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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1997
Commission File Number 0-26634
LeCROY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2507777
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
700 CHESTNUT RIDGE ROAD, CHESTNUT RIDGE , NEW YORK 10977
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (914) 425-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of Class)
Indicate by check mark ("X") whether the Registrant: (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10- K. [ ]
The number of shares outstanding of the registrant's Common Stock, as of August
8, 1997, was 6,716,421 shares. The aggregate market value on August 8, 1997
of the Common Stock held by non-affiliates of the registrant was $245,149,367.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders are
incorporated by reference in Part III hereof.
Portions of the Prospectus to Form S-1 Registration Statement No. 33-95620 and
the Prospectus to Form S-3 Registration Statement No. 333-22117 are
incorporated by reference.
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TABLE OF CONTENTS
Page
Part I..............................................................
Item 1. Business........................................... 3
Item 2. Properties......................................... 16
Item 3. Legal Proceedings.................................. 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 4A. Executive Officers of the Registrant............... 17
Part II.............................................................
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................ 19
Item 6. Selected Financial Data............................ 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 21
Item 8. Financial Statements and Supplementary Data........ 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 50
Part III............................................................
Item 10. Directors and Executive Officers of the Registrant. 50
Item 11. Executive Compensation............................. 50
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... 50
Item 13. Certain Relationships and Related Transactions..... 50
Part IV.............................................................
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................ 51
This report contains certain forward-looking statements that are subject
to risks and uncertainties, including without limitation those discussed herein
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and those discussed in the section
entitled "Risk Factors" in the Prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) on or about March 25, 1997 (which
section is hereby incorporated by reference herein). These risks and
uncertainties could cause the Registrant's actual results in future periods to
differ materially from its historical results and from any opinions or
statements expressed in such forward-looking statements. Such forward-looking
statements speak only as of the date of this report, and the Registrant
cautions readers not to place undue reliance on such statements.
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PART I
ITEM 1. BUSINESS
LeCroy Corporation (the "Registrant") was founded and incorporated in the
State of New York in 1964. The Company reincorporated in the State of Delaware
in July, 1995. The New York corporation executed an Agreement and Plan of
Merger with the Registrant, then its wholly owned subsidiary, pursuant to which
the New York Corporation merged with and into the Registrant. The merger did
not result in any change of the Company's Board of Directors, management,
operations or financial condition. The term "Company" used in this report means
the Registrant and its consolidated subsidiaries unless the context indicates
otherwise.
The Company develops, manufactures, sells and licenses 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 is derived from its
historical efforts in developing products for scientists engaged in 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.
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
on 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 largest processing memory, available to date in the
digital oscilloscope market. The Company's shift toward the high-end digital
oscilloscope market has resulted in a significant increase in revenues. The
Company's total revenues were $117.1 million, $101.5 million and $82.3 million
for the fiscal years ended June 30, 1997, 1996 and 1995, respectively, and
revenues from digital oscilloscopes and related products accounted for
approximately 89%, 85% and 80% of the Company's total revenues for those
fiscal years.
Industry Background
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.
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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 250 MHz and sophisticated
communications equipment transmits data at rates that exceed 1 gigabit per
second.
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).
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 bandwidth (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 (100 MS/s
and up) and long record lengths (up 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. The Company's 9300 and LC series digital
oscilloscope product families are targeted at customers in the high-performance
market segment.
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According to Prime Data, Inc. ("Prime Data"), an independent industry
survey organization, total 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, Inc. with 42.5%, Hewlett-Packard Company with
18.1%, LeCroy with 12.4% and Fluke Corporation with 4.9%.
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 technology, which includes
many 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 many 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.
- 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 front end hardware and analysis software,
the Company believes that it can provide a total solution to a particular
customer's measurement and analysis requirements.
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
computer disk drive 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:
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- Extend LeCroy Core Competency. 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 largest processing memory, available to
date. The Company intends to continue to allocate significant resources to
extending these performance advantages.
- Target High-Growth Industries with Application-Specific Solutions. 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
24% of the Company's sales in its fiscal year ended June 30, 1997. The Company
recently introduced solution-focused packages for the optical recording
and telecommunications industries. The Company intends to target other high
growth industries that require aplication-specific solutions.
- Leverage Core Technology into New Growth Markets. The Company believes
that it is well positioned to leverage its core 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 testing 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 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
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(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 PowerPC main processor and other custom
processors designed by the Company.
The Company's 9300 series and LC series consists of the following
digital oscilloscope products:
<TABLE>
<CAPTION>
Maximum Maximum Maximum Record Calendar
Bandwidth Sample Rate Length (number of Year of
9300 Model Number (MHz) (1) (MS/s) (2) 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
934x 500 1,000 8,000,000 1997
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
LC374 500 2,000 500,000 1997
LC534 1,000 2,000 8,000,000 1996
LC574 1,000 4,000 8,000,000 1997
</TABLE>
(1) 1,000 MHz = 1 GHz
(2) 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.
- 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.
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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, 1997.
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
develops, 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. With a digital oscilloscope, an engineer can
analyze the shape of the signal within the circuit using test signals 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. The Company's
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.
Revenues from digital oscilloscopes and related products accounted for
approximately 89%, 85% and 80% of the Company's total revenues in its fiscal
years ended June 30, 1997, 1996 and 1995, respectively. 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) accounted for approximately
81%, 79% and 65% of the Company's total revenues in those fiscal years.
The following are examples of specific applications involving the
Company's 9300 series 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 9384AL and model LC574AL 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.
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- 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 9314AL digital oscilloscope is particularly
well suited to such applications. The Model 9314AL has a medium
bandwidth and sample rate, but features a maximum record length of
1,000,000 sample points. In addition, the Model 9314AL 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 testing 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. Guzik is a leader in providing test solutions for the design and
production of hard disk drives. Guzik has informed the Company that it will
use the Company's high-bandwidth oscilloscope chip sets in test instruments
for the disk drive industry, including head testers, media certifiers and
servo track writers. Under the agreement with Guzik, the Company received $2.0
million in fees in fiscal 1997. In addition, Guzik is required to purchase at
least $500,000 worth of chip sets annually. 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.
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
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configuration that provides an overall solution to their particular data
measurement and analysis problems.
Sales of HEP products (including digitizers) accounted for approximately
6%, 11% and 15% of the Company's total revenues in its fiscal years ended June
30, 1997, 1996 and 1995, respectively. 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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 from one to three years, signal source products from one to five
years and HEP products for one year.
Service and aftermarket products (including product upgrades) generated
approximately 5%, 4% and 5% of the Company's total revenues in its fiscal years
ended June 30, 1997, 1996 and 1995, respectively.
Customers
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 5% of the Company's sales in
the fiscal year ended June 30, 1997. No single customer accounted for more
than 10% of the Company's consolidated sales in any of the last three fiscal
years. The Company's top 25 product customers consist of the following:
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<TABLE>
Computers/Disk Drives/Peripherals Government/Military/Aerospace
<S> <S>
- - Hitachi - Naval Air Warfare Center
- - International Business Machines
Corporation Consumer Electronics
- - Iomega - Matsushita
- - Maxtor Corporation - Sony
- - NEC Electronics - Toshiba
- - Quantum Corporation
- - Samsung Electronics Automotive/Transportation
- - Seagate/Conner - Bosch
- - Western Digital - Hyundai Electronics
Industries Co., Ltd
Communications Other
- - 3COM - AT&T Capital Corporation
- - Generaldirektion PTT - Fujitsu Limited
- - Lucent Technologies - GE Capital Corporation
- - Motorola, Inc. - 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 June 30, 1997, the Company's direct digital oscilloscope
sales force consisted of 81 sales engineers directed by nine regional managers
worldwide. The Company is currently in the process of integrating 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.
