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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, 2002
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)
(845) 425-2000
(Registrant's Telephone Number, Including Area Code)
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 16, 2002, was 10,323,071 shares. The aggregate market value on August 16,
2002 of the Common Stock held by non-affiliates of the registrant was
$81,949,742.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2002 Annual Meeting of Stockholders
are incorporated by reference in Part III hereof.
Portions of the Form S-3 Registration Statements No. 333-64848 and
No. 333-43690 are incorporated by reference in Part II hereof.
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1
LECROY CORPORATION
ANNUAL REPORT ON FROM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 2002
FORM 10-K ITEM NUMBER: Page No.
--------
PART I
Item 1. Business................................................................................... 3
Item 2. Properties................................................................................. 11
Item 3. Legal Proceedings.......................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders........................................ 11
Item 4A. Executive Officers of the Registrant....................................................... 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................... 13
Item 6. Selected Financial Data.................................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 16
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.................................. 25
Item 8. Financial Statements and Supplementary Data................................................ 26
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 ........................................ 51
Item 11. Executive Compensation..................................................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 51
Item 13. Certain Relationships and Related Transactions............................................. 51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........................... 52
2
PART I
ITEM 1. BUSINESS.
LeCroy Corporation (the "Company," "LeCroy" or the "Registrant") was
founded in 1964 and is incorporated in the State of Delaware. The Company's
principal office and primary manufacturing facility is located in Chestnut
Ridge, New York. It sells its products and provides service worldwide through
wholly-owned subsidaries.
LeCroy currently operates as one business segment in the Test and
Measurement Instrument market. Using its core competency of WaveShape Analysis,
defined as the capture and analysis of complex electronic signals, the Company
develops, manufactures, sells and licenses signal acquisition and analysis
products. Its principal product line consists of a family of high-performance
digital oscilloscopes used primarily by electrical design engineers in various
markets, including communications test, data storage and power measurement. The
Company also produces modular digitizers and various electronic components. In
addition, it generates revenue by offering service on all of its products beyond
the normal warranty period.
Prior to August 2000, the Company also operated an additional business
segment, the Vigilant Networks business ("Vigilant Networks"), which was
comprised of its Vigilant Networks, Inc. ("Vigilant") and Digitech Industries,
Inc. ("Digitech") subsidiaries. Vigilant was formed to pursue a strategy of
using the Company's core competency of capturing and analyzing complex
electronic signals to develop and market a Local Area Network ("LAN") analyzer.
Vigilant Networks' principal product, the Big Tangerine network analyzer, was
not only a new product, it was also sold into a new market for the Company.
LeCroy made substantial investments in Vigilant Networks in terms of selling,
marketing, research and development, and administrative expenses. While the
Company believed that this product had a unique technology, it decided that it
could not continue to invest the financial resources necessary to capitalize on
its future growth potential. As such, in August 2000, the Company announced its
intention to divest the Vigilant Networks business segment and treat it as a
discontinued operation.
The Company sold the assets and business of Vigilant and a portion of the
assets and business of Digitech for $12.0 million, before fees and expenses, in
August 2000. The buyer also assumed certain liabilities of Vigilant. The
remaining business of Digitech is being discontinued (see Note 3 to the
Consolidated Financial Statements for further information). The remaining
discussion in this document will primarily relate to the continuing Test and
Measurement Instrument market.
PRODUCT APPLICATION
Researchers, engineers and production technicians rely on test and
measurement instrumentation such as signal analyzers in designing, developing
and manufacturing electronic equipment. When designing and developing electronic
circuits, researchers and engineers use signal analyzers to ensure that the
circuits are performing as designed. Production technicians use such instruments
to diagnose electronic equipment to determine whether it is performing as
intended.
The most general-purpose test and measurement instrument used for signal
analysis is the oscilloscope. Digital oscilloscopes are signal analyzers that,
like their earlier analog counterparts, can display a representation of an
electronic signal's WaveShape, 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. Certain oscilloscope users
still prefer the analog style oscilloscope. These instruments are less
complicated to use and they acquire a view of signal changes at a faster rate
than digital oscilloscopes. The Company is the sole supplier in North America
and Europe of high-performance analog oscilloscopes produced by Iwatsu Electric
Co., Ltd. ("Iwatsu").
