<Page 1>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JANUARY 24, 1997
Common stock, par value $.01 share 7,410,670
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LeCROY CORPORATION
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet................. 3
Condensed Consolidated Statement of Income........... 4
Condensed Consolidated Statement of Cash Flows....... 5
Notes to Condensed Consolidated Financial Statements. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 8-9
PART I OTHER INFORMATION.................................... 10
PART II OTHER INFORMATION.................................... 10
Signatures........................................... 10
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LeCROY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
In thousands 1997 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 22,602 $ 19,884
Accounts receivable.............................. 29,536 25,661
Inventories:
Raw materials............................... 9,520 6,999
Work in process............................. 3,987 4,083
Finished goods.............................. 7,953 8,375
------ ------
Total inventories................................ 21,460 19,457
Other current assets............................. 1,986 1,774
------ ------
Total current assets........................ 75,584 66,776
Property and equipment, at cost:
Land and buildings............................... 6,477 5,894
Furniture, machinery and equipment............... 30,090 29,113
------ ------
Total property, plant and equipment......... 36,567 35,007
Less: Accumulated depreciation and amortization.. (24,272) (23,419)
------ ------
Property, plant and equipment, net.......... 12,295 11,588
Other assets........................................ 907 1,025
------ ------
TOTAL ASSETS........................................ $88,786 $79,389
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt..................................... $ 862 $ 84
Accounts payable................................. 8,874 7,022
Accrued warranty................................. 1,979 1,965
Accrued liabilities.............................. 6,892 5,377
Accrued employee compensation and benefits....... 5,538 5,259
Income taxes payable............................. 4,211 5,058
------ ------
Total current liabilities................... 28,356 24,765
Long-term debt and capitalized leases............... 31 76
Deferred income taxes............................... 53 33
Deferred compensation............................... 240 191
STOCKHOLDERS' EQUITY:
Common stock..................................... 74 73
Additional paid-in capital....................... 36,527 33,642
Treasury stock at cost........................... - (813)
Foreign currency translation adjustment.......... (2,553) (1,969)
Retained earnings................................ 26,058 23,391
------ ------
Total stockholders' equity.................. 60,106 54,324
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $88,786 $79,389
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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LeCROY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
In thousands, except per share data 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Digital oscilloscopes and
related products................ $27,292 $25,619 $55,277 $49,016
LAN/WAN test instruments........... 4,948 2,847 6,197 4,570
High energy physics products....... 1,761 1,761 2,785 3,597
Service and other.................. 1,751 1,587 3,464 2,857
------ ------ ------ ------
Total........................... 35,752 31,814 67,723 60,040
Cost of sales......................... 15,377 13,783 28,836 26,080
------ ------ ------ ------
Gross profit....................... 20,375 18,031 38,887 33,960
Operating expenses:
Selling, general and
administrative.................. 11,289 10,122 21,980 19,873
Research and development........... 4,624 4,131 8,847 7,910
Nonrecurring charges............... 4,188 - 4,188 -
------ ------ ------ ------
Total........................... 20,101 14,253 35,015 27,783
Operating income...................... 274 3,778 3,872 6,177
Other (income) expenses, net.......... 13 (150) 120 (296)
------ ------ ------ ------
Income before income taxes............ 261 3,928 3,752 6,473
Provision for income taxes............ 78 1,348 1,085 2,179
------ ------ ------ ------
Net income............................ $ 183 $ 2,580 $ 2,667 $ 4,294
====== ====== ====== ======
Income per common and common equivalent share:
Basic.............................. $ 0.02 $ 0.43 $ 0.37 $ 0.72
====== ====== ====== ======
Diluted............................ $ 0.02 $ 0.35 $ 0.33 $ 0.58
====== ====== ====== ======
Weighted average number of common shares and
common equivalent shares:
Basic.............................. 7,348 6,019 7,297 5,961
====== ====== ====== ======
Diluted............................ 8,070 7,466 8,059 7,365
====== ====== ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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LeCROY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
In thousands 1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 2,667 $ 4,294
Adjustments for noncash items included in
operating activities:
Depreciation and amortization....................... 1,819 1,518
Deferred income taxes............................... (72) -
Purchased incomplete technology..................... 1,600 -
Non-recurring merger costs.......................... 2,588 -
Extraordinary charge and other...................... - (6)
Change in operating asset and liability components:
Accounts receivable................................. (4,693) (6,186)
Inventories......................................... (2,300) (3,631)
Prepaid expenses and other assets................... (345) (1,027)
Accounts payable and accrued liabilities............ 2,325 1,685
Accrued employee compensation and benefits.......... 370 (99)
Income taxes........................................ (794) 1,883
------ ------
