in
revenues and slower growth in overall research and development expenses.
Operating income increased to $6.2 million in 1995 from $3.1 million in
1994, or 104%. As a percentage of total revenues, operating income was 7.6% in
1995 as compared to 4.8% in 1994. The increase in operating income was due
primarily to the factors noted above as well as the absence in 1995 of the
restructuring costs incurred in 1994.
Net interest and financing charges, included in other (income) expenses,
net, increased to $1.5 million in 1995 from $1.2 million in 1994, or 29%, due
primarily to higher average levels of debt outstanding. Average borrowing
levels were $16.6 million in 1995 as compared to $13.8 million in 1994.
Operating results in fiscal 1995 and 1994 included currency losses of
approximately $684,000 and $512,000, respectively.
22
<PAGE>
The Company's effective income tax rate for 1995 was 35%. The Company's
Swiss subsidiary operates under a tax agreement with the Canton of Geneva
pursuant to which the effective tax rate on income with respect to such
subsidiary was approximately 12% in 1995. This agreement is in effect through
the fiscal year ended June 30, 2000.
Net income increased to $2.6 million in 1995 from a net loss of $1.0 million
for 1994. Net income in 1995 as a percentage of total revenues was 3.2%; in
1994, the net loss represented (1.6)% of total revenues. The improvement in
1995 was due primarily to the factors noted above as well as the incurrence in
1994 of the $1.5 million initial settlement payment included under technology
dispute settlement costs.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table presents unaudited quarterly operating results for the
Company for the four quarters of each of fiscal years 1995 and 1996, and for
the first two quarters of fiscal year 1997. In the opinion of management, this
information has been prepared on the same basis as the audited consolidated
financial statements contained in this Prospectus and includes all adjustments
(consisting of only normal recurring accruals) that management considers
necessary for a fair presentation of the results for such periods. Such
quarterly results are not necessarily indicative of the results of operations
for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996 FISCAL YEAR 1997
------------------------------------ ------------------------------------- ------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Digital oscilloscopes
and related
products............. $13,699 $15,441 $17,639 $19,006 $18,392 $21,553 $22,436 $23,680 $23,397 $25,619
High energy physics
products............. 2,492 3,267 2,758 3,760 2,819 2,237 2,972 2,924 1,836 1,761
Service and other..... 839 1,005 1,169 1,197 1,189 1,023 1,132 1,134 1,164 1,382
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total................. 17,030 19,713 21,566 23,963 22,400 24,813 26,540 27,738 26,397 28,762
Cost of sales.......... 7,634 9,044 9,969 11,130 10,283 11,156 11,797 12,309 11,520 12,438
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 9,396 10,669 11,597 12,833 12,117 13,657 14,743 15,429 14,877 16,324
Selling, general and
administrative
expenses.............. 6,066 6,827 7,135 7,922 7,685 8,321 9,211 9,406 9,132 9,373
Research and
development expenses.. 2,296 2,487 2,450 3,082 3,129 3,187 3,155 3,168 3,516 3,763
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income...... 1,034 1,355 2,012 1,829 1,303 2,149 2,377 2,855 2,229 3,188
Other (income)
expenses, net......... 601 353 700 558 307 132 47 (352) (154) (149)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before taxes and
extraordinary charge.. 433 1,002 1,312 1,271 996 2,017 2,330 3,207 2,383 3,337
Provision for income
taxes................. 152 351 460 445 349 706 815 1,122 830 1,168
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
extraordinary charge.. 281 651 852 826 647 1,311 1,515 2,085 1,553 2,169
Extraordinary charge
for early retirement
of debt............... -- -- -- -- -- 1,300 -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income............. $ 281 $ 651 $ 852 $ 826 $ 647 $ 11 $ 1,515 $ 2,085 $ 1,553 $ 2,169
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Income per share before
extraordinary charge.. $ .06 $ .14 $ .18 $ .18 $ .14 $ .21 $ .24 $ .32 $ .23 $ .31
Extraordinary charge... -- -- -- -- -- (.21) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income per share... $ .06 $ .14 $ .18 $ .18 $ .14 $ -- $ .24 $ .32 $ .23 $ .31
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average number
of common shares and
common equivalent
shares................ 4,693 4,688 4,679 4,672 4,632 6,212 6,439 6,544 6,740 6,999
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
23
<PAGE>
The following table sets forth certain revenue and expense items as a
percentage of total revenues for the indicated quarterly period:
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996 FISCAL YEAR 1997
------------------------------------ ------------------------------------ ------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- -------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Digital oscilloscopes
and related
products............. 80.5% 78.3% 81.8% 79.3% 82.1% 86.9% 84.5% 85.4% 88.6% 89.1%
High energy physics
products............. 14.6 16.6 12.8 15.7 12.6 9.0 11.2 10.5 7.0 6.1
Service and other..... 4.9 5.1 5.4 5.0 5.3 4.1 4.3 4.1 4.4 4.8
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales.......... 44.8 45.9 46.2 46.4 45.9 45.0 44.4 44.4 43.6 43.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit.......... 55.2 54.1 53.8 53.6 54.1 55.0 55.6 55.6 56.4 56.8
Selling, general and
administrative
expenses.............. 35.6 34.6 33.1 33.1 34.3 33.5 34.7 33.9 34.6 32.6
Research and
development expenses.. 13.5 12.6 11.4 12.9 14.0 12.8 11.9 11.4 13.3 13.1
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income...... 6.1 6.9 9.3 7.6 5.8 8.7 9.0 10.3 8.5 11.1
Other (income)
expenses, net......... 3.6 1.8 3.2 2.3 1.4 0.5 0.2 (1.3) (0.5) (0.5)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income before taxes and
extraordinary charge.. 2.5 5.1 6.1 5.3 4.4 8.2 8.8 11.6 9.0 11.6
Provision for income
taxes................. 0.9 1.8 2.1 1.9 1.5 2.9 3.1 4.1 3.1 4.1
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income before
extraordinary charge.. 1.6 3.3 4.0 3.4 2.9 5.3 5.7 7.5 5.9 7.5
Extraordinary charge
for early retirement
of debt............... -- -- -- -- -- (5.3) -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income............. 1.6% 3.3% 4.0% 3.4% 2.9% -- % 5.7% 7.5% 5.9% 7.5%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company historically has experienced somewhat lower activity during its
first fiscal quarter than in other fiscal quarters due, it believes,
principally to the lower level of orders and market activity during the summer
months, particularly in Europe. The Company believes this seasonable aspect of
its business is likely to continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
In October 1995, the Company completed an initial public offering of
1,500,000 shares of Common Stock at $12.00 per share, generating net proceeds
to the Company of approximately $15.3 million. These net proceeds, combined
with net cash generated from operating activities of $8.3 million in fiscal
1996 allowed the Company to reduce funded debt (current debt, long-term debt
and capitalized leases) to 13% of total capital at June 30, 1996. This
compares to a level of funded debt to total capital ranging from 48% to 54% at
the end of fiscal years 1992 through 1995. Funded debt was 16% of total
capital at December 31, 1996. The Company had working capital of $21.8
million, $32.0 million and $37.1 million at the end of fiscal 1995 and fiscal
1996 and at December 31, 1996, respectively. Cash and cash equivalent balances
of $9.4 million at December 31, 1996 primarily reflected short-term deposits
in Europe.
Cash generated from operating activities was $1.0 million and $8.3 million
in fiscal 1995 and fiscal 1996, respectively. Improved operating earnings
coupled with significant asset management improvement accounted for the
favorable cash flow in fiscal 1996. Cash used in operating activities for the
first half of fiscal 1997 amounted to $1.8 million. The use of cash reflected
the fact that the increase in earnings was more than offset by increases in
accounts receivable, inventory and current assets needed to support revenue
growth. Combined accounts receivable and inventories at year-end were 49% of
fiscal 1994 revenues compared to 45% of fiscal 1995 revenues and 40% of fiscal
1996 revenues. Combined accounts receivable and inventories as of December 31,
1996 represented 43% of the first half of fiscal 1997 revenues annualized.
24
<PAGE>
Capital expenditures were $1.5 million, $2.9 million and $3.7 million in
fiscal 1994, 1995 and 1996, respectively, and $2.1 million for the first half
of fiscal 1997 compared to $1.6 million in the comparable fiscal 1996 period.
These capital expenditures were primarily for assembly, research, design and
test equipment, facilities improvements and information systems. The Company
anticipates that its capital expenditures for all of fiscal 1997 will
approximate $7.0 million, primarily for facilities improvement, design and
test equipment and information systems, which expenditures are expected to be
funded from internally generated cash flow.
In December 1995, the Company finalized a $15 million unsecured
multicurrency credit agreement with several commercial banks, which matures in
January 1999. At December 31, 1996, $7.0 million was borrowed under this
facility. The Company has met its financial covenants that include maintaining
specified financial ratios and positive levels of net income and limitations
on capital expenditures and lease obligations. See Note 5 of Notes to
Consolidated Financial Statements.
In addition, the Company maintains certain foreign borrowing and overdraft
facilities, principally a three million Swiss franc ($2.4 million using the
U.S. dollar/Swiss franc exchange rate as of December 31, 1996) multicurrency
revolving credit agreement cancelable upon notice by the bank or the Company.
At December 31, 1996, there were no outstanding borrowings under this
facility.
The Company anticipates using a portion of the net proceeds of the Offering
to repay borrowings under its multicurrency revolving credit facility to be
used to repurchase an estimated 350,000 shares of Common Stock held by the
ESOT, a greater-than-5% stockholder of the Company, at a price per share equal
to the initial offering price of the shares of Common Stock offered to the
public in the Offering, see "Principal and Selling Stockholders--Repurchase by
the Company of Shares from the ESOT," and to repay the then remaining
outstanding advances under its multicurrency revolving credit facility ($7.0
million as of December 31, 1996, bearing interest at an interest rate of 8.25%
as of such date). See "Use of Proceeds."
The Company anticipates that the net proceeds of this Offering, amounts
available under its multicurrency revolving credit facility, cash on hand and
internally generated cash flow will be sufficient to fund working capital and
capital expenditure requirements for at least the next twelve months.
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BUSINESS
LeCroy Corporation develops, manufactures and sells signal analyzers,
principally high-performance digital oscilloscopes, and related products.
Digital oscilloscopes capture electronic signals, convert them to digital form
and perform sophisticated measurements and analyses. The Company's digital
oscilloscope products are used by design engineers and researchers in a broad
range of industries, including electronics, computers and communications.
The Company's original digital oscilloscope technology was derived from its
historical efforts in developing products for scientists engaged in HEP
research. Since its founding in 1964, the Company has designed and
manufactured signal analyzers for a number of leading HEP research
laboratories. The Company's signal analyzers were used in Nobel Prize-winning
experiments at CERN (Centre Europeen pour la Recherche Nucleaire) near Geneva,
Switzerland and the Brookhaven National Laboratory in Upton, New York.
In 1985, the Company introduced its first digital oscilloscope product.
Subsequently, the Company expanded its digital oscilloscope product offerings
to include a variety of models with a broad range of capabilities to address
most segments of the digital oscilloscope market. Commencing in fiscal 1994,
the Company began to concentrate its digital oscilloscope product offerings in
the high-end market by offering a single high-performance product family, its
9300 series. In fiscal 1997, the Company expanded its high-end market product
offering with a second family of products, the LC series of digital
oscilloscopes. The Company believes that certain models of its 9300 series and
LC series offer the highest sampling rate, and others the longest record
length, available to date in the digital oscilloscope market. The Company's
shift towards the high end digital oscilloscope market has resulted in a
significant increase in revenues. The Company's total revenues were $63.8
million, $82.3 million and $101.5 million for the fiscal years ended June 30,
1994, 1995 and 1996, respectively, and $55.2 million for the six months ended
December 31, 1996. Sales of digital oscilloscopes and related products grew
from approximately 75% to approximately 89% of the Company's total revenues
from fiscal 1994 to the six months ended December 31, 1996.
INDUSTRY BACKGROUND
Overview. Researchers, engineers and field technicians rely on test and
measurement instrumentation such as signal analyzers in designing, developing
and servicing electronic equipment. When designing and developing electronic
circuits, researchers and engineers use signal analyzers to ensure that the
circuits are performing as designed. Field technicians use such instruments to
diagnose electronic equipment to determine whether it is performing as
intended.
The most general-purpose test and measurement instrument used for signal
analysis is the digital oscilloscope. Digital oscilloscopes are signal
analyzers that, like their earlier analog counterparts, can display a
representation of an electronic signal's "shape," which is essentially a
measure of a signal's voltage as a function of time. Digital oscilloscopes,
however, go beyond the capabilities of analog oscilloscopes in that they
capture a signal in digital form by sampling it over time and storing the data
or measurements in memory. The stored signal can then be viewed later and,
more importantly, the instrument can perform various analyses on the stored
data.
During the past few decades, there has been an increasing proliferation of
electronics in general and digital electronics in particular. The growth in
digital electronics has been driven primarily by the growth in stand-alone
computers and related systems, the increase in embedded digital controls
within other electronic and electrical devices and the rapid increase in
digital communications. Combined with the general growth in the quantity of
digital electronics, there has been a substantial increase in processing
speed. For example, processing speeds of personal computers have increased
dramatically in recent years from about 33 MHz to more than 200 MHz and
sophisticated communications equipment transmits data at rates that exceed 1
gigabit per second.
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<PAGE>
Signal shape analysis is becoming increasingly important as data rates in
applications such as computers, local area networks (LANs) and
telecommunications systems increase. Within a given digital circuit, it takes
a finite amount of time for a digital signal to change from a "zero" or "off"
state to a "one" or "on" state. As digital data rates increase, signals within
a circuit may not have sufficient time to cleanly change from a "zero" to a
"one" or vice-versa. This distorts, or changes the shape of the digital
signal, which can lead to computation or information errors. To identify such
problems, engineers use digital oscilloscopes to analyze the signal's shape,
which is not generally possible using other measurement and analysis
instruments (such as protocol analyzers or logic analyzers).