WaveShape Analysis is becoming increasingly important as data rates in
applications such as computers, LANs and communications 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 change
cleanly from a "zero" to a "one" or vice-versa. This distorts, or changes the
Wave 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 types of
measurement and analysis instruments.
3
MARKET OVERVIEW
Market Trends
The global explosion in communications, driven in part by the expansion of
internet, broadband and wireless communication devices, has resulted in the need
for increasingly faster and more complex electronic signals. Through the use of
complex encoding schemes, the flow of data is exceeding signal speeds. For
example, the signal rate of a personal computer microprocessor has approximately
doubled every two years since 1996, while LAN data rates increased approximately
ten times every two years over the same period. Achieving these data rates on
phone lines, fiber optics or in the wireless domain requires faster and more
complex electronic signals. Testing these signals requires oscilloscopes with
high sample rates and long memories to enable the required analysis.
In addition to the growth in communications, 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 and the increase in embedded digital
controls within other electronic and electrical devices.
Signal Analyzer Market
Signal Analyzers are a component of the overall Test and Measurement
Instrument market, in which the Company currently participates primarily in the
oscilloscope segment.
Oscilloscope Market. The Company believes that the digital oscilloscope
market is generally segmented according to bandwidth, and that with
advances in technology, the bandwidth requirements of each market segment
will increase. Products in the low-end or commodity segment of the market
(less than 200 MHz) cannot capture fast, long, complex signals. Such
products typically do not have the appropriate combination of bandwidth,
sample rate and memory that is needed for analysis of such signals. These
instruments typically sell for under $5,000. The mid-to-high performance
market segment (bandwidth of 200 MHz to 2 GHz) is characterized by
real-time instruments with high sample rates (from 500 MS/s to 16 GS/s)
and long record lengths (from 10,000 to 64 million sample points) and
greater processing power to perform more sophisticated analyses. These
mid-to-high performance digital oscilloscopes typically range in price
from $5,000 to $35,000, although certain higher bandwidth oscilloscopes
for specialized applications are priced above $35,000. The Company's
WavePro(TM) and Waverunner(R) digital oscilloscope product families and
its high performance analog oscilloscopes are all targeted at customers
in the mid-to-high performance market segment. The high-performance
market segment (bandwidth greater than 2 GHz to 10 GHz) is also
characterized by real-time instruments with high sample rates (from 4
GS/s to 20 GS/s) and long record lengths (from 125,000 to 48 million
sample points). These oscilloscopes possess even greater capacity to
conduct sophisticated WaveShape Analysis on the faster, longer and more
complex signals that are prevalent in the current and expected future
state of the market. These high-performance instruments range in price
from $42,500 to $70,000 or higher for oscilloscopes targeted to specific
applications. The Company's WaveMaster(TM) digital oscilloscope product
family is targeted at customers in this high end of the market.
For certain very high signal speed applications, such as optical
communication, instruments with bandwidths of up to 50 GHz or more are
required. At these speeds, real-time oscilloscopes do not have the
ability to track the signal shape in real time and take samples quickly
enough to be effective. In these applications, a sampling oscilloscope,
which takes one sample per occurrence of the signal on a time delayed
basis, is used to reconstruct the signal shape. Sampling oscilloscopes
have several disadvantages compared to real-time oscilloscopes. One of
the most limiting is the fact that the input signal must be repetitive.
Any non-repetitive elements in the signal are "averaged out" and are not
seen. These instruments can range in price from $50,000 to $100,000.
Within the oscilloscope market, the Company has targeted several specific
application segments. These application segments include communications,
data storage and power measurement.
o Communications. The communications market itself can be segmented
into five submarkets: Telecommunications - the broadband
transmission of data over copper or fiber; Datacommunications
- the transmission of data over LANs and
4
WANs; Residential Broadband - the connection of broadband
transmission of data to the home; Mobile - data transmission
using wireless devices; and Peripheral Equipment - the
transmission of data to devices such as computers, printers,
etc. In each of these sub-segments, the need for instant
access and uniform service has required the encoding of data
and more complex electronic signals. The Company believes that
the accurate acquisition, long memory and rapid analysis
features of its oscilloscopes provide the unique solution to
testing these high speed, complex signals.