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.
<Page 12>
Seasonality
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.
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 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 also is
engaged in the development of several new instruments and integrated circuits
to address the needs for precise amplitude and time measurement, and
high-voltage power supplies for a wide variety of particle detectors.
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 $14.2 million, $12.6 million and $10.3 million in its fiscal
years ended June 30, 1997, 1996 and 1995, respectively, which expenses
represented 12.1%, 12.5% and 12.5% of total revenues, respectively, for such
fiscal years. 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
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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 was 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.
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.
As of June 30, 1997, the Company's Geneva facility employed 46
manufacturing employees in an area devoted to such tasks of approximately
14,000 square feet and its Chestnut Ridge facility employed 92 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 $10.2
million and $8.0 million as of June 30, 1997 and 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.
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, 1997,
approximately half of the Company's revenues and half of its costs and expenses
<Page 14>
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, 1995,
foreign currency exchange losses amounted to $684,000. During the fiscal years
ended June 30, 1997 and 1996, the Company reported foreign currency exchange
gains of $678,000 and $539,000, respectively.
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 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, 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 firms.
<Page 15>
Patents, Trademarks and Licenses
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 June 30, 1997, 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 nine 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, Inc.
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 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 approximated
$1,329,000, $963,000 and $781,000 in fiscal 1997, 1996 and 1995, 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
<Page 16>
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 June 30, 1997, LeCroy had 555 employees, of whom 311 work in the
Company's Chestnut Ridge facility, 134 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.
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.
ITEM 2. PROPERTIES
The Company's executive offices and one of its manufacturing facilities
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 facilities are in good working condition
and are suitable for its current operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<Page 17>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Walter O. LeCroy, Jr...... 62 Chairman of the Board of Directors
Lutz P. Henckels.......... 56 President, Chief Executive Officer
and Director
Thomas H. Reslewic........ 38 Executive Vice President-Signal
Analysis Business Group and Worldwide
Sales
Ronald S. Nersesian....... 37 Senior Vice President-Worldwide
Marketing
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)
Warren Davis............. 51 Vice President-Human Resources
John C. Maag.............. 47 Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer
James J. Mueller.......... 44 Vice President-Worldwide Engineering
</TABLE>
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. 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.
<Page 18>
Ronald S. Nersesian has served as the Senior Vice President-Worldwide
Marketing since March 1997. Previously he served as 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 Company. 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.
Werner H. 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, Mr. Cake 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 monitor 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.
Warren Davis has served as the Vice President-Human Resources since
February 1997. Previously, Mr. Davis served as Director of Human Resources
from July 1995 to January 1997. Before joining the Company, Mr. Davis was the
Vice President of Human Resources at EG&G Instruments, Inc., a subsidiary of
EG&G, Inc., a computer manufacturing company. Mr. Davis has a Bachelor of
Science degree in history from The University of Notre Dame and a Master of
Business Administration degree from New York 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.
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.
<Page 19>
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 protection.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
LeCroy's common stock has been traded on 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 for the Common Stock as reported by
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.............................. 37.25 27.00
Fourth Quarter............................. 37.75 25.25
</TABLE>
__________
(1) From October 5, 1995, the effective date of the Company's initial
public offering.
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. As of June
30, 1997, there were approximately 266 holders of record of the Common Stock.
<Page 20>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated Statements of Operations data for the five
years ended June 30, 1997 and the Balance Sheet data at June 30, 1997, 1996,
1995, 1994 and 1993 are derived from the Consolidated Financial Statements of
the Company. 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 included herein.
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995 1994 1993
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues
Digital oscilloscopes and related products....... $104,582 $ 86,061 $65,785 $47,627 $42,812
High energy physics products..................... 6,993 10,952 12,277 13,519 15,640
Service and other (1)............................ 5,552 4,478 4,210 2,696 2,835
------- ------- ------ ------ ------
Total....................................... 117,127 101,491 82,272 63,842 61,287
Cost of sales (2).................................. 49,829 45,545 37,777 28,252 26,930
------- ------- ------ ------ ------
Gross profit................................ 67,298 55,946 44,495 35,590 34,357
Selling, general and administrative expenses....... 39,115 34,623 27,950 22,831 23,029
Research and development expenses.................. 14,208 12,639 10,315 8,770 9,736
Restructuring costs (3)............................ 3,857 - - 930 -
------- ------- ------ ------ ------
Operating income............................ 10,118 8,684 6,230 3,059 1,592
Technology dispute settlement costs (4)............ - - - 2,073 278
Other (income) expenses, net....................... (361) 134 2,212 1,694 1,434
------- ------- ------ ------ ------
Income (loss) before income taxes and
extraordinary charge................ 10,479 8,550 4,018 (708) (120)
Provision for income taxes......................... 3,521 2,992 1,408 331 30
------- ------- ------ ------ ------
Income (loss) before extraordinary charge... 6,958 5,558 2,610 (1,039) (150)
Extraordinary charge for early retirement of debt.. - (1,300) - - -
------- ------- ------ ------ ------
Net income (loss)........................... $ 6,958 $ 4,258 $ 2,610 $(1,039) $ (150)
======= ======= ====== ====== ======
Income (loss) per share before extraordinary charge $ .98 $ .93 $ .56 $ (.24) $ (.03)
Extraordinary charge............................... - (.22) - - -
---- ---- ---- ----- -----
Net income (loss) per share........................ $ .98 $ .71 $ .56 $ (.24) $ (.03)
==== ==== ==== ===== =====
Weighted average common shares outstanding (5)..... 7,073 5,953 4,683 4,407 4,418
June 30,
1997 1996 1995 1994 1993
(in thousands)
Balance Sheet Data:
Working capital.................................... $40,219 $32,041 $21,791 $13,120 $16,818
Total assets....................................... 76,206 62,400 49,836 39,477 35,252
Total debt and capitalized leases.................. - 5,673 18,042 15,235 12,530
Total stockholders' equity......................... 52,022 37,472 17,440 12,820 12,518
<Page 21>
__________
(1) Service and other includes sales and product upgrades.
(2) Included in cost of sales in fiscal 1997, 1996 and 1995 are recurring technology license royalties pursuant to an
agreement settling certain litigation.
(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 and in fiscal 1997 due to a
restructuring of the Company's High Energy Physics business.
(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) See "Per Share Information" in Note 1 to Consolidated Financial Statements.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Annual Report on Form 10-K.
This section contains certain forward-looking statements that are subject
to risks and uncertainties, including without limitation those discussed in the
section entitled "Risk Factors" in the Prospectus filed by the Registrant with
the Securities and Exchange Commission pursuant to Rule 424(b) on March 25,
1997 (which section is hereby incorporated by reference herein). These risks
and uncertainties could cause the Registrant's actual results in future
periods to differ materially from its historical results and from any opinions
or statements expressed in such forward-looking statements. Such forward-
looking statements speak only as of the date of this report, and the
Registrant cautions readers not to place undue reliance on such statements.
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 a single high-performance product family, the 9300 series,
which has resulted in a significant increase in revenues. The Company's total
revenues were $117.1 million, $101.5 million and $82.3 million for the fiscal
years ended June 30, 1997, 1996 and 1995, respectively, and revenues from
digital oscilloscopes and related products accounted for approximately 89%,
85% and 80% of the Company's total revenues for those fiscal years.