Technology. The basic elements of a digital oscilloscope are shown below.
They are: (i) an amplifier, which amplifies the input signal so that it can be
measured by the oscilloscope; (ii) an analog-to-digital converter ("ADC"),
which converts the analog input signal into digital form by translating it
into a series of sample points that are then measured and transformed into
digital codes representing the signal samples; (iii) an acquisition memory
system ("memory"), which stores the resulting digital data; (iv) a processor,
which controls the entire system and performs special monitoring and
measurement functions; and (v) a display system, which translates the stored
data into a graphic display of the original signal shape.
(CHART)
The following performance measures characterize a digital oscilloscope:
. BANDWIDTH refers to the highest frequency signal that a digital
oscilloscope can capture accurately. Generally expressed in megahertz
("MHz") or gigahertz ("GHz"), bandwidth is a measure of the
oscilloscope's ability to respond quickly to changes in the input signal
and produce an accurate representation of the signal.
. SAMPLE RATE refers to the rate at which a digital oscilloscope measures
input signals. Generally expressed in megasamples per second ("MS/s") or
gigasamples per second ("GS/s"), the higher the sample rate the greater
the accuracy of the representation of that signal produced by the
digital oscilloscope.
. RECORD LENGTH refers to the maximum number of samples that a digital
oscilloscope can store in memory. Generally expressed as a number of
sample points or bytes, record length is a measure of the maximum signal
duration that the digital oscilloscope can store in memory at a given
sample rate. A digital oscilloscope must have a long enough record
length to accommodate the longest-duration input signals the user needs
to analyze, at a sample rate high enough to produce accurate
representations of those signals.
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<PAGE>
. PROCESSING POWER of a digital oscilloscope refers to the instrument's
capability to rapidly display the shape of an input signal and analyze
its characteristics. The higher the processing power, the more
sophisticated the analysis that can be performed by the digital
oscilloscope.
Users require digital oscilloscopes with a certain combination of these
attributes best suited to their specific applications. For example,
sophisticated telecommunications systems operate at data transmission rates of
hundreds of millions of bits per second. To measure and analyze these signals,
a digital oscilloscope must have a bandwidth of 1 GHz or greater, a sample
rate of several billions of samples per second, long record length and
powerful processing capabilities.
Market. The Company believes that the digital oscilloscope market is
generally segmented according to bandwidth, and that with advances in
technology, the bandwidth requirements of each market segment will increase.
Products in the low-end or commodity segment of the market (less than 200
MHz), cannot capture fast, long, complex signals. Such products typically do
not have the appropriate combination of bandwidth, sample rate and memory that
is needed for analysis of long complex signals. These instruments typically
sell for under $5,000. The high-performance market segment (bandwidth of
greater than 200 MHz) is characterized by instruments with high sample rates
(from 100 MS/s to 4 GS/s) and long record lengths (from 10,000 to 8 million
sample points) and greater processing power to perform more sophisticated
analyses. These high-performance digital oscilloscopes typically range in
price from $5,000 to $37,500, although certain very high bandwidth
oscilloscopes for specialized applications are priced above $37,500.
According to Prime Data, Inc. ("Prime Data"), an independent industry survey
organization, digital oscilloscope sales, excluding handhelds, grew from
$586.5 million in 1992 to $755.0 million in 1996. Prime Data estimates that
the four largest suppliers of digital oscilloscopes, exclusive of handheld
models, and their approximate respective market shares for calendar 1996 were
Tektronix with 42.5%, Hewlett-Packard Company with 18.1%, LeCroy with 12.4%
and Fluke Corporation with 4.9%.
The Company's 9300 and LC digital oscilloscope product families are targeted
at customers in the high-performance market segment. See "Products and
Services."
LECROY PRODUCT ADVANTAGES
The Company believes that its expertise in signal shape analysis has enabled
it to develop digital oscilloscopes that provide key advantages over
competitive offerings:
. HIGH SAMPLE RATES. The Company's advanced acquisition technology, which
includes several sophisticated custom components, enables its digital
oscilloscopes to make measurements at high sample rates. The Company's
Model 9362 offers sample rates of up to 10 GS/s, which the Company
believes is the highest sample rate available to date.
. LONG RECORD LENGTHS. The Company's advanced memory architecture, which
includes several sophisticated custom components, enables its digital
oscilloscope products to have long record capability. The Company's
Models 9384 and LC574 offer record lengths of up to 8 million sample
points at 4 GS/s, which the Company believes is the longest record
length available to date.
. POWERFUL PROCESSING CAPABILITY. The Company's multiprocessor
architecture in each of its LC models combines a Motorola PowerPC main
processor with custom processors designed by the Company. The
combination of this advanced multiprocessing technology with the
Company's patented data-compaction techniques enables the rapid and
accurate display of long signals and the performance of complex
analyses.
. SOPHISTICATED ANALYSIS SOFTWARE. The Company's analysis software
options, available either at the time of purchase or as aftermarket
upgrades, provide a wide range of capabilities customized for specific
end-user applications. By customizing its analysis software, the Company
believes that it can provide a total solution to a particular customer's
measurement and analysis requirements.
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<PAGE>
The Company believes that the high sample rates, long record lengths and
powerful hardware and software processing capabilities offered by its various
digital oscilloscope products position it to serve industries, such as the
data storage and communications industries, that require the ability to
measure long, high-speed complex data streams. The Company believes that its
ability to offer digital oscilloscope customers products with these advantages
at what it believes are competitive prices permits it to compete favorably in
its target market segment.
STRATEGY
The Company's first business objective is to become a leading supplier of
high-performance digital oscilloscopes. The Company's second business
objective is to participate in broader markets by the use, directly and
through licensing and other arrangements with other manufacturers, of LeCroy's
core acquisition technology in dedicated signal analyzers. The Company is
pursuing the following strategies to achieve these objectives:
. EXTEND HIGH-PERFORMANCE ACQUISITION TECHNOLOGY. The high-performance
acquisition technology that the Company originally developed in the
technically demanding HEP market and its continuing investment in
research and development have enabled it to develop two families of
high-performance digital oscilloscope products, certain models of which
feature what the Company believes is the highest sample rate, and others
the longest record length, available to date. The Company intends to
continue to allocate significant resources to extending these
performance advantages.
. TARGET HIGH-GROWTH INDUSTRIES WITH SOLUTION-FOCUSED OSCILLOSCOPES. The
Company's experience with users in certain industries has shown that
adding special analysis and processing capabilities to its digital
oscilloscopes permits it to offer total solutions for special data
measurement and analysis problems. For example, the Company has
developed digital oscilloscopes targeted at the particular data
measurement and analysis problems of the data storage industry. The
Company believes that this strategy was a significant factor in the
growth of its sales to this industry, which accounted for approximately
18% of the Company's revenues in its fiscal year ended June 30, 1996.
The Company recently introduced solution-focused oscilloscopes for the
optical recording and telecommunications industries. The Company intends
to target other high growth industries that require solution-focused
oscilloscopes.
. LEVERAGE CORE TECHNOLOGY INTO NEW PRODUCT MARKETS. The Company believes
that it is well positioned to leverage its core acquisition technology
to develop dedicated signal analyzers for broader markets. The Company
has entered into an agreement to sell certain proprietary chip sets to
Guzik Technical Enterprises for use in dedicated instruments for data
storage devices, such as disk drives, and their components. The Company
has also entered into an agreement with Fluke Corporation under which
the Company has licensed Fluke to use LeCroy technology in certain
handheld scopemeters and low-end digital oscilloscopes. The Company also
believes that market opportunities for its signal analyzer products
include the networking and telecommunications industries, and the
Company is currently in the development stage with respect to a LAN
monitor product that would analyze electronic signals in communications
networks in order to provide better monitoring and failure-diagnosis
capabilities than can be achieved using existing products. In connection
with these initiatives, the Company expects to incur continuing research
and development and engineering expenses.
There can be no assurance that the Company will be successful in
implementing its strategies, including whether it will be able to leverage its
core technologies into new product markets.
PRODUCTS AND SERVICES
The Company's primary products are its 9300 and LC families of digital
oscilloscopes, which are targeted at users who require high performance at
competitive prices. The Company also offers a complementary line of
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<PAGE>
signal source products that can be combined with its digital oscilloscopes to
create a complete test and measurement system for certain applications. The
Company offers a full range of aftermarket service and support for all its
products.
Digital Oscilloscopes and Related Products. The Company's 9300 and LC
digital oscilloscope products, which range in list price from approximately
$5,000 to approximately $37,500, offer precise measurement and analysis
capability for applications such as the design, development and testing of
electrical and electronic products. Such applications call for high bandwidths
(up to 1.5 GHz), high sample rates (up to 10 GS/s), long record lengths (up to
8 million sample points) and require greater processing capability to perform
sophisticated analysis of the input signals. The Company's LC product family
features a proprietary color display that facilitates certain visual analyses
that cannot be performed with a monochrome scope. In addition, models in the
LC series incorporate Motorola's Power PC main processor and other custom
processors designed by the Company.
The Company's 9300 series and LC series consist of the following digital
oscilloscope products:
<TABLE>
<CAPTION>
MAXIMUM RECORD
MAXIMUM MAXIMUM LENGTH CALENDAR
BANDWIDTH SAMPLE RATE (NUMBER OF YEAR OF
9300 MODEL NUMBER (MHZ)^+ (MS/S)^++ SAMPLE POINTS) INTRODUCTION
- ----------------- ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
930x 200 100 200,000 1992
9361 300 2,500 500*/25,000 1993
931x 400 100 1,000,000 1991
935x 500 2,000 8,000,000 1994
937x 1,000 2,000 8,000,000 1995
938x 1,000 4,000 8,000,000 1996
9362 750*/1,500 10,000 1,000*/25,000 1995
LC MODEL NUMBER
- ---------------
LC334 500 2,000 8,000,000 1996
LC534 1,000 2,000 8,000,000 1996
LC574 1,000 4,000 8,000,000 1997
</TABLE>
- --------
+ 1,000 MHz = 1 GHz
++ 1,000 MS/s = 1 GS/s
* At maximum sample rate.
Most of the models in the table above are available in several
configurations offering varying record lengths. The "x" suffix used in the
table above denotes a particular product number that is based on the product's
configuration. Taking into account all available configurations, the Company
offers over 30 different products in the 9300 series and LC series.
The Company believes that the following features give its 9300 series and LC
series products one of the best user interfaces in the digital oscilloscope
market:
. Large, high-resolution amber monochrome or color display, organized in a
manner that facilitates easy readout and analysis of displayed data.
. User-friendly control panel.
. Main processor with up to 64 MB of random access memory.
. Flexible options for data storage (floppy disk, PCMCIA memory card,
PCMCIA removable hard disk).
.Optional built-in printer that allows users to produce a print-out of the
display at the touch of a button.
30
<PAGE>
. A standard general-purpose interface bus ("GPIB") that enables the
digital oscilloscope to be part of a measurement and analysis system that
uses other GPIB-compatible instruments.
As part of its strategy to focus on its 9300 series and LC series products,
the Company is phasing out its other digital oscilloscope product offerings.
The Company is continuing to sell its current inventory of these products,
sales of which accounted for less than 10% of the Company's total revenues for
the fiscal year ended June 30, 1996.
The Company offers its customers a wide array of post-sale upgrades of
important components, such as memory, processor and analysis software, as well
as optional features such as mass storage capability and built-in printers.
These product upgrades and options allow the Company's customers to add
performance and features to adapt their digital oscilloscopes to new
measurement and analysis requirements as they arise, which the Company
believes reduces the risk of product obsolescence to a certain degree.
To provide its digital oscilloscope customers with what it believes are
total solutions to their data measurement and analysis problems, the Company
manufactures and sells a complementary line of signal source products that can
create input signals so that an electronic circuit can be evaluated under
controlled conditions. Using a digital oscilloscope, an engineer can analyze
the shape of the signal within the circuit, compare it to the shape of the
"ideal" input signal generated by the signal source and thereby identify
problems in the circuit. The Company's primary signal source products are
arbitrary waveform generators that allow the user to fully program the shape
of the signals generated. For example, an arbitrary waveform generator can be
programmed to produce signals that simulate those produced by a hard disk
drive head. Its principal arbitrary waveform generator is its Model LW4xx, the
list price of which is approximately $19,000. The Company has focused all its
development resources on signal analysis products and is no longer investing
in signal source products.
Sales of digital oscilloscopes and related products grew from approximately
75% to approximately 89% of the Company's total revenues from fiscal 1994 to
the six months ended December 31, 1996. Sales of products in the Company's
9300 series and LC series (including sales of products in the 9400 series, the
predecessor to the 9300 series) grew from approximately 58% to approximately
85% of the Company's total revenues in those fiscal periods.
The following are examples of specific applications involving the Company's
9300 and LC series digital oscilloscope product families:
. DATA STORAGE--The computer disk drive industry is continually seeking to
apply advanced magnetic storage technology to increase data density and
reduce access time. Design engineers in this field require digital
oscilloscopes with high sample rates and long record lengths. The Company
believes that its Model 9384L and Model LC574L digital oscilloscopes,
which feature a maximum sample rate of 4 GS/s and a maximum record length
of 8,000,000 sample points, are well suited to such applications. In
addition to providing digital oscilloscopes that meet the disk drive
industry's requirements for high sample rates and long record lengths,
the Company has worked closely with customers in this industry to develop
specialized processing software that incorporates advanced algorithms
designed specifically for their particular measurement and analysis
requirements. The Company believes that the combination of its high-
performance data-acquisition technology with this specialized processing
capability has been a significant factor in the growth of its sales to
this industry.
. CELLULAR TELEPHONES/PAGERS--In contrast to many other applications, the
design of cellular telephones and pagers does not require digital
oscilloscopes with high bandwidths or sample rates. This is due to the
relatively longer and slower electronic signals associated with these
products. It is therefore important that digital oscilloscopes for these
applications have long record lengths and the ability to display the
captured data in a meaningful and usable format. The Company believes
that its Model 9314L digital oscilloscope is particularly well suited to
such applications. The Model 9314L has a medium bandwidth and sample
rate, but features a maximum record length of 1,000,000 sample points. In
addition, the Model
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9314L has the ability to simultaneously display the entire signal as well
as an enlarged or "zoomed" view of a portion of the signal.
