================================================================================
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 September 30, 1999
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 OCTOBER 20, 1999
----- -------------------------------
Common stock, par value $.01 share 7,714,910
================================================================================
<PAGE>
LeCROY CORPORATION
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements 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 - 10
PART I OTHER INFORMATION 11
PART II OTHER INFORMATION 11
Signatures 11
2
<PAGE>
LeCROY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
September 30, June 30,
In thousands 1999 1999
- ------------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,618 $ 1,791
Accounts receivable 27,613 31,549
Inventories:
Raw materials 12,252 10,346
Work in process 7,502 5,854
Finished goods 12,818 12,920
---------- ---------
Total inventories 32,572 29,120
Other current assets 12,621 3,200
---------- ---------
Total current assets 77,424 65,660
Property and equipment, at cost:
Land, building and leasehold improvements 9,796 9,294
Furniture, machinery and equipment 29,582 28,463
---------- ----------
Total property and equipment 39,378 37,757
Less: Accumulated depreciation and amortization (24,421) (23,200)
---------- ---------
Property and equipment, net 14,957 14,557
Marketable securities 3,359 7,383
Other assets 14,517 14,614
---------- ----------
TOTAL ASSETS $ 110,257 $ 102,214
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 813 $ 1,600
Accounts payable 13,566 11,858
Accrued expenses
Warranty 1,816 1,822
Deferred revenue 3,002 3,910
Other 3,265 2,573
Compensation and benefits 6,360 6,903
Restructuring 3,250 3,420
Income taxes 2,955 3,194
---------- ----------
Total current liabilities 35,027 35,280
Long term debt 11,500 6,600
Deferred compensation 330 327
Redeemable convertible preferred stock 8,236 8,152
Stockholders' equity:
Common stock 77 77
Additional paid-in capital 42,818 42,869
Accumulated other comprehensive income (loss) 1,085 (3,970)
Retained earnings 11,184 12,879
---------- ---------
Total stockholders' equity 55,164 51,855
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 110,257 $ 102,214
========== =========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
LeCROY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three months ended
September 30,
In thousands, except per share data 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Digital oscilloscopes and related products $ 23,623 $ 24,126
High energy physics products 1,437 1,498
Service and other 1,846 1,505
--------- --------
Test and measurement revenues 26,906 27,129
LAN/WAN test instruments 1,526 2,166
-------- --------
Total 28,432 29,295
Cost of sales 14,313 13,887
-------- --------
Gross profit 14,119 15,408
Operating expenses:
Selling, general and administrative 11,139 10,983
Research and development 5,192 4,401
-------- --------
Total operating expenses 16,331 15,384
-------- --------
Operating income (loss) (2,212) 24
Other expenses, net 210 337
-------- --------
Loss before income taxes (2,422) (313)
Benefit for income taxes (727) (94)
-------- --------
Net loss (1,695) (219)
Charges related to convertible preferred stock (84) -
-------- --------
Net loss available to common stockholders $ (1,779) $ (219)
======== ========
Net loss per basic common share applicable to common stockholders $ (0.23) $ (0.03)
======== ========
Weighted average number of common shares 7,708 7,572
======== ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
LeCROY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
In thousands 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,695) $ (219)
Adjustments for noncash items included in operating activities:
Depreciation and amortization 1,322 1,090
Other - 19
Change in operating asset and liability components:
Accounts receivable 4,130 4,755
Inventories (3,219) (1,043)
Prepaid expenses and other assets (250) 257
Accounts payable, accrued warranty, deferred revenue and accrued expenses 1,530 (799)
Accrued employee compensation and benefits (622) (1,617)
Income taxes (949) (607)
------- -------
Net cash provided by operating activities 247 1,836
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,464) (1,283)
Investment in computer software (206) (200)
------- -------
Net cash used in investing activities (1,670) (1,483)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term debt (899) (31)
Borrowings under line of credit 4,900 400
Proceeds from exercise of stock options 80 43
Costs related to the issuance of preferred stock (47) -
------- -------
Net cash provided by financing activities 4,034 412
------- -------
Effect of exchange rate changes on cash 216 449
------- -------
Increase in cash and cash equivalents 2,827 1,214
Cash and cash equivalents at beginning of the period 1,791 1,895
------- -------
Cash and cash equivalents at end of the period $ 4,618 $ 3,109
======= =======
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
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
audited 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 Company's most recent Form 10-K and
Annual Report as of June 30, 1999.
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 competitors; 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; risks
due to an interruption in supply or an increase in price for the Company's
parts, components and subassemblies; 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.
Comprehensive Income (Loss)
For the three months ended September 30, 1999 and 1998 the Company's
comprehensive income totaled $3.3 million and $0.6 million, respectively.
Comprehensive income for the three months ended September 30, 1999 included
foreign currency translation gains of $1.0 million and unrealized gains on
marketable equity securites classified as available for sale of $4.0 million.
Comprehensive income for the three months ended September 30, 1998 included
foreign currency translation gains of $2.6 million and unrealized losses on
marketable equity securites classified as available for sale of $1.9 million.