o Data Storage. The data storage market includes companies that
provide magnetic and optical storage devices such as hard disk
drives, removable media, tape, compact disks (CDs) and digital
video disks (DVDs). The increasing need to store more
information requires the encoding of signals to achieve higher
density on the recording media. The Company believes that the
high sample rates, long memory, and special signal triggering
features of its oscilloscopes along with its specialized
processing software that incorporates advanced algorithms
designed specifically for the measurement and analysis
requirements of the data storage market, provides the best
solution to its customers' testing requirements.
o Power Measurement and Automotive. The power measurement market
touches virtually all industries. Circuit boards and devices
within all electronic products require varying levels of AC
and DC voltages and currents. Converting these sources of
power has been predominantly accomplished through the use of
switch mode power circuits. The Company believes that the long
memory and advanced analysis capabilities of its
oscilloscopes, along with its specifically designed current
probing devices, provide design engineers with the best
measurement tool to improve the performance, efficiency and
reliability of their power supplies down to the component
level.
STRATEGY
The Company's primary objectives are to increase the growth rate of its
oscilloscope business and to leverage its WaveShape Analysis capabilities and
its key resources to expand into new markets. The following is a summary of the
strategies that will be used to accomplish these objectives:
o Increase the Growth Rate of the Oscilloscope Business. In order to increase
the growth rate of its oscilloscope business, the Company must:
o Gain market share by continuing to improve the "price to performance"
ratio of its products. Through its research and development ("R&D")
efforts, the Company has been successful in reducing the cost and size of
its custom integrated circuits, while delivering higher performance and
increased reliability. In addition, the Company's proprietary software and
unique processor and display architecture have further enhanced the "price
to performance" ratio of its products. The success of this strategy was
first illustrated in fiscal 2001 with the successful introductions of the
WavePro and Waverunner-2 product lines. Further success was achieved in
fiscal 2002, with the launch of WaveMaster, the Company's first silicon
germanium based family of oscilloscopes powered by its proprietary
X-Stream(TM) technology as well as a powerful Windows based operating
system.
o Expand the Company's addressable market by introducing products at the
higher end of the performance spectrum. This growth strategy is expected
to be accomplished through continued investment in R&D efforts as well as
strategic acquisitions or partnerships. As noted above, the Company's R&D
efforts resulted in the fiscal 2002 introduction of its new silicon
germanium based product that possesses the most powerful combination of
bandwidth, sample rate and memory length for real-time oscilloscopes. Also
in fiscal 2002, the Company moved to strengthen its position in the
highest segment of the oscilloscope market by entering into an agreement
with IBM Corporation ("IBM") to utilize their next-generation silicon
germanium technology. At the highest end of the performance spectrum, the
50 GHz to 100 GHz sampling scope market, the acquisition of Lightspeed
Electronics, Inc. ("Lightspeed") in fiscal 2001 initiated the Company's
investment in the development of a high bandwidth sampling oscilloscope
targeted for introduction in the first half of fiscal 2004.
o Expand the Company's share of targeted application segments where signal
complexity is high, such as communications test, data storage and power
measurement. To accomplish this strategy, the Company must continue to
introduce innovative software and hardware solutions tailored to the needs
of customers in this segment. Examples of such solutions currently offered
by the Company include:
5
- - Communications Test:
o Digital Filter Design
o Jitter and Timing Analysis
o PolyMask(TM) Communications Test
o X-MAP Custom WaveShape Analysis Software
- - Data Storage:
o Disk Drive Analyzer
o Disk Drive Parameter Package
o Disk Drive Noise Analysis
o Optical Recording Measurement Package
o Surface Map Software
- - Power Measurement:
o Current Probes
o Differential Amplifiers
o Power Measure Analysis Software
o Power Measurement Systems
Furthering its commitment to expansion of share in the Communications
Test application segment, the Company announced in July 2002 the
selection of New Focus, Inc. as the strategic provider of a 3.5 GHz
optical-to-electrical converter for use with the Company's new flagship
WaveMaster 8500 oscilloscope. This combination of instruments will
provide users with faster, more accurate WaveShape measurement and
analysis across all communication wavelengths from 400 to 1650
nanometers and across multiple communication protocols, including
Gigabit Ethernet, Fiber Channel, Xaui and OC-48.