. LASERS--A typical laser pulse has a duration on the order of two
billionths of a second. To capture and analyze the shape of a laser
pulse, a digital oscilloscope must make measurements of its amplitude
many times during this period. The Company believes that its Model 9362
is well suited to this application as it has the capability to make
precise measurements at the rate of ten billion per second, therefore
permitting this oscilloscope to capture accurately the shape of the laser
pulse so that it can be analyzed.
Embedded Signal Analyzers. In February 1997, the Company entered into an
agreement to sell certain proprietary chip sets to Guzik Technical Enterprises
for use in dedicated instruments for data storage devices, such as disk
drives, and their components. Subject to certain minimum purchase
requirements, Guzik's rights in these areas are exclusive and preclude the
Company from selling products or licensing its technology to others for use in
these areas. Under the agreement with Guzik, the Company received upon
execution $1.0 million in fees and anticipates receiving over the next nine
months an aggregate of $1.0 million in fees upon delivery of certain
prototypes to Guzik. In addition, Guzik is required to purchase at least
$500,000 worth of chip sets. The Company also has entered into an agreement
with Fluke Corporation under which the Company has licensed Fluke to use
LeCroy technology in certain handheld scopemeters and low-end digital
oscilloscopes. Subject to certain minimum royalty requirements, Fluke's rights
in the handheld scopemeter area are exclusive and preclude the Company from
selling handheld scopemeters or licensing others to use LeCroy technology in
such products. Pursuant to this agreement, the Company is entitled to the
payment of certain royalties commencing in fiscal 1999. See "--Strategy."
HEP Products. A typical HEP experiment consists of a large assembly of
electronics that measures particle energy and speed from up to many hundreds
of thousands of particle detectors. These measurements are used to identify
individual particles and to study their interactions.
The Company's HEP product offerings consist of an extensive range of modular
products. These products include analog-to-digital converters, which measure
particle energy and time-to-digital converters which measure particle speed.
The modular nature of these products enables experimenters to select products
from the Company's HEP product catalog and combine them in a configuration
that provides an overall solution to their particular data measurement and
analysis problems.
Sales of HEP products (including digitizers) accounted for approximately
21%, 15%, 11% and 7% of the Company's total revenues in its fiscal years ended
June 30, 1994, 1995 and 1996 and the six months ended December 31, 1996,
respectively.
Service and Aftermarket Products. The Company provides aftermarket support,
repair, maintenance and recalibration of installed Company products, as well
as installation of a variety of post-sale upgrades and optional features. The
Company maintains three major field service centers in Chestnut Ridge, New
York (located at the Company's corporate headquarters), Heidelberg, Germany
and Osaka, Japan. Sophisticated service on certain key components of the
Company's digital oscilloscope products, including on its printed circuit
boards, is performed only at the Company's manufacturing facilities in Geneva,
Switzerland and Chestnut Ridge, New York. The Company warrants its digital
oscilloscopes for three years (two years for digital oscilloscopes sold prior
to December 1, 1994), signal source products from one to five years, and HEP
products for one year.
CUSTOMERS
During the three fiscal years ended June 30, 1996 and six months ended
December 31, 1996, the Company shipped a total of approximately 16,700 digital
oscilloscopes worldwide. The largest group of users of the Company's digital
oscilloscopes are electronic product designers and test engineers. Researchers
in many scientific disciplines including high-energy physics, medicine,
geology, ultrasound and mechanics also use the Company's digital
oscilloscopes.
No single customer accounted for more than 4% of the Company's sales in the
fiscal years ended June 30, 1995 and 1996. The Company's top 25 customers,
each of which purchased more than $375,000 of products,
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<PAGE>
and all of which together purchased an aggregate of approximately $21.1
million of products in fiscal 1996, consist of the following:
<TABLE>
<CAPTION>
COMPUTERS/DISK DRIVES/PERIPHERALS GOVERNMENT/MILITARY/AEROSPACE CONSUMER ELECTRONICS
- --------------------------------- ----------------------------- --------------------
<S> <C> <C>
. Hitachi . Centre Europeen pour la . Mitsubishi
. International Business Machines Recherche Nucleaire (CERN) . Sony
Corporation . Defense Procurement Agency . Toshiba
. Iomega . Sandia National Labs
. Maxtor Corporation
. Quantum Corporation TELECOMMUNICATIONS INDUSTRIAL
------------------ ----------
. Seagate/Conner . 3COM . Matsushita
. Western Digital . Motorola, Inc. . Philips
. Thomson . Siemens AG
<CAPTION>
OTHER AUTOMOTIVE/TRANSPORTATION
- ----- -------------------------
<S> <C> <C>
. AT&T Capital Corporation . Beach
. Bruker Instruments . Hyundai Electronics Industries Co., Ltd
. Fujitsu Limited
. Telogy Incorporated
</TABLE>
SALES, MARKETING AND DISTRIBUTION
The Company maintains a direct sales force of highly trained, technically
sophisticated sales engineers who are knowledgeable in the use of signal
analyzers in general and the features and advantages of the Company's products
in particular. In addition, particularly because of the Company's focus on
high-performance digital oscilloscopes, the Company believes that its sales
engineers are skilled in performing product demonstrations for current and
prospective customers. The Company believes it has a competitive advantage in
sales situations in which its sales engineers have the opportunity to
demonstrate the advantages of the Company's digital oscilloscopes;
accordingly, such demonstrations are an integral part of the Company's sales
strategy.
The Company sells its digital oscilloscope products through its own direct
sales force in the United States, Europe and Japan with regional sales
headquarters located in Chestnut Ridge, New York, Heidelberg, Germany and
Osaka, Japan. As of December 31, 1996, the Company's direct sales force
consisted of 65 sales engineers directed by eight regional managers worldwide.
The Company is currently in the process of evaluating the integration of its
HEP sales force into its digital oscilloscope sales force. The Company also
uses manufacturer's representatives in support of its direct selling efforts
and in territories where the sales potential does not currently justify the
maintenance of a direct sales force. In addition, in Japan the Company
maintains a strategic alliance with Iwatsu Electric Co. Ltd., a Japanese
communications and test-and-measurement company that sells and distributes
some of the Company's products under the "Iwatsu/LeCroy" and "Iwatsu" labels.
The Company recently has reorganized and expanded its marketing department
to further focus its efforts towards the market for high performance signal
analyzers. In connection with that effort, the Company hired a new Vice
President of Marketing in fiscal 1996. See "Management."
In order to raise market awareness of its products, the Company advertises
in trade publications, distributes promotional materials, conducts marketing
programs and seminars, issues press releases regarding new products, publishes
technical articles and participates in industry trade shows and conferences.
RESEARCH AND DEVELOPMENT
The Company believes that as a result of what it views as a continuing shift
in technology towards higher speed digital signals containing more complex
data, users of signal analyzer products will continue to demand higher
bandwidths, higher sample rates, longer record lengths and more powerful
processing capabilities. The
33
<PAGE>
primary objective of the Company's research and development program is to
extend its high performance technology in order to satisfy this demand, while
maintaining ease-of-use qualities and favorable price-to-performance ratios.
There can be no assurance that the Company will achieve this objective.
The Company is continuing to develop its sampling, data storage and
processing technologies using advanced integrated circuit techniques, and is
also working to improve its existing digital oscilloscope platform to provide
display enhancements, higher speed data processing and a broader range of
application-specific hardware and software options.
The Company intends to use its core acquisition technology to develop
dedicated signal analyzers for broader markets. The Company believes that
possible market opportunities for such products include the networking and
communications industries. The Company is currently in the development stage
with respect to a LAN monitor product that would analyze electronic signals in
communications networks in order to provide better monitoring and failure-
diagnosis capabilities than can be achieved using existing products. There can
be no assurance that the Company will be successful in developing such a
signal analyzer.
The Company conducts research and development activities in both its Geneva,
Switzerland and Chestnut Ridge, New York facilities. The Company's research
and development expenses, which are expensed as incurred, were approximately
$8.8 million, $10.3 million, $12.6 million and $7.3 million in its fiscal
years ended June 30, 1994, 1995 and 1996 and for the six months ended December
31, 1996, respectively, which expenses represented 13.7%, 12.5%, 12.5% and
13.2% of total revenues, respectively, for such fiscal periods. The Company
intends to continue to invest approximately 12% to 14% of revenues in its
research and development efforts.
MANUFACTURING AND SUPPLIES
Prior to the Company's decision to concentrate on high-performance digital
oscilloscopes, the Company's digital oscilloscopes and related products were
manufactured at the Company's facilities in Geneva, Switzerland and Chestnut
Ridge, New York, with HEP products also manufactured at the Chestnut Ridge
facility. Following that decision, and until the first quarter of fiscal 1996,
all 9300 series digital oscilloscopes were manufactured at the Company's
Geneva facility, with the Chestnut Ridge facility principally manufacturing
HEP products, signal source products and hybrid and chip-on-board microcircuit
assemblies for Geneva's digital oscilloscope production. While continuing to
manufacture models in its 9300 series and LC series at its Geneva
manufacturing facility, the Company increasingly has been manufacturing such
products in its Chestnut Ridge facility.
This shift in manufacturing has been undertaken for a variety of reasons,
including greater utilization of the Chestnut Ridge facility in light of the
reduced volume in HEP sales and an increase in the volume of U.S. sales, an
expected reduction in certain customs duties resulting from shipping parts
rather than completed units to the United States from Geneva, closer alignment
of manufacturing and development facilities and, to the extent that the
Company is able to source components in the United States for models assembled
and sold in the United States, better currency matching of revenues and
related costs. The Company has established United States vendors as sources
for certain components, including printed circuit board assemblies, that had
previously been shipped from its Geneva facility to its Chestnut Ridge
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company obtains certain parts, components and sub-assemblies from single
sources. This has particularly been the case with several key integrated
circuits made by certain single source suppliers (Motorola, Philips, TRW and
LSI Logic). The Company believes that, for integrated circuits in particular,
alternative sources of supply would be difficult to develop over a short
period of time. An interruption in supply or an increase in price for its
parts, components and sub-assemblies would have a material adverse affect on
the Company's business, results of operations and financial condition.
34
<PAGE>
As of December 31, 1996, the Company's Geneva facility employed 42
manufacturing employees in an area devoted to such tasks of approximately
14,000 square feet and its Chestnut Ridge facility employed 101 manufacturing
employees in an area devoted to such tasks of approximately 26,000 square
feet.
BACKLOG
The Company's backlog of unshipped customer orders was approximately $8.5
million, $8.0 million and $7.9 million at June 30, 1995, June 30, 1996 and
December 31, 1996, respectively. Customers may cancel orders at any time. The
Company believes that its level of backlog at any particular time is not
necessarily indicative of future operating performance of the Company.
TAX AGREEMENT WITH CANTON OF GENEVA
Currently, the Company's Swiss subsidiary operates under a tax agreement
with the Canton of Geneva under which its profits are taxed at different rates
depending on the geographic location of the customers to whom sales are made.
Profits from sales to customers in Switzerland (including CERN) are taxed at a
35% tax rate, while profits from sales to other customers are taxed at a
preferential tax rate. For the fiscal year ended June 30, 1996, this
arrangement resulted in an effective tax rate of 15% for the Company's Swiss
subsidiary. This agreement will expire in the fiscal year ended June 30, 2000.
FOREIGN CURRENCY EXCHANGE
The Company has manufacturing facilities in both the United States and
Switzerland, purchases parts, components and sub-assemblies from suppliers
around the world in a variety of currencies and sells its products around the
world in a variety of currencies. As a consequence, the Company is exposed to
risks from fluctuations in foreign currency exchange rates with respect to a
number of currencies, changes in government policies and legal and regulatory
requirements, political instability, transportation delays and the imposition
of tariffs and export controls. Among the more significant potential risks to
the Company of relative fluctuations in foreign currency exchange rates is the
relationship among and between the United States dollar, Swiss franc and
Japanese yen, and, to a lesser extent, the German deutschemark, British pound,
French franc and Italian lira. During the fiscal year ended June 30, 1996 and
the first half of fiscal 1997, approximately half of the Company's revenues
and half of its costs and expenses were denominated in currencies other than
the United States dollars. Local currency expenses resulting from
manufacturing and the worldwide sourcing of parts, components and sub-
assemblies are not generally offset by related local currency revenues, if
any. The Company seeks to mitigate to some degree its exposure to foreign
currency exchange rate fluctuations by borrowing under its multicurrency
revolving credit facility in circumstances in which it is exposed to
significant local currency receivables. The Company does not attempt to reduce
its foreign currency exchange risks by entering into other foreign currency
management programs or hedging transactions and has no plans to do so in the
near term. As a consequence, there can be no assurance that the Company's
results of operations will not be adversely effected by fluctuations in
foreign currency exchange rates in the future, as a result of mismatches
between local currency revenues and expenses, the translation of foreign
currencies into the United States dollar, the Company's financial reporting
currency, or otherwise. Moreover, fluctuations in exchange rates could affect
demand for the Company's products. During the fiscal years ended June 30, 1994
and 1995, foreign currency exchange losses amounted to $512,000 and $684,000,
respectively. During the fiscal year ended June 30, 1996 and the first six
months of fiscal 1997, the Company reported foreign currency exchange gains of
$539,000 and $609,000, respectively. Based on exchange rates as of the date of
this Prospectus, the Company expects that its revenues for the third quarter
of fiscal 1997 will continue to be adversely impacted by the strength of the
U.S. dollar. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
COMPETITION
The market for signal analyzers is highly competitive and characterized by
rapid and continual advances in technology. Prime Data estimates that the four
largest suppliers of digital oscilloscopes, exclusive of handheld
35
<PAGE>
models, and their approximate respective market shares for calendar year 1996
were Tektronix with 42.5%, Hewlett-Packard Company with 18.1%, LeCroy with
12.4% and Fluke Corporation with 4.9%. Some of the Company's principal
competitors have substantially greater sales and marketing, development and
financial resources than the Company. The Company believes that each of these
companies offers a wide range of products that attempt to address most
segments of the digital oscilloscope market.