The cumulative foreign currency translation losses were $3.6 million at
September 30, 1999 and $4.6 million at June 30, 1999. The cumulative unrealized
gains on marketable equity securities classified as available for sale were $4.7
million at September 30, 1999 and $0.7 million at June 30, 1999.
Restructuring Costs
In the third quarter of fiscal 1999 the Company adopted a restructuring plan.
The objectives of this restructuring plan were to consolidate oscilloscope
operations in order to enhance operating efficiencies and to dedicate additional
resources to capitalize on several current breakthrough technologies.
At September 30, 1999 the Company had remaining reserves and liabilities of
approximately $6.4 million relating to the restructuring plan. During the
quarter ending September 30, 1999 the Company charged approximately $0.7 million
against the restructuring reserves. These charges primarily related to severance
and employee benefit costs and lease payments. The overall expected cost of the
restructuring plan has not changed since the plan was approved and it is
expected to be completed by the end of fiscal 2000.
6
<PAGE>
LeCROY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Subsequent Event
In a series of transactions in October 1999 the Company sold 2.691 million
shares of marketable securities in a strategic partner. This sale generated net
proceeds of approximately $7.6 million. As a result of this sale, the Company
will record a pretax gain of approximately $2.5 million ($0.21 per diluted
share, net of taxes) in its second fiscal quarter. The equity securities that
were sold in the above mentioned transactions have been included in other
current assets in the September 30, 1999 balance sheet.
7
<PAGE>
LeCROY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total revenues decreased to $28.4 million or 3% for the three months ended
September 30, 1999 compared to the three months ended September 30, 1998. The
decrease is primarily attributable to a decline in shipments of digital
oscilloscopes and related products as well as a decline in LAN/WAN test
instrument revenues. The decrease was offset partially by an increase in service
and other revenues. The decrease in revenues was also offset by approximately
$0.3 million resulting from the strengthening of the United States dollar versus
the Japanese yen, as compared to the exchange rates prevailing in the same
period of the prior fiscal year.
Digital oscilloscopes and related product revenues decreased 2% for the
three months ended September 30, 1999 compared to the three months ended
September 30, 1998. The decrease was primarily attributable to softness in the
data storage industry, offset partially by an increase in unit volume due to the
continued success of the Waverunner(TM) family of oscilloscopes, which serves
the low to mid-market segment.
Revenues from LAN/WAN test instruments decreased 30% to $1.5 million in the
three months ended September 30, 1999 compared to the three months ended
September 30, 1998 due to a decrease in sales of the Company's remote access
systems analyzer product. This decrease was partially offset by sales of the
Company's NEWSLine(TM) network analyzer product, introduced in fiscal 1999.
Revenues from sales of HEP products declined 4% in the three months ended
September 30, 1999 when compared to the comparable period in the prior year. The
Company believes that revenues from sales of HEP products, which represented
approximately 5% of total revenues for the three months ended September 30, 1999
will represent a declining portion of its total revenues in the future.
Gross profit in the three months ended September 30, 1999 was 49.7% of
revenues compared to 52.6 % in the first quarter of fiscal 1999. This decline
was due primarily to lower margins for the Waverunner product line, which
represented 28% of digital oscilloscope and related product revenues.
Selling, general and administrative expenses increased marginally to $11.1
million in the three months ended September 30, 1999 from $11.0 million in the
first quarter of fiscal 1999. This increase was due primarily to the Company
expanding its sales and administrative personnel to support the expansion of its
network division. As a percentage of total revenues, selling, general and
administrative expenses was 39.2% for the three months ended September 30, 1999
compared to 37.5% for the three months ended September 30, 1998.
Research and development expenses increased 18% to $5.1 million in the
three months ended September 30, 1999 from $4.4 million in the comparable prior
year period. The higher dollar level of research and development expenses
reflects the continued development of new digital oscilloscopes and network
products. As a percentage of total revenues, research and development expenses
were 18.3% in the first quarter of fiscal 2000 compared to 15% for the same
period of fiscal 1999.
The aforementioned factors resulted in an operating loss of $2.2 million in
the three months ended September 30, 1999 as compared to operating income of
$24,000 in the comparable prior year period.
Net interest expense and financing charges, included in other expenses,
net, was $231,000 in the three month period ended September 30, 1999 compared to
net interest expense of $57,000 in the same prior year period. The increase in
the current year was due to increased levels of debt primarily arising from
purchased manufacturing and distribution rights in the third quarter of fiscal
1999, funding of the restructuring actions, and increases in inventory levels.
Operating results for the three months ended September 30, 1999 and 1998
included foreign currency exchange gains and (losses) of $21,000 and ($280,000),
respectively.
The Company's income tax rate for both three month periods ending September
30, 1999 and 1998 was 30%.
8
<PAGE>
LeCROY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Cont.)
Restructuring Costs
In the third quarter of fiscal 1999 the Company adopted a restructuring
plan. The objectives of this restructuring plan were to consolidate oscilloscope
operations in order to enhance operating efficiencies and to dedicate additional
resources to capitalize on several current breakthrough technologies.