Net cash provided by (used in) operating activities.... 3,165 (1,569)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................. (2,526) (2,205)
Business acquisition, net of acquired cash.......... (395) -
Due from officers................................... - 35
Proceeds from the disposal of property and equipment 37 8
------ ------
Net cash used in investing activities.................. (2,884) (2,162)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short term debt....................... 843 2,328
Repayment of debt and capitalized leases............ (44) (129)
Proceeds from exercise of stock options and stock
purchases........................................... 2,293 1,671
------ ------
Net cash provided by financing activities.............. 3,092 3,870
------ ------
Effect of exchange rates on cash....................... (655) (1,046)
------ ------
Increase (decrease) in cash and cash equivalents.... 2,718 (907)
Cash and cash equivalents at beginning of the year.. 19,884 10,364
------ ------
Cash and cash equivalents at end of the period...... $22,602 $ 9,457
====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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LeCROY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
In the opinion of management, the accompanying unaudited interim condensed
consolidated financial statements reflect all adjustments, of a normal and
recurring nature, necessary to present fairly the results for the interim
periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The year-end balance sheet data was derived
from LeCroy audited financial statements and Digitech unaudited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. It is suggested that these condensed statements
be read in conjunction with the Corporation's most recent Form 10-K and Annual
Report as of June 30, 1997.
This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
the Company's actual results or activities to differ materially from these
forward-looking statements include but are not limited to: the effect of
economic conditions, including the effect on purchases by the Company's
customers; competitive factors, including pricing pressures, technological
developments and products offered by customers; changes in product sales and
mix; the Company's ability to deliver a timely flow of competitive new products
and market acceptance of these products; inventory risks due to changes in
market demand or the Company's business strategies; currency fluctuations; the
effect of the Company's accounting policies; and other risk factors listed
from time to time in the Company's reports filed with the Securities and
Exchange Commission and press releases.
Results for the interim period are not necessarily indicative of the results
that may be expected for the entire year.
Acquisitions
Pooling of Interests
In the second quarter of fiscal 1998 LeCroy acquired all of the common
stock of Digitech Industries Inc. in exchange for 454,148 shares of the
Company's common stock. Digitech Industries Inc., located in Danbury,
Connecticut, is involved in the design and development of a wide variety of
test equipment for the data communication and telecommunication industries.
Transaction costs and one time charges resulting from the merger of $2.6
million ($1.8 million net of tax) or $(0.23) per share, net of tax, include
provision for environmental cleanup, expenses for investment banker and
professioinal fees, and assets associated with duplicate product lines.
The acquisition referred to above has been accounted for by the
pooling-of-interests method and, accordingly, the accompanying financial
statements have been restated retroactively to include the financial position
and results of operations of Digitech. The accompanying table entitled
Restatement of Prior Years' Results to Account for Current-Year Business
Combinations reports the prior years' contribution of current-year
acquisitions.
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LeCROY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restatement of Prior Years' Results to Account for Current-Year Business
Combination
The following table reflects the results of current-year acquisitions
accounted for by the pooling-of-interests method.
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
In thousands, except per share data 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
LeCroy Corporation.............. $30,725 $28,762 $61,292 $55,159
Digitech Industries............. 5,027 3,052 6,431 4,881
------ ------ ------ ------
Combined..................... 35,752 31,814 67,723 60,040
====== ====== ====== ======
Net Income (Loss):
LeCroy Corporation.............. $ 321 $ 2,169 $ 2,666 $ 3,722
Digitech Industries............. (138) 411 1 572
------ ------ ------ ------
Combined..................... 183 2,580 2,667 4,294
====== ====== ====== ======
Earnings Per Share:
Basic:
LeCroy Corporation.............. $ 0.04 $ 0.36 $ 0.37 $ 0.62
Digitech Industries............. (0.02) 0.07 0.00 0.10
------ ------ ------ ------
Combined..................... 0.02 0.43 0.37 0.72
====== ====== ====== ======
Diluted:
LeCroy Corporation.............. $ 0.04 $ 0.29 $ 0.33 $ 0.50
Digitech Industries............. (0.02) 0.06 0.00 0.08
------ ------ ------ ------
Combined..................... 0.02 0.35 0.33 0.58
====== ====== ====== ======
</TABLE>
Purchase
On October 20, 1997 the Company acquired all of the outstanding shares of
Preamble, Inc. of Beaverton, Oregon, a manufacturer of stand-alone differential
amplifiers and probes, for approximately $1.8 million, of which approximately
$411,000 was cash and 35,181 shares of the Company's common stock at $39.99
per share. Incident to the acquisition was the purchase of incomplete
technology activities which resulted in a one-time pretax charge of $1.6
million or $(0.14) per share net of tax. The purchased incomplete technology
that had not reached technological feasability and which had no alternative
future use was valued using a risk-adjusted cash flow model. Acquired
complete technology of approximately $220,000 is being amortized over five
years.