The Company believes that the principal bases of competition in the signal
analyzer market are a product's performance (bandwidth, sample rate, record
length and processing power), its price and quality, the vendor's name
recognition, reputation, color displays, product availability and the
availability and quality of post-sale support. The Company also believes that
its success will depend in part on its ability to maintain and develop the
advanced technology used in its signal analyzer products and its ability to
offer high-performance products at a favorable price-to-performance ratio. The
Company believes that it currently competes effectively with respect to each
of the principal bases of competition in the signal analyzer market in the
general price range ($5,000 to $37,500) in which its digital oscilloscopes are
focused and that it will be able to continue to do so, but there can be no
assurance that this is or will be the case.
The Company believes that its principal competition in the HEP market comes
from its customers themselves, who are technically sophisticated and
frequently choose to construct their own measurement and analysis systems. The
Company also believes that the rest of this market is highly fragmented and
consists of a number of small firms, no one of which commands a significant
market share.
INTELLECTUAL PROPERTY RIGHTS
The Company currently relies on a combination of patents, trade secrets,
technical expertise and continuing technological research and development to
establish and protect proprietary rights in its products. The Company
believes, however, that because of the rapid pace of change and advancement in
digital oscilloscope technology, legal intellectual property protection is and
will continue to be a less significant factor in the Company's success than
the Company's core competency in converting electronic signals to digital form
and the experience and expertise of its personnel.
The Company protects significant technologies, products and processes that
it considers important to its business by, among other things, filing
applications for patent protection. As of December 31, 1996, the Company held
a total of twelve United States patents expiring in the years from 2000 to
2012. The Company also holds four foreign patents. The Company has pending
applications for eight additional United States patents and for five
additional foreign patents. The patent positions of high-technology companies
such as the Company are uncertain, however, and involve complex legal issues
and factual questions. There can be no assurance that any of the Company's
pending or future applications will result in issued patents or that any
issued patents will provide the Company with adequate protection of the
covered technologies, products or processes. Moreover, the laws of foreign
countries in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's intellectual property and
other proprietary rights to the same extent as the laws of the United States.
Although the Company believes that its products and technologies do not
infringe the proprietary rights of third parties, there can be no assurance
that third parties will not assert claims against the Company based on the
infringement or alleged infringement of any such rights. Such claims are
typically costly to defend, regardless of the legal outcome. There can be no
assurance that the Company would prevail with respect to any such claim, or
that a license to third-party rights, if needed, would be available on
acceptable terms. In any event, patent and proprietary rights litigation can
be extremely protracted and expensive.
In February 1994, the Company settled litigation with Tektronix involving
allegations that the Company's digital oscilloscope products infringed patents
held by Tektronix. As part of the settlement, the Company entered into a
license agreement with respect to such patents. Pursuant to the license
agreement the Company made an initial payment of approximately $1.5 million.
In addition, the Company is required to make future royalty
36
<PAGE>
payments in a minimum aggregate amount of $3.5 million over ten years ending
June 30, 2004 and may be required to make up to an additional $3.5 million in
contingent royalty payments depending on its sales of certain products in
certain territories over the life of the patents. Royalty expense was
approximately $781,000, $963,000 and $550,000 in fiscal 1995 and 1996 and the
first six months of fiscal 1997, respectively. The settlement agreement
provides that Tektronix may terminate the license in the event that the
Company acquires 20% or more of the stock of, or a controlling interest in,
any of a number of specified companies participating in the oscilloscope
market or any of their respective affiliates (each, a "Restricted Company") or
a Restricted Company acquires 20% or more of the stock of, or a controlling
interest in, the Company or an affiliate of the Company, or any attempt to
transfer the Tektronix license to a Restricted Company is made. This provision
of the settlement could preclude the Company from making an investment in or
acquisition of such companies, and it also could discourage such companies or
another third party from attempting to acquire control of the Company or limit
the price that such a third party might be willing to pay for the Common
Stock. In addition, this provision could limit the price that investors might
be willing to pay in the future for the Common Stock.
EMPLOYEES
As of December 31, 1996, the Company had 504 employees, of whom 285 work in
the Company's Chestnut Ridge facility, 120 work in the Company's Geneva
facility, and the remainder work in various other Company offices around the
world. None of the Company's employees is represented by a labor union and the
Company has not experienced any work stoppages. The Company believes that its
employee relations are generally satisfactory. A majority of the Company's
senior managers has over five years of service with the Company.
Competition for qualified personnel in the Company's industry is intense.
There can be no assurance that the Company will be successful in retaining its
key employees or in attracting and retaining additional qualified personnel.
See "Risk Factors--Dependence on Key Employees."
FACILITIES
The Company's executive offices and its domestic manufacturing facility are
located in a two-story, approximately 88,000 square foot building in Chestnut
Ridge, New York that is owned by the Company. The Company also leases a three-
story office and manufacturing building of approximately 44,000 square feet in
Geneva, Switzerland pursuant to a lease expiring December 31, 2004. In
addition, the Company leases other offices around the world on a short-term
basis to support its local sales and service operations. The Company believes
that its existing facilities and offices are adequate for its current and
anticipated needs.
REGULATION
As the Company manufactures its products in the United States and
Switzerland, and sells its products and purchases parts, components and sub-
assemblies in a number of countries, the Company is subject to legal and
regulatory requirements, particularly the imposition of tariffs, customs and
export controls, in a variety of countries. In addition, the export of digital
oscilloscopes from both the United States and Switzerland is subject to
regulation under the Treaty for Nuclear Non-Proliferation by such countries.
LEGAL PROCEEDINGS
The Company is not currently party to any material legal proceedings.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Information as of February 1, 1997 with respect to the executive officers
and directors of the Company is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Walter O. LeCroy, Jr.(1)........ 61 Chairman of the Board of Directors
Lutz P. Henckels(2)............. 56 President, Chief Executive Officer and
Director
Thomas H. Reslewic.............. 38 Executive Vice President--Signal Analysis
Business Group and Worldwide Sales
Werner H. Brokatzky............. 52 Vice President--Operations (Geneva)
Brian V. Cake................... 53 Vice President--Chief Technical Officer
Clement R. Confessore........... 60 Vice President--Operations (United States)
John C. Maag.................... 47 Vice President--Finance, Chief Financial
Officer, Secretary and Treasurer
James J. Mueller................ 43 Vice President--Worldwide Engineering
Ronald S. Nersesian............. 37 Vice President--Worldwide Marketing
Robert E. Anderson(1)(3)(4)..... 55 Director
Douglas A. Kingsley(3)(4)(5).... 34 Director
William G. Scheerer(3)(4)(5).... 58 Director
</TABLE>
- --------
(1) Class III Director--term expires at the 1998 Stockholder Meeting.
(2) Class I Director--term expires at the 1999 Stockholder Meeting.
(3) Member of Audit Committee.
(4) Member of Compensation Committee.
(5) Class II Director--term expires at the 1997 Stockholder Meeting.
Walter O. LeCroy, Jr., founder of the Company, has served as the Chairman of
the Board since the Company's inception. Mr. LeCroy was instrumental in the
initial development of the Company's core technology and remains active in the
design of the Company's products. Mr. LeCroy has a Bachelor of Arts degree in
physics from Columbia University.
Lutz P. Henckels has served as the President and the Chief Executive Officer
since July 1993. He served as a consultant for the Company from January 1993
until July 1993. Before joining the Company, Mr. Henckels served as the
President of U.S. Operations of Racal-Redac, Inc., an electronic design
automation company, from May 1989 until January 1993. Prior to 1989, Mr.
Henckels was the founder and Chief Executive Officer of HHB Systems, Inc., a
public computer-aided design and test company. Mr. Henckels has Bachelor of
Science and Master of Science degrees in electrical engineering, and a Doctor
of Science degree in computer science, from the Massachusetts Institute of
Technology. Mr. Henckels serves as a director of IKOS Corporation, a design
verification software tool provider company.
Thomas H. Reslewic has served as Executive Vice President--Signal Analysis
Business Group since February 1997 and has served as Vice President--Worldwide
Sales since March 1996. Mr. Reslewic served as Vice President--Sales and
Marketing from July 1994 until March 1996, as the General Manager for North
American Sales from 1993 until July 1994 and the Director of Marketing for the
Company's Signal Sources Division from 1990 until 1993. Previously, he spent
eight years in sales and marketing management with Tektronix, Inc., a
manufacturer of digital oscilloscopes and one of the Company's principal
competitors.
38
<PAGE>
Mr. Reslewic has a Bachelor of Science degree in physics from The College of
the Holy Cross and a Master of Business Administration degree from the
University of Oregon.
Werner H. Brokatzky Mr. Brokatzky has served as Vice President--Operations
(Geneva) since January 1996. Mr. Brokatzky joined the Company in August 1978
as the Manager of Finance and Administration and served as Vice President--
Finance (Geneva) from March 1990 to December 1995. Before joining the Company,
Mr. Brokatzky served as an apprentice at Volksbank Schopfheim.
Brian V. Cake has served as Vice President--Chief Technical Officer since
February 1997. Previously, he served as Vice President--Advanced Development
since 1986. He joined the Company as an engineer in November 1980. Mr. Cake
has a Bachelor of Science degree in electrical and electronic engineering from
City University in London.
Clement R. Confessore has served as the Vice President--Operations (United
States) since joining the Company in January 1994. Before joining the Company,
Mr. Confessore was the Senior Vice President of Operations at RasterOps
Corporation, a computer graphics equipment manufacturing company. Mr.
Confessore has a Bachelor of Science degree in mechanical engineering from
Norwich University and a Master of Business Administration degree from
Southwest University.
John C. Maag has served as the Vice President--Finance, Chief Financial
Officer, Secretary and Treasurer since December 1995. Before joining the
Company, Mr. Maag was the Corporate Controller of Dynatech Corporation, a
voice, data and video communications company from May 1987 to December 1995.
Mr. Maag has a Bachelor of Science degree in accounting from St. Joseph's
College and is a Certified Public Accountant.
James J. Mueller has served as the Vice President--Worldwide Engineering
since June 1996. Mr. Mueller served as R&D Manager--T&M from April 1992 to May
1996. Mr. Mueller has a Bachelor of Arts degree in physics from Rutgers
University and a Master of Science and Doctor of Science degrees in physics
from Princeton University.
Ronald S. Nersesian has served as the Vice President--Worldwide Marketing
since March 1996. Before joining the Company, Mr. Nersesian was with Hewlett-
Packard Company for 11 years and held many marketing positions. Most recently
he was the Division Marketing Manager for a test and measurement division of
Hewlett-Packard. Mr. Nersesian has a Bachelor of Science degree in electrical
engineering from Lehigh University and a Master of Business Administration
degree from New York University.
Robert E. Anderson has served as a Director of the Company since July 1995.
Mr. Anderson has been the President of Omniken, Inc., a private consulting
firm, since September 1993. He served as the President and Chief Executive
Officer of GenRad, Inc., a manufacturer of electronic test systems, from 1988
until 1993, and as Chairman in 1993. Mr. Anderson serves as a director of
Technology Capital Network at MIT, National Association of Corporate Directors
(New England), Indian Hill Arts, Inc. and several private companies.
Douglas A. Kingsley has served as a Director of the Company since April
1995. Mr. Kingsley has been a Vice President of Advent International
Corporation, a venture capital firm, since January 1996 and was an Investment
Manager of Advent International Corporation from September 1990 to December
1995.
William G. Scheerer has served as a Director of the Company since July 1995.
Mr. Scheerer has been the President of Performance Quest LLC, a private
consulting corporation, since January 1997. He served as Infrastructure
Operations Vice President at Lucent Technologies, a telecommunications
equipment and software company, from February 1996 to his retirement in
October 1996. Previously, he was Quality, Engineering, Software & Technologies
(QUEST) Vice President at AT&T Bell Laboratories from May 1990 to January
1996. Mr. Scheerer serves as a director of GenRad, Inc.
39
<PAGE>
Executive officers of the Company are appointed by the Board of Directors on
an annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive
officers or directors of the Company.
The Company has entered into indemnification agreements with its executive
officers and directors, pursuant to which the Company has agreed to indemnify
such persons to the fullest extent permitted by law, and providing for certain
other protections.
40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of January 31, 1997 and as adjusted to
reflect the sale of the shares offered hereby by (i) each person or group who
is known by the Company to own beneficially more than 5% of the Common Stock,
(ii) each director, the Company's Chief Executive Officer and the four other
most highly compensated executive officers for the year ended June 30, 1996,
(iii) all directors and executive officers of the Company as a group and (iv)
each Selling Stockholder. This table also sets forth, with respect to such
listed persons, information as to the shares of Common Stock that the Company
expects to repurchase from the ESOT concurrently with the Offering and that
are allocable to such person's account under the ESOT. The Company anticipates
using a portion of the net proceeds of the Offering to repay borrowings to be
used to repurchase an estimated 350,000 shares of Common Stock held by the
ESOT, a greater-than-5% stockholder of the Company, at a price per share equal
to the initial offering price of the shares of Common Stock offered to the
public in the Offering. See "--Repurchase by the Company of Shares from the
ESOT." Except as otherwise indicated below, to the knowledge of the Company,
all persons listed below have sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law.
<TABLE>
<CAPTION>
SHARES TO BE
SOLD IN
OFFERING OR
SHARES BENEFICIALLY REPURCHASED SHARES BENEFICIALLY
OWNED PRIOR BY THE OWNED AFTER
TO OFFERING(1) COMPANY OFFERING(1)
-------------------- FROM THE --------------------
NAME AND ADDRESS NUMBER PERCENT(2) ESOT(1) NUMBER PERCENT(2)
---------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Advent International 1,254,636 20.2% 1,254,636 -- --
Group(3)...............