o Leverage the Company's WaveShape Analysis Competency and Key Resources to
Expand into New Markets.
o As noted in the "Market Trends" section, there is an increasing
proliferation of electronics in general and digital electronics in
particular. In addition, the need for the analysis of increasingly faster
and more complex signals has placed limitations on certain existing test
and measurement equipment. Given these trends and the Company's core
competency, there are increasing opportunities to expand its WaveShape
Analysis capabilities into new markets and applications. The Company
expects to capitalize on this opportunity through internal R&D efforts as
well as through strategic acquisitions.
o As noted in the "Sales, Marketing and Distribution" section, the Company
maintains a direct sales force of highly trained, technically
sophisticated sales engineers. The Company believes that this key resource
can be leveraged over a higher sales volume by selling complementary
products to the same customer base they are currently addressing. Adding
such products to LeCroy's product offerings will be accomplished through
license agreements or acquisitions.
There can be no assurance that the Company will be successful in implementing
its strategies.
PRODUCTS AND SERVICES
Overview
The Company's products capture and analyze complex electronic signals by
applying its hardware and software technology to digitize signals and analyze
them using a variety of different packages and configurations. The digital
oscilloscope product family includes three form factors in instrument size and
capabilities to address varying customer requirements. These products include
the WaveMaster, WavePro and Waverunner families of digital oscilloscopes. The
Waverunner products are manufactured for the Company by its strategic partner,
Iwatsu. The Company's products also include production test digitizers, analog
oscilloscopes and other electronic components. In addition, the Company offers a
full range of aftermarket service and support for all of its products. The
following sections provide additional information on the Company's more
significant products.
6
WaveMaster Digital Oscilloscopes
The WaveMaster series of oscilloscopes was introduced in fiscal 2002 with
the application-specific Disk Drive Analyzer version in December 2001 followed
by the general purpose models in March 2002. These products, which range in
price from $42,500 to $70,000 plus the cost of options, currently offer
bandwidths of 3.0 GHz, 5.0 GHz or 6.0 GHz, sample rates of 20 GS/s and an
acquisition memory from 1 Mpts to 48 Mpts. Application segment specific
software solutions are available to interpret signal information and enhance the
utility of the product.
WavePro Digital Oscilloscopes
The WavePro series of oscilloscopes was introduced in October 2000 to
address customer applications with high-performance and measurement
requirements. These products, which range in price from $18,500 to $49,000 plus
the cost of options, currently offer bandwidths from 500 MHz to 2.0 GHz, sample
rates from 4 GS/s to 16 GS/s and an acquisition memory from 1 Mpts to 64 Mpts.
Application segment specific software solutions are available to interpret
signal information and enhance the utility of the product.
Waverunner Digital Oscilloscopes
The Waverunner series of oscilloscopes was first introduced in January
1999, followed by the Waverunner-2 series, which was introduced in January 2001.
Waverunner products, which range in price from $5,200 to $14,200 plus the cost
of options, provide high value and broad utility in the oscilloscope market and
are also the platform for the Company's solution packages in the power
measurement and optical recording application segments. The Company believes
that its ease of operation, crisp display and application packages make it one
of the most versatile oscilloscopes available on the market. The Waverunner
products currently offer bandwidths from 200 MHz to 1 GHz, sample rates from
200 MS/s to 2 GS/s and an acquisition memory of 100 Kpts to 4 Mpts.
Production Test Digitizers
The Company currently offers PXI Modular Digitizers to support applications
in production test that require the measuring and analysis of signals in a
flexible configuration and non-display format. The PXD-222 modular digitizer was
introduced in August 2001. This digitizer, which is priced at $2,900, offers a
bandwidth of 200 MHz and a sampling rate of 2.5 GS/s. This is the fastest PXI
digitizer sampling rate available in the market. The Company expects to
introduce additional digitizer models during fiscal 2003.