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
<Page 22>
was closed and the Company's product offerings were streamlined to focus 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 7.6% for the fiscal year ended June 30, 1995 to 11.9%,
excluding the impact of restructuring charges, for the fiscal year ended June
30, 1997. The Company believes that certain models of its 9300 series and
LC series offer the highest sampling rate, and others the largest processing
memory, 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 6%, 11% and 15% of the
Company's total revenues for the fiscal years ended June 30, 1997, 1996 and
1995, respectively. 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 has
undertaken 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 resulted in a charge to fiscal 1997 third quarter results of approximately
$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 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 "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 model oscilloscope, the model LC574A. This higher production volume has
increased operating efficiencies at Chestnut Ridge.
<Page 23>
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 consolidated
statements of income:
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
<S> <C> <C> <C>
Revenues
Digital oscilloscopes and related products.... 89.3% 84.8% 80.0%
High energy physics products.................. 6.0 10.8 14.9
Service and other............................. 4.7 4.4 5.1
----- ----- -----
Total..................................... 100.0 100.0 100.0
Cost of sales.................................... 42.5 44.9 45.9
----- ----- -----
Gross profit.................................. 57.5 55.1 54.1
Selling, general and administrative expenses..... 33.5 34.1 34.0
Research and development expenses................ 12.1 12.5 12.5
Restructuring costs.............................. 3.3 - -
----- ----- -----
Operating income.............................. 8.6 8.5 7.6
Other (income) expenses, net..................... (0.3) 0.1 2.7
----- ----- -----
Income before income taxes and extraordinary
charge..................................... 8.9 8.4 4.9
Provision for income taxes....................... 3.0 2.9 1.7
----- ----- -----
Income before extraordinary charge............ 5.9 5.5 3.2
Extraordinary charge for early retirement of debt - (1.3) -
----- ----- -----
Net income.................................... 5.9% 4.2% 3.2%
===== ===== =====
</TABLE>
Comparison of Fiscal Years 1997 and 1996
Total revenues increased to $117.1 million in 1997 from $101.5 million in
1996, or 15%, and represented record full-year revenues for the Company.
Revenues increased primarily as a result of an increase in unit sales of
higher margin digital oscilloscopes and related products. On a geographic
basis, total revenues increased to $50.7 million in 1997 from $42.2 million in
1996, or 20%, in the United States, to $42.7 million in 1997 from $42.3
million in 1996, or 1%, in Europe and to $23.7 million in 1997 from $17.0
million in 1996, or 40%, in the rest of the world, principally Japan and the
rest of Asia.
The increase in revenues was offset in part by approximately $5.4 million
in the current year 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.
Revenues from digital oscilloscopes and related products increased 21.5%
to $104.6 million in 1997, including $2.0 million dollars in fees for digital
oscilloscope solutions, from $86.1 million in 1996. This increase in revenues
<Page 24>
was primarily attributable to a 13% increase in unit sales of the higher-end
products in the Company's 9300 family of digital oscilloscopes including the
938X model introduced in June 1996, together with sales of the LC series of
color digital oscilloscopes introduced in fiscal 1997. Average selling prices
of digital oscilloscope and related products increased by 7% as compared to
fiscal 1996 as a result of a continuing change in the Company's product mix
towards higher-end products. In addition to the above fees, the Company
recognized $2.0 million dollars in license fee revenues.
Revenues from sales of HEP products declined to $7.0 million in 1997 from
$11.0 million in 1996, or 36%. 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 6% of total revenues in 1997
as compared to approximately 11% of total revenues in 1996, are likely to
continue to represent a declining portion of its total revenues in the future,
attributable in part to lower anticipated order volumes. As a result of this
continued revenue decline, 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 has
undertaken 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 December 1997 and
resulted in a charge to fiscal 1997 third quarter results of approximately
$3.9 million ($2.5 million after tax).
Service and other revenues increased to $5.6 million in 1997 from $4.5
million in 1996, or 24%, due primarily to the continued increase in marketing
of service and support programs for digital oscilloscopes and related products
and higher sales of upgrades for such products.
Gross profit for fiscal 1997 was 57.5% of revenues compared to 55.1% for
fiscal 1996. This growth was due primarily to increased revenues from higher
sales volume of certain higher margin 9300 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, and license fee revenues. The increase
in gross profit was hampered by $2.0 million due to the strengthening of the
United States dollar versus the Swiss franc, Japanese yen and the German
deutschemark as compared to the exchange rates prevailing in the prior fiscal
year.
Selling, general and administrative expenses increased to $39.1 million
in 1997 from $34.6 million in 1996, or 13%. These expenses increased 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. As a
percentage of total revenues, selling, general and administrative expenses
declined to 33.5% in 1997 compared to 34.1% in 1996.
Research and development expenses increased to $14.2 million in 1997 from
$12.6 million in 1996, or 12%. This higher level of research and development
expenses reflects an increase in connection with introductions of new digital
<Page 25>
oscilloscopes and related products and continued development of a LAN monitor.
As a percentage of total revenues, research and development expenses were 12.1%
in 1997 compared to 12.5% in 1996. The Company's objective is to maintain
annual research and development expenses at approximately 12% to 14% of total
revenues.
Operating income, excluding the impact of the HEP restructuring charges,
increased to $14.0 million in 1997 from $8.7 million in 1996, or 61%. As a
percentage of total revenues, operating income, excluding the impact of the
restructuring charges, was 11.9% in 1997 as compared to 8.5% in 1996. The
increase in operating income was due 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 $317,000 in 1997 compared to $672,000 in 1996. The decrease
in the current year is due primarily to reduced levels of debt, paid down from
funds received in the third quarter of fiscal 1997 from the Company's secondary
public offering of its common stock. Average borrowing levels were $4.6 million
in 1997 as compared to $7.6 million in 1996. Operating results in fiscal 1997
and 1996 included currency exchange gains of approximately $678,000 and
$539,000, respectively.
The Company's effective income tax rate for 1997 was 33.6%. 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 17%. This agreement is in effect through
fiscal year end 2000. As a result of this agreement and the Company's policy
of not providing for U.S. taxes on earnings determined to be permanently
invested outside the United States, management believes that the Company's
effective income tax rate for 1998 will be 30%.
Excluding the impact of the HEP restructuring charges, income before
extraordinary charge increased 70% to $9.5 million in 1997 compared to $5.6
million in 1996. Excluding the impact of the restructuring charges, income
before extraordinary charge as a percentage of total revenues was 8.1%
compared to 5.5% for 1996.
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%. This
increase in revenues was primarily attributable to a 35% increase in unit sales
of the higher-end products in the Company's 9300 family of digital
oscilloscopes. 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.
<Page 26>
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 of 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 of the 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
expenses in 1996 was attributable to the weakening of the United States dollar
versus the Swiss franc as compared to the exchange rates prevailing in 1995.
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 an analog LAN network 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 8.6% 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 decreased to $672,000 in 1996 from $1.5
million in 1995, or 56%. The decrease in the current year is 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
<Page 27>
(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 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.
Liquidity and Capital Resources
On March 31, 1997 LeCroy completed a secondary public offering of its
common stock of which net proceeds amounted to approximately $7.7 million and
were used primarily to repay the remaining outstanding advances under its
multicurrency revolving credit facility. Working capital, including $19.9
million in cash and cash equivalents, increased to $40.2 million at June 30,
1997, which represented a working capital ratio of 2.7 to 1, compared to $32.0
million, or 2.6 to 1, at June 30, 1996. Cash and cash equivalent balances
primarily reflect short- term deposits in both Europe and the United States.
Cash flows from operating activities were $12.8 million in fiscal 1997
compared to $8.3 million in fiscal 1996 and $1.0 million in fiscal 1995. The
significant improvement in comparison to the prior two fiscal years is the
result of increased operating earnings in the current year coupled with
improved asset management. Combined accounts receivable and inventories at
year-end were 36% of fiscal 1997 revenues compared to 40% in fiscal 1996 and
46% in fiscal 1995.