101 Federal Street
Boston, Massachusetts
02110
Walter O. LeCroy, Jr.(4)
....................... 715,245 12.6 103,356 611,889 9.3%
c/o LeCroy Corporation
700 Chestnut Ridge Road
Chestnut Ridge, New
York 10977
Pilgrim Baxter & Associ-
ates .................. 670,400 11.8 -- 670,400 10.2
1255 Drummers Lane
Wayne, Pennsylvania
19087
LeCroy Corporation
ESOT(5) ............... 573,943 10.1 350,000 223,943 3.4
c/o Cole Taylor Bank
850 West Jackson Boule-
vard
Chicago, Illinois 60607
State of Wisconsin In-
vestment Board ........ 324,500 5.7 -- 324,500 5.0
P.O. Box 7842
Madison, Wisconsin
53707
Lutz P. Henckels(6)..... 230,554 4.0 -- 230,554 3.4
Innovent Capital Limit-
ed(7).................. 86,526 1.5 86,526 -- --
Raymond Chevalley....... 47,957 * -- 47,957 *
Thomas H. Reslewic(8)... 31,869 * -- 31,869 *
Werner H. Brokatzky..... 23,014 * -- 23,014 *
Robert E. Anderson(9)... 7,039 * -- 7,039 *
William G. Scheerer(9).. 6,239 * -- 6,239 *
Douglas A. Kings-
ley(10)................ 6,039 * -- 6,039 *
All executive officers
and directors as a
group (12 per-
sons)(11).............. 1,168,221 19.7% 103,356 1,064,865 15.6%
</TABLE>
- --------
*Less than 1% of the outstanding Common Stock.
41
<PAGE>
(1) The number of shares of Common Stock reflected as outstanding prior to the
Offering includes (i) shares of Common Stock outstanding as of January 31,
1997 and (ii) shares issuable pursuant to stock options or warrants by the
indicated person that may be exercised within 60 days after January 31,
1997 ("presently exercisable options" or "presently exercisable warrants,"
as the case may be), as set forth below. The number of shares of Common
Stock reflected as to be outstanding after the Offering includes (i)
583,011 shares of Common Stock deemed issuable from the implied proceeds
received on the conversion of certain presently exercisable warrants held
by the Selling Stockholders at an exercise price of $4.485 per share and
(ii) the 658,838 shares of Common Stock being offered for sale by the
Company in the Offering reduced by the estimated 350,000 shares to be
repurchased from the ESOT. See "--Repurchase by the Company of Shares from
the ESOT."
(2) Percentages were calculated in accordance with Rule 13d-3 under the
Exchange Act.
(3) Consists of shares of Common Stock held by the following funds advised or
managed by Advent International Corporation, each of which funds is a
Selling Stockholder: Global Private Equity II Limited Partnership
(1,038,319 shares, including 451,363 shares issuable upon conversion of
presently exercisable warrants), Golden Gate Development and Investment
Limited Partnership (214,586 shares, including 93,282 shares issuable upon
conversion of presently exercisable warrants) and Advent International
Investors II Limited Partnership (1,731 shares, including 753 shares
issuable upon conversion of presently exercisable warrants). Douglas A.
Kingsley, a director of the Company, is a Vice President of Advent
International Corporation.
(4) Includes 103,356 shares of Common Stock held by the ESOT and allocated to
the account of Mr. LeCroy. See Note 5 below.
(5) Shares of Common Stock shown in this table as beneficially owned by each
greater-than-5% stockholder, executive officer and director of the Company
include shares of Common Stock held by the ESOT and allocated to the
accounts of such person. As of January 31, 1997, the respective numbers of
shares of Common Stock held by the ESOT and allocated to the accounts of
such executive officers, directors and other persons were as follows: Mr.
LeCroy (103,356 shares), Mr. Henckels (2,071 shares), Mr. Reslewic (2,504
shares), Mr. Cake (11,595 shares), Mr. Confessore (654 shares) and Mr.
Mueller (6,256 shares). It is anticipated that approximately 350,000
shares, including Mr. LeCroy's 103,356 shares, will be repurchased from
the ESOT as described herein. See "--Repurchase by the Company of Shares
from the ESOT."
(6) Includes 2,071 shares of Common Stock held by the ESOT and allocated to
the account of Mr. Henckels, 146,355 shares of Common Stock issuable upon
exercise of presently exercisable options and an aggregate of 62,211
shares held in certain trusts for the benefit of Mr. Henckels's minor
children. Mr. Henckels disclaims beneficial ownership of the 62,211 shares
held in such trusts.
(7) Includes 37,613 shares of Common Stock deemed issuable from the implied
proceeds received on the conversion of 43,478 presently exercisable
warrants at an exercise price of $4.485 per share.
(8) Includes 2,504 shares of Common Stock held by the ESOT and allocated to
the account of Mr. Reslewic and 25,576 shares of Common Stock issuable
upon exercise of presently exercisable options.
(9) Includes 6,039 shares of Common Stock issuable upon exercise of presently
exercisable options.
(10) Includes 6,039 shares of Common Stock issuable upon exercise of presently
exercisable options. Mr. Kingsley is a Vice President of Advent
International Corporation. See Note 3 above.
(11) Includes an aggregate of 126,438 shares of Common Stock held by the ESOT
and allocated to the accounts of the directors and executive officers.
See Note 5 above. Includes an aggregate of 270,169 shares of Common Stock
issuable upon exercise of certain presently exercisable options.
REPURCHASE BY THE COMPANY OF SHARES FROM THE ESOT
The Company is in the process of offering to beneficial owners of vested
shares of Common Stock in the ESOT the opportunity for the Company to
repurchase from the ESOT for the account of such persons such vested shares at
a price per share equal to the initial offering price of the shares of Common
Stock offered to the public in the Offering. The Company will use a portion of
the net proceeds of the Offering to repay indebtedness incurred in connection
with the purchase of the ESOT shares. The exact number of shares to be
repurchased from the ESOT will be determined shortly before the Offering and
is currently estimated at approximately 350,000 shares. See "Use of Proceeds."
42
<PAGE>
The assets of the ESOT are invested primarily in Common Stock of the
Company. Cole Taylor Bank is currently the trustee of the ESOT (the
"Trustee"). The Trustee has the authority to manage and control the ESOT,
including the investment and administration of ESOT assets. Following this
Offering and the repurchase of shares of Common Stock from the ESOT, the ESOT
will own approximately 223,943 shares of Common Stock of the Company
(approximately 3.4% of the shares to be outstanding after the Offering). See
"Use of Proceeds."
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 45,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $.01 per share.
COMMON STOCK
As of February 19, 1997, there were 5,660,133 shares of Common Stock
outstanding and held of record by 203 stockholders. Based upon the number of
shares of Common Stock outstanding as of that date and giving effect to the
issuance of the 658,838 shares of Common Stock offered hereby, the issuance of
583,011 shares through the exercise of stock warrants, reduced by the
repurchase of approximately 350,000 shares from the ESOT, there will be
6,551,982 shares of Common Stock outstanding upon the closing of this
Offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities, subject to the prior rights of any outstanding Preferred
Stock. Holders of the Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are,
and the shares offered by the Company in the Offering will be, when issued and
paid for, fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of Preferred Stock that the
Company may designate and issue in the future. As of the date hereof this
Offering, there are no shares of Preferred Stock outstanding.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, from time to time to
issue up to an aggregate of 5,000,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences and rights, and any
qualifications, limitations or restrictions thereof, of the shares of each
such series, including the number of shares constituting any such series and
the dividend rights, dividend rates, conversion rights, voting rights, terms
of redemption (including sinking fund provisions), redemption price or prices
and liquidation preferences thereof. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change of control of the
Company. The Company has no present plans to issue any shares of Preferred
Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section
203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the interested stockholder attained such status
with the approval of the Board of Directors or unless the business combination
is approved in a prescribed manner. A "business combination" includes certain
mergers, asset sales and other transactions resulting in a financial benefit
to the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with his or her affiliates and
associates, owns, or owned within three years prior, 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation (the "Charter") and Amended and
Restated By-Laws (the "By-Laws") provide for the division of the Board of
Directors into three classes, as nearly equal in size as
44
<PAGE>
possible, with staggered three-year terms. See "Management--Executive Officers
and Directors." Any director may be removed only for cause by the vote of a
majority of the shares entitled to vote for the election of directors.
The Company's By-Laws provide that for nominations for the Board of
Directors or for other business to be properly brought by a stockholder before
a meeting of stockholders, the stockholder must first have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a notice of
nominations or other business to be brought before an annual meeting must be
delivered not less than 120 days nor more than 150 days prior to the first
anniversary of the date of the proxy statement delivered to stockholders in
connection with the preceding year's annual meeting or, if the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary, or if no proxy statement was delivered to stockholders in
connection with the preceding year's annual meeting, such notice must be
delivered not earlier than 90 days prior to such annual meeting and not later
than the later of (i) 60 days prior to the annual meeting or (ii) 10 days
following the date on which public announcement of the date of such annual
meeting is first made by the Company. With respect to special meetings, notice
must generally be delivered not more than 90 days prior to such meeting and
not later than the later of 60 days prior to such meeting or 10 days following
the day on which public announcement of such meeting is first made by the
Company. The notice must contain, among other things, certain information
about the stockholder delivering the notice and, as applicable, background
information about each nominee or a description of the proposed business to be
brought before the meeting.
The Charter empowers the Board of Directors, when considering a tender offer
or merger or acquisition proposal, to take into account factors in addition to
potential economic benefits to stockholders. Such factors may include (i)
comparison of the proposed consideration to be received by stockholders in
relation to the then current market price of the Company's capital stock, the
estimated current value of the Company in a freely negotiated transaction and
the estimated future value of the Company as an independent entity, and (ii)
the impact of such a transaction on the employees, suppliers and customers of
the Company and its effect on the communities in which the Company operates.
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
The Charter provides that any action required or permitted to be taken by
the stockholders of the Company may be taken only at duly called annual or
special meeting of the stockholders, and that special meetings may be called
only by the Chairman of the Board of Directors, a majority of the Board of
Directors or the President of the Company. These provisions could have the
effect of delaying until the next annual stockholders meeting stockholder
actions that are favored by the holders of a majority of the outstanding
voting securities of the Company. These provisions may also discourage another
person or entity from making a tender offer for the Common Stock, because such
person or entity, even if it acquired a majority of the outstanding voting
securities of the Company, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders meeting, and not by written consent.
The DGCL provides that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless the corporation's certificate
of incorporation or by-laws, as the case may be, requires a greater
percentage. The Charter requires the affirmative vote of the holders of at
least 67% of the outstanding voting stock of the Company to amend or repeal
any of the foregoing Charter provisions, or to reduce the number of authorized
shares of Common Stock and Preferred Stock. Such 67% vote is also required to
amend or repeal any of the foregoing By-Law provisions. The By-Laws may also
be amended or repealed by a majority vote of the Board of Directors. Such 67%
stockholder vote would be in addition to any separate class vote that might in
the future be required pursuant to the terms of any Preferred Stock that might
be outstanding at the time any such amendments are submitted to stockholders.
See "Risk Factors--Effect of Anti-Takeover Provisions" and "Technology
Dispute Settlement and License Agreement."
45
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Charter contains certain provisions permitted under the DGCL relating to
the liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty,
except in certain circumstances involving certain wrongful acts, such as the
breach of a director's duty of loyalty or acts or omissions that involve
intentional misconduct or a knowing violation of law. These provisions do not
limit or eliminate the rights of the Company or any stockholder to seek non-
monetary relief, such as an injunction or rescission, in the event of a breach
of a director's fiduciary duty. These provisions will not alter a director's
liability under federal securities laws. The Company's Charter and By-Laws
also contain provisions indemnifying the directors and officers of the Company
to the fullest extent permitted by the DGCL. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.
46
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Cowen & Company and Salomon Brothers Inc are acting
as representatives (the "Representatives"), have severally agreed, subject to
the terms and conditions contained in the Underwriting Agreement, to purchase
from the Company and the Selling Stockholders the number of shares of Common
Stock set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated................................
Cowen & Company...................................................
Salomon Brothers Inc..............................................
---------
Total....................................................... 2,000,000
=========
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession
of $ per share; and that such dealers may reallow a concession of $ per
share to certain other dealers. After the Offering, the offering price and the
concessions may be changed by the Representatives.
The Company has granted to the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
300,000 additional shares of Common Stock at the public offering price, less
underwriting discounts, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering any
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option to purchase is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to
2,000,000.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act, as amended.
The Company, its officers and directors and certain stockholders of the
Company who, upon completion of the Offering will own in the aggregate of
1,064,865 shares of Common Stock, have agreed not to, directly or indirectly,
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant of any option
to purchase or other sale or disposition) of any shares of Common Stock or
other capital stock of the Company or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company, or any right to purchase or acquire Common Stock or
other capital stock of the Company, for a period of 90 days from the date of
this Prospectus. Prudential Securities Incorporated may, in its sole
discretion, at any time and without notice, release all or any portion of the
securities subject to such agreements.
47
<PAGE>
In connection with the Offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market, may engage in passive market
making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 103 under Regulation M during the business day prior to
the pricing of the Offering. Such passive market makers must comply with
applicable volume and price limitations and must be identified as such. In
general, a passive market maker must display its bid at a price not in excess
of the highest independent bid for such security; if all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded.
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Common Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the Underwriters by selling more Common Stock in connection with the Offering
then they are committed to purchase from the Company and the Selling
Stockholders, and in such case may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 300,000 shares of Common Stock, by exercising the
Underwriters' over-allotment option referred to above. In addition, Prudential
Securities Incorporated, on behalf of the Underwriters, may impose "penalty
bids" under contractual arrangements with the Underwriters whereby it may
reclaim from an Underwriter (or any selling group member participating in the
Offering) for the account of the other Underwriters, the selling concession
with respect to Common Stock that is distributed in the Offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in
this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bingham, Dana & Gould LLP, Boston, Massachusetts.