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LeCROY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Consolidated revenues for the current quarter and six months ended
December 31, 1997 increased approximately 12% and 13%, respectively, from the
comparable prior year periods, primarily as a result of an increase in average
selling prices of higher margin digital oscilloscopes and an increase in sales
of LAN/WAN test instruments. Consolidated revenues were $35.8 million for the
second quarter, and represented record second quarter revenues for the Company.
Year-to-date revenues were $67.7 million, also representing record mid-year
revenues for the Company. This increase in revenues was hampered by
approximately $1.3 million and $2.6 million for the current quarter and six
months ended December 31, 1997, respectively, due to the strengthening of the
United States dollar versus the Swiss franc, Japanese yen, French franc and the
German deutschemark as compared to the exchange rates prevailing in the same
periods of the prior fiscal year.
Digital oscilloscopes and related product revenues increased 6% to $27.3
million in the second quarter and 13% to $55.3 million for the six months
ended December 31, 1997 as compared to the comparable prior year periods. This
increase in revenues was primarily attributable to an increase in sales of the
higher-end products in the Company's LC family of digital oscilloscopes.
Geographically, for the six months ended December 31, 1997, the increase in
revenues in the United States and the rest of the world other than Europe
(principally Japan and the rest of Asia) was partially offset by a decline in
revenues in Europe. In the second quarter ended December 31, 1997, revenues
increased in all geographic areas.
While the Company experienced revenue growth during the second quarter and
six month periods, the Company faces upcoming challenges, specifically in the
Japanese and Pacific Rim markets. Additionally, the cyclical slowdown in the
disk drive industry will put increased pressure on our domestic sales. Although
the Company's visibility regarding the duration of these factors is limited,
it is possible that the aforementioned factors could affect the Company's
performance for the next several quarters.
Revenues from LAN/WAN test instruments, acquired in the Digitech
acquisition, increased 74% to $4.9 million in the second quarter and 36% to
$6.2 million for the six months ended December 31, 1997, due primarily to a
contract with Sprint.
Revenues from sales of HEP products were unchanged in the second quarter
but declined 23% for the six months ended December 31, 1997 as compared to the
comparable prior year periods. 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 5% of total revenues for the
second quarter and 4% for the six months ended December 31, 1997 are likely
to continue to represent a declining portion of its total revenues in the
future. As a result of this continued revenue decline, in January 1997 the
Company adopted a strategic business plan and took a series of reorganization
actions that were completed in December 1997.
<Page 9>
Gross profit for the current quarter and six months ended December 31,
1997 was 57.0% and 57.4% of revenues, respectively, compared to 56.7% and 56.6%
for each respective prior year period. This growth was due primarily to
increased revenues from higher sales volume of certain higher margin LC series
digital oscilloscopes and for the six months ended, license fees for digital
oscilloscope solutions.
Selling, general and administrative expenses increased to $11.3 million
in the second quarter and $22.0 million for the six months ended December 31,
1997 from $10.1 million and $19.9 million, respectively, in the comparable
prior year periods. As a percentage of total revenues, selling, general and
administrative expenses declined to 31.6% in the second quarter and 32.5% in
the six months ended December 31, 1997 compared to 31.8% and 33.1% in the
comparable prior year periods. These expenses increased in dollars as the
Company incurred additional sales commissions due to higher sales volume and
expanded its management and support staff.