The Company has financed its operations primarily through cash flows from
operations as well as the net proceeds from its public offerings. LeCroy has
an unused $15 million unsecured multicurrency credit agreement with two
commercial banks, maturing in January 1999. 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.
Capital expenditures were $5.1 million, $3.7 million and $2.9 million in
fiscal 1997, 1996 and 1995, respectively. These capital expenditures were
primarily for assembly, research, design and test equipment, facilities
improvements and information systems. Average net fixed assets employed were
$10.0 million, or 8.5% of fiscal 1997 revenues, compared to $8.2 million or
8.1% of revenues in fiscal 1996. LeCroy anticipates that its capital spending
for property and equipment in fiscal 1998 will approximate $7 million,
primarily for design and test equipment, information systems and facilities
improvements. Funding for capital expenditures generally will be
provided from internal sources.
<Page 28>
In addition, the Company maintains certain foreign borrowing and overdraft
facilities, principally a three million Swiss franc ($2.1 million using the
U.S. dollar/Swiss franc exchange rate as of June 30, 1997) multicurrency
revolving credit agreement and a ten million French franc ($1.7 million using
the U.S. dollar/French franc exchange rate as of June 30, 1997) multicurrency
revolving credit agreement, both cancelable upon notice by the bank or the
Company.
The Company's cash and cash equivalents on hand, together with amounts
available under its multicurrency revolving credit agreement, and internally
generated cash flow will be sufficient to fund working capital and capital
expenditure requirements for at least the next twelve months.
New Pronouncements
The Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" (SFAS No. 128), which modifies the way in which earnings
per share (EPS) is calculated and disclosed. Currently, the Company discloses
primary EPS. Upon adoption of this standard for the interim period ended
December 31, 1997, the Company will disclose basic and diluted EPS and will
restate all prior period EPS data presented. The Company anticipates this
change will have a material impact on the calculation of EPS. If SFAS No. 128
was adopted for the fiscal year ended June 30, 1997, the Company would have
reported $1.19 per share for the basic EPS calculation.
<Page 29>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
LeCROY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors............................. 30
Consolidated Balance Sheets as of June 30, 1997 and 1996... 31
Consolidated Statements of Income for the Years Ended
June 30, 1997, 1996 and 1995............................... 33
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995................... 34
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995............................... 35
Notes to Consolidated Financial Statements................. 37
<Page 30>
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, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended June 30, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of LeCroy Corporation at June 30, 1997 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, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Hackensack, New Jersey
August 5, 1997
<Page 31>
LeCROY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30,
1997 1996
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 19,936 $ 10,315
Accounts receivable, less allowance of $217 in
1997 and $38 in 1996, respectively................. 24,157 20,625
Inventories........................................ 18,506 20,104
Other current assets............................... 1,613 1,278
------ ------
Total current assets............................... 64,212 52,322
Property and equipment, at cost:
Land and building.................................. 5,889 5,202
Furniture, machinery and equipment................. 27,460 25,948
------ ------
33,349 31,150
Less: Accumulated depreciation and amortization.... (22,286) (22,234)
------ ------
11,063 8,916
Other assets.......................................... 931 1,162
------ ------
$ 76,206 $ 62,400
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt....................................... $ - $ 1,026
Accounts payable................................... 6,787 6,882
Accrued warranty................................... 1,960 1,579
Accrued liabilities................................ 5,139 3,224
Accrued employee compensation and benefits......... 5,062 4,066
Income taxes payable............................... 5,045 3,504
------ ------
Total current liabilities....................... 23,993 20,281
Long-term debt and capitalized leases................. - 4,647
Deferred compensation................................. 191 -
Contingencies and commitments
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, none issued and
outstanding).................................... - -
Series C Preferred stock, $.01 par value (Authorized
1,304,348 shares, none issued and outstanding)... - -
Common stock, $.01 par value (Authorized 45,000,000
shares; 6,822,773 and 5,877,732 issued and
6,710,618 and 5,426,606 outstanding in 1997 and
1996, respectively).............................. 68 59
Additional paid-in capital.......................... 31,805 22,112
Less: Treasury stock at cost; (112,155 and 451,126
shares in 1997 and 1996, respectively)........... (813) (2,334)
Foreign currency translation adjustment............. (1,969) 1,662
<Page 32>
Retained earnings................................... 22,931 15,973
------ ------
Total stockholders' equity.......................... 52,022 37,472
------ ------
$76,206 $62,400
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<Page 33>
LeCROY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Digital oscilloscopes and related products $104,582 $ 86,061 $65,785
High energy physics products.............. 6,993 10,952 12,277
Service and other......................... 5,552 4,478 4,210
------- ------- ------
Total.................................. 117,127 101,491 82,272
Cost of sales................................ 49,829 45,545 37,777
------- ------- ------
Gross profit.............................. 67,298 55,946 44,495
Operating expenses:
Selling, general and administrative....... 39,115 34,623 27,950
Research and development.................. 14,208 12,639 10,315
Restructuring costs....................... 3,857 - -
------- ------ ------
Operating income............................. 10,118 8,684 6,230
Other (income) expenses, net................. (361) 134 2,212
------- ------ ------
Income before income taxes and
extraordinary charge...................... 10,479 8,550 4,018
Provision for income taxes................... 3,521 2,992 1,408
------- ------ ------
Income before extraordinary charge........... 6,958 5,558 2,610
Extraordinary charge for early retirement
of debt................................... - (1,300) -
------- ------ ------
Net income................................... $ 6,958 $ 4,258 $ 2,610
======= ====== ======
Income per common share:
Income before extraordinary charge........ $ 0.98 $ 0.93 $ 0.56
Extraordinary charge...................... - (0.22) -
------- ------- ------
Net Income................................ $ 0.98 $ 0.71 $ 0.56
======= ======= ======
Weighted average number of common shares..... 7,073 5,953 4,683
======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<Page 34>
LeCROY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Foreign
Series B Series C Additional Currency
Preferred Stock Preferred Stock Common Stock Paid-in Treasury Stock Translation Retained
Shares Amount Shares Amount Shares Amount Capital Shares Amount Adjustment Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1,
1994............... 3,595 $36 $2,501 (37) $ (373) $ 1,551 $ 9,105 $12,820
Common shares
repurchased....... (585) (2,760) (2,760)
Conversion of shares 656 $ 7 (656) (7)
Sale of shares...... 559 $ 6 2,502 2,508
Sale of common stock
warrants.......... 416 416
Foreign currency
translation....... 1,846 1,846
Net income.......... 2,610 2,610
---- --- ---- --- ----- --- ----- ---- ------ ----- ----- -----
Balance at June 30,
1995............... 559 6 656 7 2,939 29 5,419 (622) (3,133) 3,397 11,715 17,440
Public sale of
common stock...... 1,500 15 15,297 15,312
Exercise of stock
rights............ 223 2 912 914
Conversion of
preferred stock... (782) (8) (656) (7) 1,439 15
Stock option and
stock purchase
plans............. 484 171 799 1,283
Foreign currency
translation....... (1,735) (1,735)
Net income.......... 4,258 4,258
------ ---- ------ ---- ------ ------ ------ -----
Balance at June 30,
1996............... 5,878 59 22,112 (451) (2,334) 1,662 15,973 37,472
Public sale of
common stock...... 354 3 7,717 7,720
Conversion of stock
warrants.......... 591 6 (6)
Stock option and
stock purchase
plans............. 1,532 339 1,521 3,053
Tax benefit from
exercise of stock
options........... 450 450
Foreign currency
translation....... (3,631) (3,631)
Net income.......... 6,958 6,958
------ ---- ------ ---- ------ ------ ------ -----
Balance at June 30,
1997............... 6,823 $ 68 $ 31,805 (112) $ (813) $ (1,969) $ 22,931 $52,022
===== ==== ====== === ===== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<Page 35>
LeCROY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 6,958 $ 4,258 $ 2,610