Roger D. Feldman, a partner of Bingham, Dana & Gould LLP, is an Assistant
Secretary of the Company. As of January 31, 1997, Mr. Feldman held as trustee
of certain trusts an aggregate of 120,751 shares of Common Stock. Mr. Feldman
disclaims beneficial ownership of such shares. Brian Keeler, a partner of
Bingham, Dana & Gould LLP, is an Assistant Secretary of the Company. As of
January 31, 1997, Mr. Keeler held an aggregate of 300 shares of Common Stock.
Curtis, Morris & Safford, New York, New York, patent counsel for the Company,
have reviewed and passed upon certain legal matters with respect to the
patents and proprietary rights of the Company described in this Prospectus
under the captions "Risk Factors--Uncertainties Regarding Patents and
Protection of Proprietary Technology" and "Business--Intellectual Property
Rights." Certain legal matters in connection with the Offering will be passed
upon for the Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New
York.
EXPERTS
The consolidated financial statements of the Company at June 30, 1995 and
1996, and for each of the three fiscal years in the period ended June 30, 1996
included and incorporated by reference in the Registration Statement of which
this Prospectus forms a part have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included and
incorporated by reference in the Registration Statement, and such consolidated
financial statements are included and incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
48
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files periodic reports and other information
with the Securities and Exchange Commission (the "Commission"). Reports, proxy
and information statements and other information filed by the Company may be
inspected and copies may be obtained (at prescribed rates) at the Commission's
Public Reference Section, 450 5th Street, N.W., Washington, D.C. 20549, as
well as the following Regional Offices of the Commission: Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can also be obtained by mail from the Public Reference Section,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed rates. In addition, electronically filed
documents, including reports, proxy and information statements and other
information regarding the Company, can be obtained from the Commission's Web
site at: http://www.sec.gov. The Company's Common Stock is quoted on the
Nasdaq National Market, and reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the National
Association of Securities Dealers, Inc. at 1735 K Street, Washington, D.C.
20006.
The Company has filed a Registration Statement on Form S-3 under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits, schedules
and reports filed as part thereof. Statements contained in this Prospectus
with respect to the contents of any contract or other document filed as an
exhibit to the Registration Statement are not necessarily complete, and in
each such instance reference is hereby made to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such
statement is qualified in all respects by such reference to such exhibit.
Copies of all or any part of the Registration Statement, including the
documents incorporated by reference therein or exhibits thereto, may be
obtained upon payment of the prescribed rates at the offices of the Commission
set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There is incorporated herein by reference (File No. 0-26634) the Annual
Report on Form 10-K of the Company for the Company's 1996 fiscal year filed
with the Commission pursuant to Section 13(a) of the Exchange Act; and the
Quarterly Reports on Form 10-Q of the Company for the Company's fiscal
quarters ended September 30, 1996 and December 31, 1996, respectively, filed
with the Commission pursuant to Section 13(a) of the Exchange Act.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Stock shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained herein or in a
document, all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document or portion thereof which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF THE INFORMATION THAT HAS BEEN
INCORPORATED BY REFERENCE HEREIN (OTHER THAN EXHIBITS TO THE INFORMATION
UNLESS SUCH EXHIBITS ARE INCORPORATED BY REFERENCE INTO THE INFORMATION THAT
THE PROSPECTUS INCORPORATES). SUCH WRITTEN REQUESTS SHOULD BE ADDRESSED TO
LECROY CORPORATION, ATTENTION: INVESTOR RELATIONS, 700 CHESTNUT RIDGE ROAD,
CHESTNUT RIDGE, NEW YORK 10977. TELEPHONE REQUESTS MAY BE DIRECTED TO THE
INVESTOR RELATIONS DEPARTMENT AT (914) 578-6021.
49
<PAGE>
LECROY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT AUDITORS............................................ F-2
Consolidated Balance Sheets as of June 30, 1995, 1996 and unaudited at
December 31, 1996........................................................ F-3
Consolidated Statements of Operations for the Years Ended June 30, 1994,
1995, 1996 and unaudited for the six months ended December 31, 1995 and
1996..................................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended June
30, 1994, 1995, 1996 and unaudited for the six months ended December 31,
1996..................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1994,
1995, 1996 and unaudited for the six months ended December 31, 1995 and
1996..................................................................... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
LeCroy Corporation
We have audited the accompanying consolidated balance sheets of LeCroy
Corporation as of June 30, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LeCroy
Corporation at June 30, 1995 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Hackensack, New Jersey
July 22, 1996
F-2
<PAGE>
LECROY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 1,408 $10,315 $ 9,394
Accounts receivable, less allowance of $44 at
June 30, 1995, $38 at June 30, 1996 and $46
at December 31, 1996......................... 17,316 20,625 24,834
Inventories................................... 20,014 20,104 23,048
Other current assets.......................... 1,476 1,278 2,169
------- ------- -------
Total current assets........................ 40,214 52,322 59,445
Property and equipment, at cost:
Land and building............................. 5,178 5,202 5,205
Furniture, machinery and equipment............ 24,583 25,948 27,614
------- ------- -------
29,761 31,150 32,819
Less: Accumulated depreciation and
amortization................................. (22,338) (22,234) (23,204)
------- ------- -------
7,423 8,916 9,615
Other assets.................................... 2,199 1,162 1,427
------- ------- -------
$49,836 $62,400 $70,487
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt.................................. $ 4,069 $ 1,026 $ 727
Accounts payable.............................. 7,053 6,882 8,148
Accrued liabilities........................... 3,154 4,803 4,941
Accrued employee compensation and benefits.... 2,749 4,066 3,482
Income taxes payable.......................... 1,398 3,504 5,027
------- ------- -------
Total current liabilities................... 18,423 20,281 22,325
Long-term debt and capitalized leases........... 13,973 4,647 7,060
Deferred compensation........................... -- -- 166
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value (authorized
2,913,043 shares, none issued and
outstanding)................................. -- -- --
Series B Preferred stock, $.01 par value
(authorized 782,609 shares, 559,131 issued
and outstanding at June 30, 1995)............ 6 -- --
Series C Preferred stock, $.01 par value
(authorized 1,304,348 shares, 655,774 issued
and outstanding at June 30, 1995)............ 7 -- --
Common stock, $.01 par value (authorized
45,000,000 shares; 2,938,939, 5,877,732 and
5,877,732 issued and 2,317,000, 5,426,606 and
5,632,326 outstanding at June 30, 1995, June
30, 1996 and December 31, 1996, respectively)
............................................. 29 59 59
Additional paid-in capital.................... 5,419 22,112 22,860
Less: Treasury stock at cost (621,939, 451,126
and 245,406 shares at June 30, 1995, June 30,
1996 and December 31, 1996, respectively).... (3,133) (2,334) (1,411)
Foreign currency translation adjustment....... 3,397 1,662 (267)
Retained earnings............................. 11,715 15,973 19,695
------- ------- -------
Total stockholders' equity.................. 17,440 37,472 40,936
------- ------- -------
$49,836 $62,400 $70,487
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
LECROY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------ ------------------
1994 1995 1996 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Digital oscilloscopes and
related products............. $47,627 $65,785 $86,061 $ 39,945 $ 49,016
High energy physics products.. 13,519 12,277 10,952 5,056 3,597
Service and other............. 2,696 4,210 4,478 2,212 2,546
------- ------- ------- -------- --------
Total....................... 63,842 82,272 101,491 47,213 55,159
Cost of sales................... 28,252 37,777 45,545 21,439 23,958
------- ------- ------- -------- --------
Gross profit.................. 35,590 44,495 55,946 25,774 31,201
Operating expenses:
Selling, general and
administrative............... 22,831 27,950 34,623 16,006 18,505
Research and development...... 8,770 10,315 12,639 6,316 7,279
Restructuring costs........... 930 -- -- -- --
------- ------- ------- -------- --------
Operating income................ 3,059 6,230 8,684 3,452 5,417
Technology dispute settlement
costs.......................... 2,073 -- -- -- --
Other (income) expenses, net.... 1,694 2,212 134 439 (303)
------- ------- ------- -------- --------
Income (loss) before income
taxes and extraordinary
charge......................... (708) 4,018 8,550 3,013 5,720
Provision for income taxes...... 331 1,408 2,992 1,055 1,998
------- ------- ------- -------- --------
Income (loss) before
extraordinary charge........... (1,039) 2,610 5,558 1,958 3,722
Extraordinary charge for early
retirement of debt............. -- -- (1,300) (1,300) --
------- ------- ------- -------- --------
Net income (loss)............... $(1,039) $ 2,610 $ 4,258 $ 658 $ 3,722
======= ======= ======= ======== ========
Income (loss) per common share:
Income (loss) before
extraordinary charge......... $ (0.24) $ 0.56 $ 0.93 $ 0.36 $ 0.54
Extraordinary charge.......... -- -- (0.22) (0.24) --
------- ------- ------- -------- --------
Net income (loss)............. $ (0.24) $ 0.56 $ 0.71 $ 0.12 $ 0.54
======= ======= ======= ======== ========
Weighted average number of
common shares and common
equivalent shares.............. 4,407 4,683 5,953 5,383 6,899
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
LECROY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B SERIES C FOREIGN
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK CURRENCY
------------------ ------------------ -------------- PAID-IN -------------- TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT ADJUSTMENT EARNINGS
-------- ------- -------- ------- ------ ------ ---------- ------ ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July
1, 1993......... 3,525 $35 $ 2,102 (20) $ (203) $ 440 $10,144
Common shares
repurchased.... (17) (170)
Sale of shares.. 70 1 399
Foreign currency
translation.... 1,111
Net loss........ (1,039)
----- --- ------- ---- ------- ------ -------
Balance at June
30, 1994........ 3,595 36 2,501 (37) (373) 1,551 9,105
Common shares
repurchased.... (585) (2,760)
Conversion of
shares......... 656 $ 7 (656) (7)
Sale of shares.. 559 $ 6 2,502
Sale of common
stock
warrants....... 416
Foreign currency
translation.... 1,846
Net income...... 2,610
-------- ------- -------- ------- ----- --- ------- ---- ------- ------ -------
Balance at June
30, 1995........ 559 6 656 7 2,939 29 5,419 (622) (3,133) 3,397 11,715
Public sale of
common shares.. 1,500 15 15,297
Exercise of
stock rights... 223 2 912
Conversion of
preferred
stock.......... (782) (8) (656) (7) 1,439 15
Stock option and
stock purchase
plans.......... 484 171 799
Foreign currency
translation.... (1,735)
Net income...... 4,258
----- --- ------- ---- ------- ------ -------
Balance at June
30, 1996........ 5,878 59 22,112 (451) (2,334) 1,662 15,973
Stock option and
stock purchase
plans
(unaudited).... 748 206 923
Foreign currency
translation
(unaudited).... (1,929)
Net income
(unaudited).... 3,722
----- --- ------- ---- ------- ------ -------
Balance at
December 31,
1996
(unaudited)..... 5,878 $59 $22,860 (245) $(1,411) $ (267) $19,695
===== === ======= ==== ======= ====== =======
<CAPTION>
TOTAL
--------
<S> <C>
Balance at July
1, 1993......... $12,518
Common shares
repurchased.... (170)
Sale of shares.. 400
Foreign currency
translation.... 1,111
Net loss........ (1,039)
--------
Balance at June
30, 1994........ 12,820
Common shares
repurchased.... (2,760)
Conversion of
shares.........
Sale of shares.. 2,508
Sale of common
stock
warrants....... 416
Foreign currency
translation.... 1,846
Net income...... 2,610
--------
Balance at June
30, 1995........ 17,440
Public sale of
common shares.. 15,312
Exercise of
stock rights... 914
Conversion of
preferred
stock..........
Stock option and
stock purchase
plans.......... 1,283
Foreign currency
translation.... (1,735)
Net income...... 4,258
--------
Balance at June
30, 1996........ 37,472
Stock option and
stock purchase
plans
(unaudited).... 1,671
Foreign currency
translation
(unaudited).... (1,929)
Net income
(unaudited).... 3,722
--------
Balance at
December 31,
1996
(unaudited)..... $40,936
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
LECROY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------- -----------------
1994 1995 1996 1995 1996
------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)............. $(1,039) $ 2,610 $ 4,258 $ 658 $ 3,722
Adjustments for noncash items
included in operating
activities:
Depreciation and
amortization................. 2,013 1,922 2,221 1,043 1,452
Deferred income taxes......... -- 799 165 -- --
Extraordinary charge and
other........................ 128 (1,192) 1,300 1,300 (6)
Change in operating asset and
liability components:
Accounts receivable........... (3,460) (1,271) (3,751) 1,390 (4,632)
Inventories................... 291 (3,430) (510) 276 (3,763)
Prepaid expenses and other
assets....................... 377 (273) (409) (314) (1,051)
Accounts payable and accrued
liabilities.................. 796 1,799 1,536 173 1,333
Accrued employee compensation
and benefits................. 532 (281) 1,415 292 (502)
Income taxes.................. 197 267 2,050 680 1,676
------- -------- -------- -------- -------
Net cash provided by (used in)
operating activities.......... (165) 950 8,275 5,498 (1,771)
------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment.................... (1,537) (2,854) (3,720) (1,557) (2,055)
Proceeds from disposal of
property and equipment....... 46 57 -- -- 8
Due from officers............. (247) 608 147 26 35
------- -------- -------- -------- -------
Net cash used in investing
activities.................... (1,738) (2,189) (3,573) (1,531) (2,012)
------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
long-term debt and
capitalized leases........... 8,010 23,676 4,600 978 2,328
Repayment of debt and
capitalized leases........... (7,775) (19,534) (16,878) (17,986) (91)
Technology license payments... 1,549 (1,549) -- -- --
Sale of common stock.......... 400 2,508 -- -- --
Repurchase of common stock.... (170) (2,760) -- -- --
Public sale of common stock... -- -- 15,312 15,312 --
Proceeds from sale of
warrants..................... -- 16 -- -- --
Proceeds from exercise of
stock rights................. -- -- 914 914 --
Proceeds from exercise of
stock options and issuances.. -- -- 1,283 -- 1,671
------- -------- -------- -------- -------
Net cash provided by (used in)
financing activities.......... 2,014 2,357 5,231 (782) 3,908
------- -------- -------- -------- -------
Effect of exchange rates on
cash.......................... 92 79 (1,026) (357) (1,046)
------- -------- -------- -------- -------
Increase (decrease) in cash
and cash equivalents......... 203 1,197 8,907 2,828 (921)
Cash and cash equivalents at
beginning of the period...... 8 211 1,408 1,408 10,315
------- -------- -------- -------- -------
Cash and cash equivalents at
end of the period............ $ 211 $ 1,408 $ 10,315 $ 4,236 $ 9,394
======= ======== ======== ======== =======
Supplemental cash flow
disclosures
Cash paid during the
respective period for:
Interest...................... $ 1,296 $ 1,336 $ 649
Income taxes.................. 211 418 731
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The consolidated interim financial information for the six month periods
ended December 31, 1995 and 1996 is unaudited and has been prepared in
accordance with generally accepted accounting principles for interim financial
information and Article 10 of Regulation S-X. Accordingly, it does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the six
month period ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended June 30, 1997.