Other Products
To provide customers with what it believes are total solutions to their
signal measurement analysis problems, the Company offers various complementary
products. Some of these products include:
o Probes and Accessory Products. Probes provide the physical and electrical
or optical connection from the circuit or semiconductor device under test
to the oscilloscope. Offering probing solutions is often a key to customer
satisfaction in solving general purpose and specific application segment
problems.
o Arbitrary Waveform Generators. The Company offers a complementary line of
signal source products that can create input signals so that an electronic
circuit can be evaluated under controlled conditions. Using a digital
oscilloscope, an engineer can analyze the shape of the signal within a
circuit, compare it to the shape of an "ideal" input signal generated by
the signal source and thereby identify problems in the circuit. The
arbitrary waveform generator can also be used as a signal source to
stimulate activity in a device under test.
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 major
field service centers in Chestnut Ridge, New York (located at the Company's
corporate headquarters); Geneva, Switzerland; Osaka, Japan; and Seoul, Korea.
Sophisticated service on certain key components of the Company's digital
oscilloscope products, including its printed circuit boards, is performed only
at the Company's facilities in Geneva, Switzerland and Chestnut Ridge, New York.
Service and aftermarket products (including product upgrades) generated
approximately 7%, 5% and 6% of the Company's total revenues in fiscal years
ended June 30, 2002, 2001 and 2000, respectively.
7
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. Revenue derived from one
customer, Iwatsu, accounted for 11% of the Company's consolidated revenues in
fiscal 2002. No other customer accounted for more than 10% of the Company's
consolidated revenues in any of the last three fiscal years.
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, 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, Japan, China and South Korea, with
regional sales headquarters located in Chestnut Ridge, New York; Geneva,
Switzerland; and Osaka, Japan. As of June 30, 2002, the Company's direct digital
oscilloscope sales force consisted of approximately 82 sales engineers and
regional managers worldwide. 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, a 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.
SEASONALITY
The Company historically has experienced somewhat lower activity during its
first fiscal quarter than in other fiscal quarters which, it believes, is due
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 there is a global trend resulting from the demand for
faster data rates that continues to expand the use of higher speed and more
complex electrical and optical signals. The capture and analysis of these
signals requires higher bandwidths, faster sample rates, longer memories and
more powerful, flexible processing capabilities. It is the primary objective of
the Company's research and development program to meet these demands by
extending its capabilities in these areas while improving the manufacturability,
cost, reliability and time-to-market of its products. There can be no assurance
that the Company will meet this objective.
The Company is continuing to develop its signal conditioning, sampling,
data storage, data movement and processing technologies using advanced
integrated circuit techniques and processes. In addition, it continues to
develop innovative electrical circuit probing technology that allows better
waveform fidelity and circuit connection capabilities. During fiscal 2002, the
Company introduced its first product incorporating innovative signal
conditioning and sampling technologies fabricated on an extremely high speed
silicon germanium process developed by IBM. In June 2002, LeCroy entered into an
agreement with IBM in which it committed to pay $4.0 million for access to their
next-generation silicon germanium technology. LeCroy will use this technology to
develop components that are expected to deliver higher density, greater speed
and reduced power consumption than those currently available. Such components
will be used in future high-speed digital oscilloscopes.
8
The Company also maintains a software engineering group that recently
completed development of the Windows-based operating system deployed in the new
WaveMaster digital oscilloscope family. These engineers are continuing to
advance the Company's Windows-based WaveShape Analysis technology to keep pace
with the advancements occurring in hardware development. The group also develops
application solutions to perform specific analysis for data storage, power
measurement, communications and other markets.
The Company conducts research and development activities at its various
facilities and expenses such costs as incurred. Research and development costs,
excluding the $4.0 million technology access fee to IBM in fiscal 2002, was
$16.3 million, $16.4 million and $13.8 million in its fiscal years ended June
30, 2002, 2001 and 2000, respectively, which expenses represented 14.6%, 11.6%
and 11.4% of total revenues, respectively, for such fiscal years. The Company
intends to continue to invest a substantial percentage of its revenues in its
research and development efforts.
MANUFACTURING AND SUPPLIERS
The Company's digital oscilloscopes and related products, other than the
Waverunner oscilloscopes, are substantially all manufactured at the Company's
facilities in Chestnut Ridge, New York. The Waverunner products are manufactured
for the Company by its strategic partner, Iwatsu.
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 (IBM, Infineon, LSI Logic,
Atmel and Arrow Electronics). 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, 2002, the Company's Chestnut Ridge facility employed 59
manufacturing employees in an area of approximately 35,000 square feet devoted
to such tasks.