Adjustments for noncash items included
in operating activities:
Depreciation and amortization............. 3,084 2,221 1,922
Restructuring provision................... 3,617 - -
Deferred income taxes..................... 79 165 799
Extraordinary charge and other............ - 1,300 (1,192)
Change in operating asset and liability
components:
Accounts receivable....................... (3,622) (3,751) (1,271)
Inventories............................... (694) (510) (3,430)
Prepaid expenses and other assets......... (141) (409) (273)
Accounts payable, accrued warranty and
accrued liabilities.................... 566 1,536 1,799
Accrued employee compensation and benefits 1,014 1,415 (281)
Income taxes.............................. 1,893 2,050 267
----- ----- -----
Net cash provided by operating activities.... 12,754 8,275 950
------ ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (5,135) (3,720) (2,854)
Proceeds from disposal of property and
equipment.............................. 38 - 57
Due from officers......................... 35 147 608
------ ------ -----
Net cash used in investing activities........ (5,062) (3,573) (2,189)
------ ------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
and capitalized leases................. - 4,600 23,676
Repayment of debt and capitalized leases.. (5,761) (16,878) (19,534)
Technology license payments............... - - (1,549)
Sale of common stock...................... - - 2,508
Repurchase of common stock................ - - (2,760)
Public sale of common stock............... 7,720 15,312 -
Proceeds from sale of warrants............ - - 16
Proceeds from exercise of stock rights.... - 914 -
Proceeds from exercise of stock options
and stock purchases.................... 3,053 1,283 -
------ ------ ------
Net cash provided by financing activities.... 5,012 5,231 2,357
------ ------ ------
Effect of exchange rates on cash............. (3,083) (1,026) 79
------ ------ ------
Increase in cash and cash equivalents..... 9,621 8,907 1,197
Cash and cash equivalents at beginning of
the year............................... 10,315 1,408 211
------ ------ ------
<Page 36>
Cash and cash equivalents at end of the
year................................... $19,936 $10,315 $ 1,408
====== ====== =====
Supplemental Cash Flow Disclosure
Cash paid during the year for:
Interest............................... $ 514 $ 649 $ 1,336
Income taxes........................... 1,158 731 418
Tax benefit of disqualifying
dispositions of stock options....... 450 - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<Page 37>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Summary of Significant Accounting Policies
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 1, 1995, June 29, 1996, and June
28, 1997). For each of the fiscal years, 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 the United States and Europe with major
banks with investment levels and debt ratings set to limit exposure with any
one institution.
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.
<Page 38>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
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:
Building............................ 20-32 years
Furniture, machinery and equipment.. 3-12 years
Income Taxes
Deferred tax assets and liabilities are recognized on the income reported
in the financial statements regardless of when such taxes are payable. These
deferred taxes are measured by applying current enacted tax rates. The
Company's policy is not to provide for U.S. taxes on undistributed earnings of
foreign subsidiaries to the extent such earnings are determined to be
permanently invested outside the United States.
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 1997, 1996 and 1995
resulting from foreign currency transactions approximated $678, $539 and
$(684), 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.
Per Share Information
Net income 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 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 per share as if they were outstanding for all periods presented
prior to the initial public offering (using the treasury stock method).
<Page 39>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB No. 25,
if the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
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 periodically 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,
1997 1996
<S> <C> <C>
Raw materials.............................. $ 6,692 $ 7,398
Work in process............................ 3,439 6,539
Finished goods............................. 8,375 6,167
----- -----
$18,506 $20,104
====== ======
</TABLE>
The allowance for excess and obsolete inventory, included above, amounted
to $4,656 in 1997 and $2,459 in 1996. As part of the HEP restructuring, the
Company has reserved $2,103 for inventory writedowns as of June 30, 1997
(see Note 10) which is included in the $4,656 total allowance.
3. Other Assets
Other assets consist of the following:
<Page 40>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30,
1997 1996
<S> <C> <C>
Deferred financing costs, net........ $172 $ 282
Patents and trademarks, net.......... 178 191
Other................................ 581 689
---- -----
$931 $1,162
==== =====
</TABLE>
Deferred financing costs are being amortized over the term of the related
debt; patents and trademarks are being amortized on the straight-line basis
over 10 years.
4. Income Taxes
The components of income (loss) before income taxes and extraordinary charge
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Domestic.................................. $ 102 $(1,810) $ (837)
Foreign................................... 10,377 10,360 4,855
------ ------ -----
Total ............................... $10,479 $ 8,550 $ 4,018
====== ====== =====
</TABLE>
The provision for income taxes at fiscal June 30, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current Foreign........................... $3,442 $2,827 $ 609
Deferred Foreign.......................... 79 165 799
----- ----- -----
Total................................... $3,521 $2,992 $1,408
===== ===== =====
</TABLE>
The reconciliation between U.S. federal statutory rate and the Company's
effective tax rate (benefit) is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Tax at U.S. federal statutory rate........ 35.0% 35.0% 35.0%
Increase (reductions) to statutory tax rate from:
Change in valuation allowances............ 13.4 16.4 0.4
Difference between U.S. and Foreign rate.. (18.1) (17.2) (1.6)
Other, net................................ 3.3 0.8 1.2
---- ---- ----
Total..................................... 33.6% 35.0% 35.0%
==== ==== ====
</TABLE>
<Page 41>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
Significant components (temporary differences and carryforwards) that give
rise to the Company's deferred tax assets as of June 30, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
1997 1996
Deferred tax assets:
<S> <C> <C>
HEP Reserve................................ $1,065 $ -
Revenue recognition........................ 242 224
U.S. net operating loss carryforwards...... 782 1,166
Research and development tax credits....... 155 60
Foreign net operating loss carryforwards... 362 302
State investment tax credit carryforwards.. 614 300
Inventory valuation reserves............... 952 587
Vacation pay reserves...................... 102 91
Other, net................................. 48 185
----- -----
Total deferred tax assets.................. 4,322 2,915
Valuation allowance........................ (4,322) (2,915)
----- -----
Net deferred tax assets.................... $ - $ -
===== =====
</TABLE>
Included in current income taxes payable in 1997 and 1996 is $556 and
$521, respectively, of current deferred income taxes payable associated with
foreign inventory provisions and other foreign tax reserves.
At June 30, 1997, the Company had a deferred tax asset of $4,322 (before
valuation allowance) consisting primarily of the future tax benefits from net
operating loss carryforwards and other tax credits. Realization of the net
deferred tax asset and future reversals of the valuation allowance depend on
the Company's ability to generate U.S. future taxable income during the
respective carryforward periods. If realized, tax benefits of $1,268 associated
with U.S. net operating loss carryforwards and cumulative temporary differences
are attributable to employee stock option exercises and the tax benefit will
increase additional paid in capital rather than current earnings.
Under Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109), the Company would be required to recognize all
or a portion of its net deferred tax asset if it believed that it was more
likely than not, given the weight of all available evidence, that all or a
portion of the benefits of the carryforward losses and tax credits would be
realized. Management believes that, based on the available evidence, it
is more likely than not that the Company will not realize any benefits from
its net deferred tax asset, and it has therefore recorded a 100% reserve
against the asset at June 30, 1997. Management will continue to assess the
realizability of the deferred tax asset at each interim and annual balance
sheet date based on actual and forecasted operating results.
In general it has been the practice of the Company to reinvest unremitted
earnings of foreign subsidiaries.