Certain amounts in the accompanying unaudited interim consolidated statement
of cash flows for the six months ended December 31, 1995 have been
reclassified to conform to the current presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of LeCroy
Corporation (the "Company") and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. Certain prior
year amounts have been reclassified to conform with the current year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts in the financial statements
and the accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Substantially all revenue is recognized when products are shipped or
services are rendered to customers. Revenues from service contracts are
recognized ratably over the contract period.
Fiscal Year Ending Dates
The operations of the U.S. company, LeCroy Corporation, have a fiscal year
end of the Saturday closest to June 30 (July 2, 1994, July 1, 1995, and June
29, 1996). For each of the fiscal years presented, the fiscal year represented
a 52 week period. The majority of foreign subsidiaries have a June 30 fiscal
year end. The consolidated financial statements' year end references are
stated as of June 30.
Cash Equivalents
Cash equivalents represent highly liquid debt instruments with a maturity of
three months or less at the time of purchase. Financial instruments, which
potentially subject the Company to concentrations of credit risk, consist
primarily of short-term deposits in Europe with major banks located in various
cities with investment levels and debt ratings set to limit exposure with any
one institution.
F-7
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
Concentration of Credit Risks
The Company manufactures and sells electronic equipment, principally a line
of digital oscilloscopes, to research facilities, governmental agencies and
the test and measurement industry. Sales are to all regions of the United
States as well as to a multitude of foreign countries. The Company performs
periodic credit evaluations of its customers' financial condition. Credit
losses have been minimal and within management's expectations. There is no
significant concentration of the Company's accounts receivable portfolio in
any customer or geographical region that presents a risk to the Company based
on that concentration.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization
are provided on the straight-line basis. The estimated useful lives are as
follows:
<TABLE>
<S> <C>
Building....................................................... 32 years
Furniture, machinery and equipment............................. 3-12 years
</TABLE>
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." This statement requires that
deferred taxes be established for all temporary differences between book and
tax bases of assets and liabilities, measured using enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
United States income taxes have not been provided on the undistributed net
earnings of foreign subsidiaries which amount approximated $17,700 at June 30,
1996. Determining the tax liability that would arise if these earnings were
remitted is not practicable. The Company plans to reinvest substantially all
of these net earnings in assets located outside of the United States, thus
indefinitely postponing the remittance of such earnings.
Foreign Exchange
The Company's foreign subsidiaries use their local currency as the
functional currency and translate all assets and liabilities at current
exchange rates and all income and expenses at average exchange rates. The
adjustment resulting from this translation is included in a separate component
of stockholders' equity. Gains (losses) in fiscal 1994, 1995 and 1996
resulting from foreign currency transactions approximated $(512), $(684) and
$539, respectively, and are included in other (income) expenses, net.
Warranty
Estimated future warranty obligations related to products are provided by
charges to operations in the period that the related revenue is recognized.
Research and Development
Research and development costs are expensed as incurred.
F-8
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
Per Share Information
Net income (loss) per share is computed based upon the weighted average
number of shares of Common Stock and common share equivalents outstanding
during the periods presented. Common share equivalents result from outstanding
rights, options and warrants to purchase Common Stock and the conversion of
Preferred Stock and are included to the extent dilutive. In accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 83, shares
issuable upon exercise of stock rights, options and warrants granted during
the twelve months immediately preceding October 5, 1995, the date of the
Company's initial public offering, have been included in the calculation of
the shares used in computing net income (loss) per share as if they were
outstanding for all periods presented prior to the initial public offering
(using the treasury stock method), including loss years where the impact of
the incremental shares is anti-dilutive.
Treasury Stock
The Company delivers treasury shares upon the exercise of stock options and
the issuance of shares from the 1995 Employee Stock Purchase Plan. The
difference between the cost of the treasury shares, on a last-in, first-out
basis, and the exercise price of the option or the cost of shares from the
Employee Stock Purchase Plan is reflected in additional paid-in capital.
Hedging and Related Financial Instruments
The Company utilizes foreign currency based borrowings in an effort to hedge
foreign exchange risks.
2. INVENTORIES
Inventories, including demonstration units in finished goods, are stated at
the lower of cost (first-in, first-out method) or market.
<TABLE>
<CAPTION>
JUNE 30,
--------------- DECEMBER 31,
1995 1996 1996
------- ------- ------------
<S> <C> <C> <C>
Raw materials................................ $ 7,932 $ 7,398 $ 6,383
Work in process.............................. 3,616 6,539 7,510
Finished goods............................... 8,466 6,167 9,155
------- ------- -------
$20,014 $20,104 $23,048
======= ======= =======
</TABLE>
The allowance for excess and obsolete inventory, included above, amounted to
$2,291 at June 30, 1995, $2,459 at June 30, 1996 and $2,840 at December 31,
1996.
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------
1995 1996
------ ------
<S> <C> <C>
Deferred financing costs, net.............................. $1,696 $ 282
Patents and trademarks, net................................ 175 191
Other...................................................... 328 689
------ ------
$2,199 $1,162
====== ======
</TABLE>
F-9
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
Deferred financing costs are being amortized over the term of the related
term debt; patents and trademarks are being amortized on the straight-line
basis over 20 years.
4. INCOME TAXES
Provision for income taxes is comprised of the following charges:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1994 1995 1996
---- ------ ------
<S> <C> <C> <C>
Current--Foreign.......................................... $331 $ 609 $2,827
Deferred--Foreign......................................... -- 799 165
---- ------ ------
Total................................................... $331 $1,408 $2,992
==== ====== ======
</TABLE>
At June 30, 1995 and 1996, the components of the Company's deferred tax
assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Revenue recognition...................................... $ -- $ 224
U.S. net operating loss carryforwards.................... 540 1,166
Foreign net operating loss carryforwards................. 125 302
Research and development tax credit carryforwards........ 60 60
State investment tax credit carryforwards................ 300 300
Inventory reserves....................................... 330 587
Vacation pay reserves.................................... 122 91
Other, net............................................... 40 185
------- -------
Total deferred tax assets.................................. 1,517 2,915
Valuation allowance for deferred tax assets................ (1,517) (2,915)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>
Included in current income taxes payable in 1995 and 1996 is $799 and $521,
respectively, of current deferred income taxes payable associated with foreign
inventory provisions and other foreign tax reserves.
A reconciliation of the tax provision computed at the Federal statutory tax
rate to the Company's recorded tax provision is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------ ------
<S> <C> <C> <C>
Tax computed at federal statutory tax rate.......... $(244) $1,367 $2,465
Officers' life insurance and other permanent
differences........................................ 83 102 72
Effect of foreign income............................ (98) (225) (943)
Change in valuation allowance....................... 589 157 1,398
Other, net.......................................... 1 7 --
----- ------ ------
$ 331 $1,408 $2,992
===== ====== ======
</TABLE>
F-10
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
Federal tax net operating losses available for carryforward to future years
total approximately $2.9 million at June 30, 1996 and expire in the years 2009
thru 2011. Foreign tax net operating losses available for carryforward to
future years total approximately $703 at June 30, 1996, expiring at various
dates based on the country of origin.
The components of income (loss) before income taxes and extraordinary charge
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ -------
<S> <C> <C> <C>
Domestic........................................... $(2,056) $ (837) $(1,810)
Foreign............................................ 1,348 4,855 10,360
------- ------ -------
$ (708) $4,018 $ 8,550
======= ====== =======
</TABLE>
5. TERM DEBT
Term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------- DECEMBER 31,
1995 1996 1996
------- ------ ------------
<S> <C> <C> <C>
Revolving credit agreement....................... $ 6,250 $4,600 $7,000
Term loans....................................... 3,825 -- --
Subordinated debentures.......................... 4,500 -- --
Other............................................ 2,666 957 787
------- ------ ------
17,241 5,557 7,787
Less: Current debt............................... 3,516 930 727
------- ------ ------
$13,725 $4,627 $7,060
======= ====== ======
</TABLE>
In December 1995, the Company finalized an unsecured $15 million
multicurrency revolving line of credit agreement with several commercial banks
which allows for borrowings in various currencies and provides for interest to
be payable quarterly at the higher of the prime rate, the federal funds rate
(as defined) plus 1/2% or the Eurocurrency Interest Rate (as defined). This
facility replaced a previous secured agreement. As of June 30, 1996 and
December 31, 1996, United States dollar advances were $4,600 and $7,000,
respectively, at 8.25% interest; the carrying amount approximates fair value
based upon market rates. A commitment fee is assessed on the unused line of
credit, payable at the end of each calendar quarter, at a rate of 1/4of 1% per
annum. The credit agreement expires on January 31, 1999. The agreement
contains covenants that include maintaining specified financial ratios and
positive levels of net income and limitations on capital expenditures and
lease obligations.
In October 1995 proceeds received from the Company's initial public offering
were used to repay previously outstanding term loans and subordinated debt. An
extraordinary non-cash charge of $1.3 million of deferred financing costs was
taken resulting from the early extinguishment of this debt.
Interest expense, net included in other (income) expenses, net, was $1,182
in fiscal 1994, $1,528 in fiscal 1995, $672 in fiscal 1996, and $306 in the
six months ended December 31, 1996.
At fiscal year end 1996 the Company had short-term unused lines of credit
aggregating $5,447 for foreign operations.
F-11
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
Aggregate maturities of the above term debt for each of the years in the
three year period ending June 30, 1999 are $930, $0 and $4,627, respectively.
6. CAPITAL STOCK AND OPTION PLANS
On October 5, 1995, the Company completed an initial public offering of
1,500,000 shares of Common Stock for net proceeds of $15.3 million, at which
time 782,609 shares of Series B Preferred Stock and 655,774 shares of Series C
Preferred Stock were converted to Common Stock at the rate of one share for
one share.
On March 28, 1995, in conjunction with the issuance of $4.5 million of
subordinated debentures, the Company sold warrants, at $.023 per warrant to
purchase 695,652 shares of Common Stock, which are reserved for future
issuance, at an exercise price of $4.485 per share. The warrants are 100%
exercisable and expire on December 31, 2002. For accounting purposes, the
deemed value of the warrants was treated as additional financing costs and
amortized to interest expense over the outstanding period of the subordinated
debentures. As a result of the repayment of the subordinated debentures from
the proceeds of the initial public offering, these costs were written off as
part of the extraordinary charge to earnings in the second quarter of fiscal
1996.
In July 1995, the Board of Directors amended and restated the Incentive
Stock Option Plan of 1993. Under the Amended and Restated 1993 Stock Incentive
Plan, 1,521,739 shares of Common Stock can be issued through the exercise of
Incentive Stock Options, increasing 5% annually each July 1 during the term of
the Plan. At July 1, 1996, a maximum of 1,793,069 shares were reserved for
issuance. These options allow full-time employees, including officers, to
purchase shares of Common Stock at prices equal to fair market value at the
date of grant. For individuals who own more than 10% of the Common Stock of
the Company, the option price of the shares may not be less than 110% of the
fair market value on the date of grant. The vesting period and expiration of
each grant will be determined by the Compensation Committee of the Board of
Directors. This limitation does not apply to nonqualified stock options or
restricted stock awards that may be granted under the amended 1993 Plan.
Under the Amended and Restated 1993 Stock Incentive Plan adopted in July,
1995, "non-qualified" stock options can be issued to full-time employees,
including officers and non-employee consultants. Options must be granted at an
exercise price of at least 85% of the fair market value on the date of grant.
The vesting period and expiration of each grant will be determined by the
Compensation Committee of the Board of Directors.
F-12
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
Transactions for incentive and "non-qualified" stock options for the Amended
and Restated 1993 Stock Incentive Plan for fiscal years 1994, 1995, 1996 and
the six months ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at July 1, 1993............................ 44,959 $8.51-$10.47
Granted................................................ 434,700 $6.33
Exercised.............................................. -- --
Cancelled.............................................. -- --
--------- ------------
Outstanding at June 30, 1994........................... 479,659 $6.33-$10.47
Granted................................................ 576,956 $6.33-$ 8.05
Exercised.............................................. -- --
Cancelled.............................................. (5,337) $6.33
--------- ------------
Outstanding at June 30, 1995........................... 1,051,278 $6.33-$10.47
Granted................................................ 327,706 $9.20-$19.63
Exercised.............................................. (128,570) $6.33-$10.47
Cancelled.............................................. (2,202) $6.33-$ 9.20
--------- ------------
Outstanding at June 30, 1996........................... 1,248,282 $6.33-$19.63
Granted (unaudited).................................... 209,000 $22.25
Exercised (unaudited).................................. (176,263) $6.33-$15.75
Cancelled (unaudited).................................. (29,927) $6.33-$22.25
--------- ------------
Outstanding at December 31, 1996 (unaudited)........... 1,251,092 $6.33-$22.25
========= ============
</TABLE>
Of the total options outstanding under the 1993 Plan, 106,553, 216,647,
359,332 and 362,601 were exercisable at June 30, 1994, 1995, 1996 and December
31, 1996, respectively. Stock options available for grant were 873,387,
382,203, 144,887 and 237,144 at June 30, 1994, 1995, 1996 and December 31,
1996, respectively.