At September 30, 1999 the Company had remaining reserves and liabilities of
approximately $6.4 million relating to the restructuring plan. During the
quarter ending September 30, 1999 the Company charged approximately $0.7 million
against the restructuring reserves. These charges primarily related to severance
and employee benefit costs and lease payments. The overall expected cost of the
restructuring plan has not changed since the plan was approved and it is
expected to be completed by the end of fiscal 2000.
Year 2000
The year 2000 problem concerns the inability of information systems to
recognize properly and process date-sensitive information beyond December 31,
1999. Prior to the restructuring of its oscilloscope operations and the closure
of its Geneva, Switzerland manufacturing facility, the Company had planned to
implement a new ERP (Enterprise Resource Planning) system which was year 2000
compliant, in July 1999. As a result of the aforementioned restructuring, the
Company has decided to delay the implementation of its new ERP system until
October 2000. Based upon successful application testing, the Company believes
its financial operating systems in New York are currently year 2000 compliant.
The Company has purchased and installed a new financial operating system that is
year 2000 compliant for its Geneva, Switzerland location. The total cost of this
new system was approximately $137,000. This includes software, installation,
training and support. The source of these funds came from borrowings under the
revolving line of credit.
The Company continues to work with other third party suppliers to identify
exposures and obtain compliance. At this point the Company does not anticipate
any material adverse effects resulting from year 2000 problems. Based upon
extensive testing the Company believes that all its test and measurement
products are problem free with respect to their internal time clocks in the year
2000 and beyond.
This represents a forward-looking statement under the Private Securities
Litigation Reform Act of 1997. Undiscovered issues related to the year 2000
issue could have an adverse impact on the Company's results of operations.
Additional risks associated with the year 2000 problem include (i)
failure of systems and software used by our customers which will impact their
financial ability to purchase our products; (ii) failure of systems and software
used by vendors and third-party service providers upon which we rely for
outsourced services and products; (iii) Year 2000 problems with our suppliers
which could negatively impact our ability to fulfill our orders promptly; and
(iv) errors or failures of systems in which our products are implemented which
could result in improper interfacing or operation of such devices.
Liquidity and Capital Resources
Working capital, including $4.6 million in cash and cash equivalents, was
$42.4 million at September 30, 1999 compared to $30.4 million, at June 30, 1999.
The working capital ratio at September 30, 1999 was 2.20 to 1. The improvement
in the Company's working capital position was caused by reclassifying 2.691
million shares of the Company's marketable securities, with a carrying amount of
$9 million, to other current assets at September 30, 1999. These securities were
subsequently sold in October 1999.
9
<PAGE>
LeCROY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Cont.)
The Company has borrowed $11.5 million under its secured multicurrency
credit agreement. At September 30, 1999, the Company has met its financial
covenants relating to the multicurrency credit agreement, which was amended in
September 1999. Upon completion of the sale of marketable securities in October
1999, which generated $7.6 million in proceeds, the Company reduced its maximum
borrowings under the agreement to $15 million.
Cash flows generated from operating activities for the first quarter of
fiscal 2000 decreased in comparison with the first quarter of the prior year due
primarily to lower operating earnings.
The Company's cash 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.
Risk Management
The Company's equity investment in Iwatsu Electric Co., Ltd is subject to
the impact of foreign exchange rates and the Japanese stock market fluctuation
which, at September 30, 1999, has resulted in a $4.7 million increase from its
$7 million original cost. The change in the value of this investment, which is
deemed to be temporary, is included as part of accumulated comprehensive income
(loss) in stockholders' equity and is not included in income or loss. In October
1999 the Company sold 2.691 million shares of such stock reducing its exposure
to fluctuations in the Japanese stock market.
New Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement is effective for
fiscal years beginning after June 15, 2000. Management believes that adopting
this statement will not have a material impact on the financial position,
results of operations or cash flows of the Company.
10
<PAGE>
LeCROY CORPORATION
PART I. OTHER INFORMATION
Item 6.(a) Exhibits
Exhibit 27 Financial Data Schedule.
PART II. OTHER INFORMATION
Item 6.(b) Reports on Form 8-K
No current reports on Form 8-K were filed during the quarter
ended September 30, 1999.
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: November 12, 1999 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 three months ended September 30, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4618
<SECURITIES> 9039
<RECEIVABLES> 28141
<ALLOWANCES> 528
<INVENTORY> 32572
<CURRENT-ASSETS> 77424
<PP&E> 39378
<DEPRECIATION> 24421
<TOTAL-ASSETS> 110257
<CURRENT-LIABILITIES> 35027
<BONDS> 0
0
8236
<COMMON> 77
<OTHER-SE> 55087
<TOTAL-LIABILITY-AND-EQUITY> 110257
<SALES> 26586
<TOTAL-REVENUES> 1846
<CGS> 14313
<TOTAL-COSTS> 14313
<OTHER-EXPENSES> 16541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 239
<INCOME-PRETAX> (2422)
<INCOME-TAX> (727)
<INCOME-CONTINUING> (1695)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1695)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