<Page 42>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
The cumulative amount of undistributed earnings of consolidated foreign
subsidiaries for which federal income taxes have not been provided was $22,658
at June 30, 1997. These earnings which reflect full provision for non-U.S.
income taxes, are anticipated to be reinvested permanently outside the United
States or will be remitted substantially free of additional tax. Determining
the U.S. income tax liability that might be payable if these earnings were
remitted is not practicable.
At June 30, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $4,817 which are available to offset future
taxable income for varying periods through fiscal 2012. Foreign tax net
operating losses of $846 at June 30, 1997 are available to offset future
taxable income for varying periods based on the country of origin.
5. Term Debt
Term debt at June 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Revolving credit agreement................. $4,600
Other...................................... 957
-----
5,557
Less: Current debt......................... 930
-----
$4,627
======
</TABLE>
In December 1995, the Company finalized an unsecured $15 million
multicurrency revolving line of credit agreement with two commercial banks
which allows for borrowings in various currencies and provides for interest to
be payable quarterly at the highest 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, United
States dollar advances were $4,600 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 1/4 of 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. In March
1997 proceeds received from the Company's secondary public offering were used
to repay previously outstanding advances under the revolving credit agreement.
Interest expense, net, included in other expense was $317 in fiscal 1997,
$672 in fiscal 1996 and $1,528 in fiscal 1995.
At June 30, 1997, the Company had short-term unused lines of credit
aggregating $5,298 for foreign operations.
<Page 43>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
6. Capital Stock and Option Plans
On March 31, 1997, the Company completed a secondary public offering of
1,684,500 shares of Common Stock, of which 1,330,808 shares were sold by
certain selling shareholders and 353,692 new shares were issued by the Company.
Net proceeds to the Company from this issuance amounted to $7.7 million, net of
related offering expenses, and were used primarily to repay outstanding
advances under its multicurrency revolving credit facility.
On October 5, 1995, the Company completed an initial public offering of
1,500,000 shares of Common Stock for the 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 were reserved for future
issuance, at an exercise price of $4.49 per share. Concurrent with the
secondary public offering in March 1997, these warrants were converted into
591,349 shares of Common Stock based on the exercise price and the fair market
value determined by reference to the average closing price for the five trading
days preceding the date of exercise. For accounting purposes, the deemed value
of the warrants at issuance was treated as additional financing costs and was
being amortized to interest expense over the outstanding period of the
subordinated debentures. As a result of repayments 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, 1997, a maximum of 2,128,600 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. This limitation does not apply to
nonqualified stock options or restricted stock awards that may be granted under
the amended 1993 Plan. The vesting period and expiration of each grant will be
determined by the Compensation Committee of the Board of Directors. In general,
the vesting period is 25% per annum over a four year period and the life of the
option is ten years from the date of grant.
Under the Amended and Restated 1993 Stock Incentive Plan adopted 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.
<Page 44>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
Transactions for incentive and "non-qualified" stock options for the
Amended and Restated 1993 Stock Incentive Plan for fiscal year 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
Weighted
Exercise Average
Number of Price Exercise
Shares Per Share Price
<S> <C> <C> <C>
Outstanding at July 1, 1994..... 479,659 $ 6.33 - $10.47 $ 6.71
Granted......................... 576,956 6.33 - 8.05 6.41
Cancelled....................... (5,337) 6.33 6.33
--------- -------------- -----
Outstanding at June 30, 1995.... 1,051,278 6.33 - 10.47 6.55
Granted......................... 327,706 9.20 - 19.63 15.17
Exercised....................... (128,570) 6.33 - 10.47 6.62
Cancelled....................... (2,132) 6.33 6.33
--------- -------------- -----
Outstanding at June 30, 1996.... 1,248,282 6.33 - 19.63 8.80
Granted......................... 464,000 22.25 - 32.25 26.71
Exercised....................... (291,638) 6.33 - 22.25 7.71
Cancelled....................... (44,340) 6.33 - 22.25 10.53
--------- -------------- -----
Outstanding at June 30, 1997.... 1,376,304 $ 6.33 - $32.25 $15.01
========= ============== =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
at June 30, 1997 at June 30, 1997
Weighted Weighted Weighted
Average Average Average
Number of Exercise Contractual Number of Exercise
Range Shares Price Life(years) Shares Price
<S> <C> <C> <C> <C> <C>
$ 6.33 - $12.00 692,054 $ 6.78 7.05 434,565 $ 6.77
$12.01 - $24.00 429,250 19.16 8.82 57,563 16.49
$24.01 - $32.25 255,000 30.37 9.61 - -
------- ----- ------- -----
Total 1,376,304 15.01 492,128 7.90
========= ===== ======= =====
</TABLE>
Of the total options outstanding under the 1993 Plan, 492,128, 359,332 and
216,647 were exercisable at June 30, 1997, 1996 and 1995, respectively. Stock
options available for grant were zero, 144,887 and 382,203 at June 30, 1997,
1996 and 1995, 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. As of June 30, 1997,
<Page 45>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
no shares had been issued upon exercise of options granted under the Director
Option Plan, options for 25,364 shares were outstanding at an exercise price
of $9.20 per share and options to purchase 192,027 shares were available for
future grant under the Plan.
At June 30, 1997, the Company has reserved 2,034,734 shares of Common
Stock for the exercise of options.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had been
accounting for its employee stock options under the fair value method of that
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
1997 and 1996, respectively: weighted-average risk-free interest rates of 6.5%
for both years; no dividends; volatility factors of the expected market price
of the Company's common stock of 0.286 for both years and a weighted-average
expected life of the options of 5.3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options granted in 1997 and 1996 is amortized to expense over the options'
vesting period. The weighted-average grant date fair value of options granted
during fiscal years 1997 and 1996 were 9.22 and 6.04, respectively. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Pro forma net income...................... $5,806 $4,007
Pro forma earnings per common share and
common share equivalents............... $0.84 $0.71
</TABLE>
The pro forma disclosures presented above for fiscal year 1996 reflect
compensation expense only for options granted in fiscal year 1996 and for
fiscal year 1997 only for options granted in fiscal years 1996 and 1997. These
amounts may not necessarily be indicative of the pro forma effect of SFAS No.
123 for future periods in which options may be granted.
7. Employee Benefit Plans
The Company has a trusteed employee 401(k) savings plan for eligible U.S.
employees. Effective October 1, 1996, the Company matches up to 50% of
employee contributions up to a maximum employer contribution of 2.5% of the
employee's total compensation. For the year ended June 30, 1997, the Company
has expended $261 in contributions to the plan.
<Page 46>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
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 amounting to $795
in 1997, $737 in 1996 and $549 in 1995 were charged to expense in each
respective period.
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. To date, 89,957 shares have been
issued under the Employee Stock Purchase Plan and 344,826 shares were available
for future issuance.
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
the year ended June 30, 1995, the Company contributed approximately $450 to
the ESOP. For the years ended June 30, 1997 and 1996, respectively, 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.
For the year ended June 30, 1996, in lieu of a contribution to the ESOP,
the Company distributed $450 to all eligible Chestnut Ridge employees through
direct cash payments.
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 years ended June 30,
1997, 1996 and 1995 are presented below:
<Page 47>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Revenue
from Area
Total Interarea Unaffiliated Operating Identifiable
Revenue Revenu Customers Income Assets
<S> <C> <C> <C> <C> <C>
1997
United States... $ 65,594 $(14,943) $ 50,651 $ (513) $38,477
Europe.......... 78,058 (35,327) 42,731 11,601 30,576
Other foreign... 23,745 - 23,745 748 7,153
Interarea
Eliminations.... (50,270) 50,270 - - -
-------- ------- ------- ------ ------
$117,127 $ - $117,127 $11,836 $76,206
======= ======= ======= ====== ======
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
======= ======= ======= ====== ======
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
======= ====== ======= ====== ======
</TABLE>
Unallocated corporate expenses amounting to $1,718, $1,427 and $993 in
1997, 1996 and 1995, respectively, are excluded from area operating income.