In July 1995, the Board of Directors and stockholders approved the 1995 Non-
Employee Director Stock Option Plan. Under the Non-Employee Director Option
Plan, 217,391 shares of Common Stock can be issued during the term of the
Plan. These options allow non-employee directors to purchase shares of Common
Stock at prices equal to fair market value at the date of grant. At June 30,
1996 and December 31, 1996, no shares had been issued upon exercise of options
granted under the Director Option Plan, options for 25,364 shares were
outstanding and options to purchase 192,027 shares were available for future
grant under the Plan, of which 10,867 and 15,400 were exercisable as of June
30, 1996 and December 31, 1996, respectively.
At June 30, 1996 and December 31, 1996, the Company reserved 2,034,734 and
2,306,064 shares of Common Stock, respectively, for the exercise of options.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As allowed by SFAS 123, the Company will not
recognize compensation cost for stock-based employee compensation
arrangements, but rather, commencing in fiscal 1997, will disclose in the
notes to the consolidated financial statements the impact on net income and
earnings per share as if the fair value based compensation cost had been
recognized.
F-13
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
7. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified Employee Stock Ownership Plan ("ESOP" or
the "Plan") which has been established in accordance with the requirements and
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA")
and has been approved by the Internal Revenue Service ("IRS").
Annually, the Board of Directors determines the contribution, if any, to the
Employee Stock Ownership Trust ("ESOT") which trust has been established under
the Plan for the purpose of administering and investing the funds contributed
by the Company. Annual contributions to the ESOP are not to exceed 15% of the
aggregate gross payroll of all participants. Payment of benefits may be
satisfied by the Company's stock, cash or a combination thereof. For each of
the years ended June 30, 1994 and 1995, the Company contributed $450 to the
ESOP. For the year ended June 30, 1996, the Company did not contribute to the
ESOP. Under the terms of the plan, the Company is required under certain
conditions to fund the repurchase of shares by the ESOP. In addition, the
Company is required to repurchase shares of former employees to the extent
funds are not available in the ESOP.
The Company has a trusteed employee 401(k) savings plan for eligible U.S.
employees. The Company, effective October 1, 1996, matches 25% of employee
contributions up to a maximum employer contribution of 1.25% of the employee's
total compensation.
For the fiscal year ended June 30, 1996, in lieu of a contribution to the
ESOP, the Company distributed $450 to all eligible New York employees through
direct cash payments.
The Company's subsidiary in Switzerland maintains a defined contribution
plan which requires employee contributions based upon a percentage of the
employee's earnings currently ranging from 2.0% to 6.5%. The employer makes a
matching contribution based also upon a percentage of the employee's earnings
currently ranging from 3.5% to 11.0%. Company contributions ($430 in 1994,
$549 in 1995 and $737 in 1996) were charged to expense.
In July 1995, the Company adopted the 1995 Employee Stock Purchase Plan and
reserved for issuance an aggregate of 434,783 shares of Common Stock. The Plan
allows eligible employees to purchase Common Stock, through payroll
deductions, at prices equal to 85% of fair market value on the first or last
business day of the offering period, whichever is lower. The option to
purchase Stock will terminate on July 7, 2005. As of June 30, 1996 and
December 31, 1996, 42,624 and 72,081 shares, respectively, have been issued
under the Employee Stock Purchase Plan and, as of June 30, 1996 and December
31, 1996, 392,159 and 362,702 shares were available for future grant,
respectively.
F-14
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
8. SEGMENT INFORMATION AND GEOGRAPHIC AREAS
The Company operates in a single industry segment and is engaged in the
design, development, manufacture and sale of high-performance signal
analyzers.
The Company's operations by geographic area for the fiscal years ended June
30, 1994, 1995 and 1996 are presented below:
<TABLE>
<CAPTION>
REVENUE
FROM AREA
TOTAL INTERAREA UNAFFILIATED OPERATING IDENTIFIABLE
REVENUE REVENUE CUSTOMERS INCOME (LOSS) ASSETS
-------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
June 30, 1994
United States........... $ 37,003 $ (7,568) $ 29,435 $(1,436) $21,644
Europe.................. 45,303 (19,247) 26,056 4,798 14,944
Other foreign........... 8,351 -- 8,351 383 2,889
Interarea Eliminations.. (26,815) 26,815 -- -- --
-------- -------- -------- ------- -------
$ 63,842 $ -- $ 63,842 $ 3,745 $39,477
======== ======== ======== ======= =======
June 30, 1995
United States........... $ 44,226 $ (8,466) $ 35,760 $ 290 $26,529
Europe.................. 61,449 (28,109) 33,340 6,707 19,003
Other foreign........... 13,172 -- 13,172 226 4,304
Interarea Eliminations.. (36,575) 36,575 -- -- --
-------- -------- -------- ------- -------
$ 82,272 $ -- $ 82,272 $ 7,223 $49,836
======== ======== ======== ======= =======
June 30, 1996
United States........... $ 48,035 $ (5,834) $ 42,201 $ (22) $28,631
Europe.................. 74,216 (31,937) 42,279 10,198 30,357
Other foreign........... 17,011 -- 17,011 (65) 3,412
Interarea Eliminations.. (37,771) 37,771 -- -- --
-------- -------- -------- ------- -------
$101,491 $ -- $101,491 $10,111 $62,400
======== ======== ======== ======= =======
</TABLE>
Unallocated corporate expenses amounting to $686, $993 and $1,427 in fiscal
year 1994, 1995 and 1996, respectively, are excluded from area operating
income.
Other foreign revenues consist principally of sales to Japan and Asia.
9. COMMITMENTS AND CONTINGENCIES
Leases
The Company has capitalized leases for certain equipment. The original cost
of equipment under capitalized leases was $1,798 and $794 at June 30, 1995 and
1996, respectively. Accumulated amortization of these assets was $985 and $679
at June 30, 1995 and 1996, respectively. The capitalized lease obligations are
payable through July, 1998 and bear interest at rates ranging from 7.40% to
7.64%. In addition, the Company leases certain offices, manufacturing
facilities and equipment under long-term non-cancelable operating leases. The
leases for facilities provide for all real estate taxes and operating expenses
to be paid by the Company. The
F-15
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
following is a schedule by year of future minimum lease payments, for capital
and non-cancelable operating leases, together with the present value of the
net minimum lease payments as of June 30, 1996.
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
YEARS ENDED JUNE 30, LEASES LEASES
-------------------- ----------- ---------
<S> <C> <C>
1997................................................ $100 $ 1,938
1998................................................ 7 1,831
1999................................................ 13 1,604
2000................................................ -- 1,530
2001................................................ -- 1,214
2002 and beyond..................................... -- 4,206
---- -------
Net minimum lease payments.......................... 120 $12,323
=======
Less amount representing interest................... 4
----
Present value of net minimum lease payments............ 116
Amounts due within one year............................ 96
----
Long-term portion...................................... $ 20
====
</TABLE>
Aggregate rental expense on noncancelable operating leases for the years
ended June 30, 1994, 1995 and 1996 approximated $2,364, $2,559 and $2,844,
respectively.
The Company has a 2,000 Swiss franc credit agreement which serves as
security for the lease on the Geneva facility.
Technology Dispute Settlement
In the normal course of business, the Company and its subsidiaries are
parties to various legal claims, actions and complaints. Included among these
claims in fiscal 1994 was an intellectual property claim in the form of a
lawsuit which alleged patent infringement with respect to some of the
Company's oscilloscope products. In February, 1994, the Company concluded
negotiations to resolve this dispute and avoid extensive litigation. The
result was a settlement and a license agreement requiring an initial payment
by the Company of $1,549 on July 5, 1994, in addition to $524 of related legal
costs; legal costs amounted to $278 in 1993. Minimum annual future royalty
payments are $350 for ten years with potential for higher additional amounts
annually. These additional amounts are contingent on future product sales as
described in the settlement agreement and cannot exceed an aggregate of
$3,500. Royalty expense, which approximated $781 in 1995 and $963 in 1996, is
included in cost of sales.
Restructuring Costs
During 1994, the Company restructured its sales and marketing organization
and also closed its research facility in the United Kingdom; total charges
incurred were $930. The restructuring was accomplished by a combination of
relocation of certain employees, early retirement and severance payments.
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized unaudited quarterly operating results for fiscal year 1995,
fiscal year 1996 and the six months ended December 31, 1996 are included on
page 23 of this Prospectus and are considered an integral part of these
financial statements.
F-16
<PAGE>
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE SIX MONTHS ENDED DECEMBER 31,
1995 AND 1996 IS UNAUDITED)
11. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
AUDITORS
In January 1997, the Company adopted a plan resulting in a series of
reorganization actions related to its HEP operations. In connection with these
actions the Company will record a restructuring provision of $3.9 million
($2.5 million after taxes). The reorganization will result in writedowns,
principally for inventory and other asset revaluations, and employee
severance.
F-17
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK
OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SO-
LICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JU-
RISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 13
Capitalization........................................................... 13
Selected Consolidated Financial Data..................................... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 26
Management............................................................... 38
Principal and Selling Stockholders....................................... 41
Description of Capital Stock............................................. 44
Underwriting............................................................. 47
Legal Matters............................................................ 48
Experts.................................................................. 48
Additional Information................................................... 49
Incorporation of Certain Documents by Reference.......................... 49
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 Shares
LECROY
Common Stock
--------------
PROSPECTUS
--------------
PRUDENTIAL SECURITIES INCORPORATED
COWEN & COMPANY
SALOMON BROTHERS INC
March , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee and the NASD Filing Fee) of the fees and expenses,
all of which are payable by the Registrant (including the fees and expenses,
other than underwriting discounts and commissions, of the Selling
Stockholders), other than underwriting discounts and commissions, in
connection with the registration and sale of the Common Stock being registered
hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................. $24,220
NASD Fees........................................................... 8,665
Nasdaq National Market Fees......................................... *
Fees of Registrar and Transfer Agent................................ *
Printing and Engraving.............................................. *
Blue Sky Fees and Expenses.......................................... *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be provided in an amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its officers and directors and certain other persons
to the extent and under the circumstances set forth therein.
The Amended and Restated By-Laws of the Company provide for indemnification
of officers and directors of the Company and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
Section 8 of the Underwriting Agreement among the Company, the Selling
Stockholders and the Underwriters, a copy of which is filed herewith as
Exhibit 1.1, provides for indemnification by the Company and the Selling
Stockholders of the Underwriters and each person, if any, who controls any
Underwriter, against certain liabilities and expenses, as stated therein,
which may include liabilities under the Securities Act of 1933, as amended.
The Underwriting Agreement also provides that the Underwriters shall similarly
indemnify the Company, its directors and certain officers, the Selling
Stockholders and certain controlling persons, as set forth therein.
The Company has entered into indemnification agreements with its executive
officers and directors, pursuant to which the Company has agreed to indemnify
such persons to the fullest extent permitted by law, and providing for certain
other protections.
The Company maintains insurance for the benefit of its directors and
officers insuring such persons against certain liabilities, including
liabilities under applicable securities laws.
II-1
<PAGE>
ITEM 16. EXHIBITS.
Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
5.1 Opinion of Bingham, Dana & Gould LLP, counsel to the Registrant,
regarding the legality of the shares of Common Stock offered by the
Prospectus.*
10.20 OEM Purchase and Technology License Agreement, dated February 19,
1997, with Guzik Technical Enterprises, Inc.*
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Bingham, Dana & Gould LLP (included in Exhibit 5.1).
23.3 Consent of Curtis, Morris & Safford.*
24 Power of Attorney (included on signature pages hereto).
</TABLE>
- --------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(A) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be
a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(B) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the Prospectus, to deliver, or cause to be
delivered to each person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
(C) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(D) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE VILLAGE OF CHESTNUT RIDGE, STATE OF NEW YORK, ON FEBRUARY
20, 1997.
LeCroy Corporation
/s/ Lutz P. Henckels
By:___________________________________
LUTZ P. HENCKELS PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Walter O. LeCroy,
Jr., Lutz P. Henckels, John C. Maag, Roger D. Feldman and Brian Keeler and each
of them singly, acting alone and without the other, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
in each of them, for him and his name, place and stead, and in any and all
capacities, to do and perform any and all acts and to sign any and all
amendments (including without limitation post-effective amendments) to this
registration statement on Form S-3 and to file the same, with all exhibits
thereto and other documents in connection therewith necessary or advisable to
enable the Registrant to comply with the Securities Act of 1933, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission in respect thereof, which amendments may make such other changes in
the registration statement as the aforesaid attorney-in-fact executing the same
deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-3 has been signed in the capacities and on the dates
indicated.
SIGNATURE CAPACITY(-IES) DATE
/s/ Walter O. LeCroy, Jr. Chairman of the February 20,
- ------------------------------------ Board of Directors 1997
WALTER O. LECROY, JR. and Director
/s/ Lutz P. Henckels President, Chief February 20,
- ------------------------------------ Executive Officer 1997
LUTZ P. HENCKELS and Director
/s/ John C. Maag Vice President-- February 20,
- ------------------------------------ Finance, Chief 1997
JOHN C. MAAG Financial Officer,
Secretary and
Treasurer
(Principal
Financial and
Accounting
Officer)
/s/ Robert E. Anderson Director February 20,
- ------------------------------------ 1997
ROBERT E. ANDERSON
/s/ Douglas A. Kingsley Director February 20,
- ------------------------------------ 1997
DOUGLAS A. KINGSLEY
/s/ William G. Scheerer Director February 20,
- ------------------------------------ 1997
WILLIAM G. SCHEERER
II-3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
July 22, 1996, included in the Registration Statement (Form S-3) and related
Prospectus of LeCroy Corporation for the registration of 2,300,000 shares of
its common stock.
We also consent to the incorporation by reference therein of our report
dated July 22, 1996, with respect to the financial statements and financial
statement schedule of LeCroy Corporation included in its Annual Report (Form
10-K) for the year ended June 30, 1996, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Hackensack, New Jersey February 18, 1997