Research and development expenses increased to $4.6 million in the current
quarter and $8.8 million in the six months ended December 31, 1997 from $4.1
million and $7.9 million in the comparable prior year periods. The higher
dollar level of research and development expenses reflected an increase in
connection with new digital oscilloscopes and continued development of a LAN
network monitor. As a percentage of total revenues, research and development
expenses were 12.9% for the second quarter and 13.1% for the six months ended
December 31, 1997 compared to 13.0% and 13.2% for the comparable prior year
periods.
Operating income, excluding the impact of the nonrecurring charges,
increased 18% to $4.5 million in the second quarter and 30% to $8.1 million
for the six months ended December 31, 1997 as compared to the comparable prior
year periods. As a percentage of total revenues, operating income, excluding
the impact of the nonrecurring charges, was 12.5% in the second quarter and
11.9% for the six months ended December 31, 1997 as compared to 11.9% and 10.3%
in the comparable prior year periods. The increase in operating income was due
primarily to increased revenues in the current year coupled with improved
operating efficiencies and other factors listed above.
Net interest income and financing charges, included in other (income)
expenses, was $341,000 for the six months ended December 31, 1997 compared to
interest expense of $306,000 for the six months ended December 31, 1996. The
improvement 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 public offering coupled with favorable operating cash flow. Other
(income) expenses, net in the six month period ended December 31, 1997 included
currency exchange losses of approximately $465,000 compared to gains of
approximately $609,000 in the comparable prior year period.
The Company's effective income tax rate for the six months ended December
31, 1997 was 30.0%. 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 the fiscal year ended June 30, 2000.
<Page 10>
Excluding the impact of the nonrecurring charges, income increased to
$3,115,000 in the second quarter and $5,599,000 for the six months ended
December 31, 1997 compared to $2,580,000 and $4,294,000 for the comparable
prior year periods. As a percentage of total revenues, income excluding the
impact of the nonrecurring charges was 8.7% in the second quarter and 8.3%
for the six months ended December 31, 1997 compared to 8.1% and 7.2% in the
comparable prior year periods. The improvement in fiscal 1998 was due
primarily to increased revenues, improved gross margins, and lower interest
costs.
Liquidity and Capital Resources
The financial condition of LeCroy is sound as working capital, including
$22.6 million in cash and cash equivalents, increased 12.3% to $47.9 million
at December 31, 1997 compared to $42.1 million at June 30, 1997. The working
capital ratio is currently 2.7 to 1.
Cash flows generated from operating activities for the first six months
of fiscal 1998 increased in comparison with the prior year due to increases
in operating earnings before noncash nonrecurring charges in the current year
coupled with improved asset management.
The Company's cash 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. The Company adopted this standard
during the interim period ended December 31, 1997, disclosing basic and
diluted EPS and restated all prior period EPS data presented.
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LeCROY CORPORATION
PART I. OTHER INFORMATION
Item 6.(a) Exhibits
Exhibit 27 Financial Data Schedule.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders held on October 29, 1997,
the shareholders voted on the election of two directors to the Company's board
of directors. Douglas A. Kingsley and William G. Scheerer were elected to
serve a three year term expiring at the 2000 annual meeting of shareholders.
The voting for each director was as follows: 6,168,824 shares voted for
Douglas A. Kingsley, and 16,837 withheld; and 6,170,824 shares voted for
William G. Scheerer and 14,837 withheld.
The term of office of the Company's other directors continued after the
1997 annual meeting of shareholders as follows: Walter O. LeCroy, Jr. and
Robert E. Anderson until the 1998 annual meeting; and Lutz P. Henckels until
the 1999 annual meeting.
Item 6.(b) Reports on Form 8-K
No current reports on Form 8-K were filed during the quarter
ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LECROY CORPORATION
Date: February 6, 1998 By: /S/ JOHN C. MAAG
John C. Maag
Vice President-Finance,
Chief Financial Officer,
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's form 10-Q for the fiscal quarter ended December 31, 1997.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22602
<SECURITIES> 0
<RECEIVABLES> 29536
<ALLOWANCES> 217
<INVENTORY> 21460
<CURRENT-ASSETS> 75584
<PP&E> 36567
<DEPRECIATION> 24272
<TOTAL-ASSETS> 88786
<CURRENT-LIABILITIES> 28356
<BONDS> 31
0
0
<COMMON> 74
<OTHER-SE> 60032
<TOTAL-LIABILITY-AND-EQUITY> 88786
<SALES> 64259
<TOTAL-REVENUES> 67723
<CGS> 28836
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<EPS-DILUTED> 0.33
</TABLE>