Other foreign revenues consist principally of sales from Japan and Asia.
9. Commitments and Contingencies
Leases
The Company has operating leases from continuing operations covering
plant, certain office facilities, and equipment which expire at various dates
through 2005. Future minimum annual lease payments required during the years
ending in fiscal 1998 through 2002 and 2003 and beyond under noncancelable
operating leases having an original term of more than one year are $1,775,
$1,539, $1,378, $1,282, $1,031 and $2,554, respectively. Aggregate rental
expense on noncancelable operating leases for the years ended June 30, 1997,
1996 and 1995 approximated $2,749, $2,844 and $2,559, respectively.
The Company has a 2,000 Swiss franc credit agreement which serves as
security for the lease on the Geneva facility.
<Page 48>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
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. 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 $1,329 in 1997, $963
in 1996 and $781 in 1995, are included in cost of sales.
10. HEP Restructuring
In January 1997, the Company adopted a strategic business plan to reduce
costs and improve asset utilization in its HEP business. In connection with
the plan, the Company has taken 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 resulted in a charge to fiscal 1997 third quarter
results of approximately $3.9 million ($2.5 million after taxes), of which
$0.6 million relates to severance ($0.3 million of the severance has been paid
through June 30, 1997).
<Page 49>
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(in thousands, except share and per share data)
11. Quarterly Results of Operations (Unaudited)
Summarized unaudited quarterly operating results for fiscal year 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
Quarters Ended
Fiscal Year 1996 Fiscal Year 1997
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1995 1995 1996 1996 1996 1996 1997 1997
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Digital oscilloscopes and
related products.......... $18,392 $21,553 $22,436 $23,680 $23,397 $25,619 $26,492 $29,074
High energy physics products 2,819 2,237 2,972 2,924 1,836 1,761 1,802 1,594
Service and other........... 1,189 1,023 1,132 1,134 1,164 1,382 1,601 1,405
------ ------ ------ ------ ------ ------ ------ ------
Total.................... 22,400 24,813 26,540 27,738 26,397 28,762 29,895 32,073
Cost of sales............... 10,283 11,156 11,797 12,309 11,520 12,438 12,503 13,368
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............. 12,117 13,657 14,743 15,429 14,877 16,324 17,392 18,705
Selling, general and
administrative expenses... 7,685 8,321 9,211 9,406 9,132 9,373 10,156 10,454
Research and development
expenses.................. 3,129 3,187 3,155 3,168 3,516 3,763 3,331 3,598
Restructuring charges....... - - - - - - 3,857 -
------ ------ ------ ------ ------ ------ ------ ------
Operating income......... 1,303 2,149 2,377 2,855 2,229 3,188 48 4,653
Other (income) expense, net. 307 132 47 (352) (154) (149) 25 (83)
------ ------ ------ ------ ------ ------ ------ ------
Income before taxes and
extraordinary charge...... 996 2,017 2,330 3,207 2,383 3,337 23 4,736
Provision for income taxes. 349 706 815 1.122 830 1,168 8 1.515
------ ------ ------ ------ ------ ------ ------ ------
Income before extraordinary
charge.................... 647 1,311 1,515 2,085 1,553 2,169 15 3,221
Extraordinary charge for
early retirement of debt.. - 1,300 - - - - - -
------ ------ ------ ------ ------ ------ ------ ------
Net income.................. $ 647 $ 11 $ 1,515 $ 2,085 $ 1,553 $ 2,169 $ 15 $ 3,221
====== ====== ====== ====== ====== ====== ====== ======
Income per share before
extraordinary charge...... $ .14 $ .21 $ .24 $ .32 $ .23 $ .31 $ .00 $ .44
Extraordinary charge........ (.21)
------ ------ ------ ------ ------ ------ ------ ------
Net income per share........ $ .14 $ .00 $ .24 $ .32 $ .23 $ .31 $ .00 $ .44
====== ====== ====== ====== ====== ====== ====== ======
Weighted average common
shares outstanding........ 4,632 6,212 6,439 6,544 6,740 6,999 7,090 7,399
</TABLE>
<Page 50>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the directors of the Company and with respect
to Item 405 disclosure of delinquent Form 3, 4 or 5 filers will be contained
in the Company's definitive Proxy Statement relating to its 1997 Annual Meeting
of Stockholders, which is scheduled to be held October 29, 1997; said
information is incorporated herein by reference. The discussion of executive
officers of the Company is included in Item 4A in Part I of this report under
"Executive Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION.
A description of the compensation of the Company's executive officers
will be contained in the section captioned "Executive Compensation" of the
Proxy Statement for the Company's 1997 Annual Meeting of Stockholders which is
scheduled to be held on October 29, 1997; said information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
A description of the security ownership of certain beneficial owners and
management will be contained in the Proxy Statement for the Company's 1997
Annual Meeting of Stockholders which is scheduled to be held on October 29,
1997; said information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain relationships and related transactions with management will be
contained in the Proxy Statement for the Company's 1997 Annual Meeting of
Stockholders which is scheduled to be held on October 29, 1997; said
information is incorporated herein by reference.
<Page 51>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
The following documents are filed as part of this report:
(a) (1) Financial Statements - See Index to Financial Statements at Item
8 of this report.
(a) (2) Financial Statement Schedules
Schedule II: Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is included elsewhere
in the financial statements or notes thereto.
(a) (3) Exhibits
The following exhibits are filed with this report:
Exhibit
Number Description
2.1 Agreement and Plan of Merger, dated as of August 3, 1995, between the
Registrant and LeCroy Merger Corporation, filed as Exhibit 2.1 to Form
S-1 Registration Statement No. 33-95620, and is incorporated herein by
reference.
3.1 Certificate of Incorporation of the Registrant as of July 24, 1995, filed
as Exhibit 3.1 to Form S-1 Registration Statement No. 33-95620, and is
incorporated herein by reference.
3.2 Current By-Laws of the Registrant, filed as Exhibit 3.3 to Form S-1
Registration Statement No. 33- 95620, and is incorporated herein by
reference.
10.1 Letter of Employment, dated as of August 23, 1993, between the
Registrant and Lutz. P. Henckels, filed as Exhibit 10.15 to Form S-1
Registration Statement No. 33-95620, and is incorporated herein by
reference.
10.2 Letter of Employment, dated as of August 24, 1995, between the
Registrant and Lutz. P. Henckels, filed as Exhibit 10.30 to Form S-1
Registration Statement No. 33-95620, and is incorporated herein by
reference.
10.3 Letter of Employment, dated as of May 3, 1995, between the Registrant
and Joseph J. Migliozzi, filed as Exhibit 10.16 to Form S-1 Registration
Statement No. 33-95620, and is incorporated herein by reference.
10.4 Employee Agreement Regarding Inventions, Confidentiality and Non-
Competition, dated as of March 28, 1995, between the Registrant and
Lutz. P. Henckels, filed as Exhibit 10.12 to Form S-1 Registration
Statement No. 33-95620, and is incorporated herein by reference.
<Page 52>
10.5 Employee Agreement Regarding Inventions, Confidentiality and Non-
Competition, dated as of March 28, 1995, between the Registrant and
Walter O. LeCroy, Jr., filed as Exhibit 10.13 to Form S-1 Registration
Statement No. 33-95620, and is incorporated herein by reference.
10.6 Employee Agreement Regarding Inventions, Confidentiality and Non-
Competition, dated as of March 28, 1995, between the Registrant and
Brian V. Cake, filed as Exhibit 10.14 to Form S-1 Registration
Statement No. 33-95620, and is incorporated herein by reference.
10.7 LeCroy Corporation Amended and Restated 1993 Stock Incentive Plan filed
as Exhibit 10.1 to Form S-1 Registration Statement No. 33-95620, and is
incorporated herein by reference.
10.8 LeCroy Corporation 1995 Non-Employee Director Stock Option Plan filed as
Exhibit 10.2 to Form S-1 Registration Statement No. 33-95620 dated
August 9, 1995, and is incorporated herein by reference.
10.9 LeCroy Corporation 1995 Employee Stock Purchase Plan filed as Exhibit
10.3 to Form S-1 Registration Statement No. 33-95620, and is
incorporated herein by reference.
10.10 Settlement and License Agreement, dated as of December 9, 1993, between
the Registrant and Tektronix, Inc. filed as Exhibit 10.11 to Form S-1
Registration Statement No. 33-95620, and is incorporated herein by
reference.
10.11 Multicurrency Credit Agreement, dated as of December 12, 1995, between
the Registrant and The Chase Manhattan Bank, N.A. (as agent for the
lenders named therein).
10.12 Securities Purchase Agreement, dated as of March 28, 1995, between the
Registrant and the purchasers named therein filed as Exhibit 10.7 to
Form S-1 Registration Statement No. 33-95620, and is incorporated herein
by reference.
10.13 Shareholders Agreement, dated as of March 28, 1995, among the Registrant,
Walter O. LeCroy, Jr. And the investors named therein filed as Exhibit
10.8 to Form S-1 Registration Statement No. 33-95620, and is incorporated
herein by reference.
10.14 Form of Common Stock Purchase Warrant filed as Exhibit 10.10 to Form S-1
Registration Statement No. 33-95620, and is incorporated herein by
reference.
10.15 Form of Indemnification Agreement, between the Registrant and each of
its executive officers and directors filed as Exhibit 10.29 to Form S-1
Registration Statement No. 33-95620, and is incorporated herein by
reference.
10.16 Agreement dated as of August 2, 1995, amending the Securities Purchase
Agreement filed as Exhibit 10.12 hereto filed as Exhibit 10.34 to Form
S-1 Registration Statement No. 33-95620, and is incorporated herein by
reference.
<Page 53>
10.17 Agreement dated as of September 29, 1995, amending the Securities
Purchase Agreement filed as Exhibit 10.12 hereto filed as Exhibit 10.35
to Form S-1 Registration Statement No. 33-95620, and is incorporated
herein by reference.
10.18 LeCroy Corporation Employee Stock Ownership Trust Agreement, between the
Registrant and Cole Taylor Bank, dated September 13, 1995 filed as
Exhibit 10.36 to Form S-1 Registration Statement No. 33-95620, and is
incorporated herein by reference.
10.19 Amended and Restated LeCroy Corporation Employee Stock Ownership Plan
filed as Exhibit 10.37 to Form S-1 Registration Statement No. 33-95620,
and is incorporated herein by reference.
10.20 OEM Purchase and Technology License Agreement, between the Registrant
and Guzik Technical Enterprses, Inc., dated February 19, 1997 filed as
Exhibit 10.20 to Form S-3 Registration Statement No. 333-22117, and is
incorporated herein by reference.
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP , Independent Auditors
27 Financial Data Schedule for the fiscal year ended June 30, 1997.
(b) Reports on Form 8-K
None.
<Page 54>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LECROY CORPORATION
August 5, 1997 By /S/ JOHN C. MAAG
John C. Maag
Vice President-Finance, Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ WALTER O. LECROY Chairman of the Board and Director August 5, 1997
Walter O. LeCroy
/S/ LUTZ P. HENCKELS President, Chief Executive Officer August 5, 1997
Lutz P. Henckels and Director
(Principal Executive Officer)
/S/ JOHN C. MAAG Vice President-Finance, Chief August 5, 1997
John C. Maag Financial Officer, Secretary
and Treasurer
(Principal Accounting Officer)
/S/ ROBERT E. ANDERSON Director August 5, 1997
Robert E. Anderson
/S/ DOUGLAS A. KINGSLEY Director August 5, 1997
Douglas A. Kingsley
/S/ WILLIAM G. SCHEERER Director August 5, 1997
William G. Scheerer
<Page 55>
Schedule II
LeCROY CORPORATION
Valuation and Qualifying Accounts
Years Ended June 30, 1995, 1996 and 1997
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions (1)(2) Balance at
beginning charged to Deductions end of
Description of period operations Other period(3)
<S> <C> <C> <C> <C>
Against trade receivables-
Year ended June 30, 1995
Allowance for doubtful
accounts................ $ 30 $ 32 $ (18) $ 44
Year ended June 30, 1996
Allowance for doubtful
accounts................ 44 2 (8) 38
Year ended June 30, 1997
Allowance for doubtful
accounts................ 38 237 (58) 217
Against inventories-
Year ended June 30, 1995
Allowance for excess and
obsolete................ 1,624 595 72 2,291
Year ended June 30, 1996
Allowance for excess and
obsolete................ 2,291 375 (207) 2,459
Year ended June 30, 1997
Allowance for excess and
obsolete................ 2,459 2,885 (688) 4,656
Against deferred tax assets-
Year ended June 30, 1995
Valuation allowance..... 1,360 157 - 1,517
Year ended June 30, 1996
Valuation allowance..... 1,517 1,398 - 2,915
Year ended June 30, 1997
Valuation allowance..... 2,915 1,407 - 4,322
____________
(1) Accounts written-off.
(2) Merchandise disposals and/or impact of foreign currency.
(3) Acounts receivable and inventory reserves include $111 and $2,103 of
HEP restructuring reserves, respectively, as of June 30, 1997.
</TABLE>
<Page 1>
EXHIBIT 21
LeCROY CORPORATION
Subsidiaries of the Company
The following are the subsidiary companies of the Company as of August 1, 1997,
all of which are 100% owned:
Name Jurisdiction of Incorporation
LeCroy, S.A. Switzerland
LeCroy, Ltd. England
LeCroy, G.m.b.H. Germany
LeCroy, S.A.R.L. France
LeCroy, S.R.L. Italy
LeCroy Foreign Sales Corporation U.S. Virgin Islands
LeCroy Japan Corporation, K.K. Japan
LeCroy, Pty. Australia
LeCroy Corporation Hong Kong
<Page 1>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-3144) pertaining to the Amended and Restated 1993 Stock
Incentive Plan, the 1995 Non Employee Director Stock Option Plan and the 1995
Employee Stock Purchase Plan of LeCroy Corporation of our report dated August
5, 1997, with respect to the consolidated financial statements and schedule of
LeCroy Corporation included in this Annual Report (Form 10-K) for the year
ended June 30, 1997.
ERNST & YOUNG LLP
Hackensack, New Jersey
September 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-K for the fiscal year ended June 30, 1997.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 19936
<SECURITIES> 0
<RECEIVABLES> 24157
<ALLOWANCES> 217
<INVENTORY> 18506
<CURRENT-ASSETS> 64212
<PP&E> 33349
<DEPRECIATION> 22286
<TOTAL-ASSETS> 76206
<CURRENT-LIABILITIES> 23993
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 51954
<TOTAL-LIABILITY-AND-EQUITY> 76206
<SALES> 111575
<TOTAL-REVENUES> 117127
<CGS> 49829
<TOTAL-COSTS> 49829
<OTHER-EXPENSES> 18065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 400
<INCOME-PRETAX> 10479
<INCOME-TAX> 3521
<INCOME-CONTINUING> 6958
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6958
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.00
</TABLE>