COMPETITION
The market for signal analyzers is highly competitive and characterized by
rapid and continual advances in technology. According to estimates provided by
Prime Data, Inc. ("Prime Data"), an independent industry survey organization,
total digital oscilloscope sales, excluding handheld instruments, grew from $638
million in 1994 to $888 million in calendar 2001. The market in calendar 2000
was estimated to be $962 million. Prime Data estimates that the three largest
suppliers of digital oscilloscopes, exclusive of handheld models, and their
approximate respective market shares for calendar 2001 were Tektronix, Inc. with
52%, Agilent Technologies with 16% and LeCroy with 15%. Many of the Company's
principal competitors have substantially greater sales, 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 $70,000) in
which its digital oscilloscopes are focused and that it will be able to continue
to do so, although there can be no assurance that this is or will be the case.
In addition, as discussed in the "Strategy" section, the Company intends to
expand its addressable market into higher performance applications that tend to
sell at a higher price level.
BACKLOG
The Company's backlog of unshipped customer orders was approximately $7.2
million and $9.4 million as of June 30, 2002 and 2001, respectively. Customers
may cancel orders at any time. Backlog at June 30, 2002 excludes $4.5 million of
deferred revenue established in connection with the adoption of a new accounting
9
pronouncement in fiscal 2001 (see Note 1 "New Accounting Pronouncements" to the
Consolidated Financial Statements for further information). The Company believes
that its level of backlog at any particular time is not necessarily indicative
of the future operating performance of the Company.
PATENTS, TRADEMARKS AND LICENSES
The Company currently relies on a combination of patents, trademark and
trade secret laws, non-disclosure agreements and other intellectual property
protection methods, as well as 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 of WaveShape Analysis 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, 2002, the Company held a
total of twenty-five United States patents expiring in the years from 2006 to
2019 and thirteen foreign patents expiring in the years from 2012 to 2017. The
Company also has a number of patent applications pending or under evaluation in
the United States and in various foreign jurisdictions. The patent positions of
high-technology companies such as LeCroy are uncertain 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 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 was required to make future royalty payments in a minimum
aggregate amount of $3.5 million over ten years with potential additional
amounts contingent on future product sales not to exceed $3.5 million. Royalty
expense, which approximated $0.5 million and $1.0 million for the years ended
June 30, 2001 and 2000, respectively, is included in Cost of sales in the
Consolidated Statements of Operations. As of June 30, 2001, the Company has
expensed the maximum royalty payments due under the settlement and license
agreements. The settlement agreement provides that Tektronix may terminate the
license in the event that the Company acquires 20% or more of the stock of, or a
controlling interest in, any of a number of specified companies participating in
the oscilloscope market or any of their respective affiliates (each, a
"Restricted Company") or a Restricted Company acquires 20% or more of the stock
of, or a controlling interest in, the Company or an affiliate of the Company, or
any attempt to transfer the Tektronix license to a Restricted Company is made.
This provision of the settlement could preclude the Company from making an
investment in or acquisition of such companies, and it also could discourage
such companies or another third party from attempting to acquire control of the
Company or limit the price that such a third party might be willing to pay for
the Common Stock. In addition, this provision could limit the price that
investors might be willing to pay in the future for the Common Stock.
EMPLOYEES
As of June 30, 2002, LeCroy had 407 full-time employees, of whom 243 work
in the Company's Chestnut Ridge facility. 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.
10
REGULATION
As the Company manufactures its products in the United States 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 the
United States is subject to regulation under the Treaty for Nuclear
Non-Proliferation.
The Company's subsidiary, Digitech Industries, Inc. has been involved in
environmental remediation activities, the liability for which has been retained
by the Company after the sale of the Vigilant Networks segment (see Note 18 to
Consolidated Financial Statements). The Company does not foresee that the
ultimate resolution of this environmental matter will have a material adverse
effect on the results of future operations, financial position or the
competitive position of the Company.
ITEM 2. PROPERTIES.
The Company's executive offices and its principal manufacturing facility
are located in a two-story, approximately 88,000 square foot, building in
Chestnut Ridge, New York that is owned by the Company. In addition, the Company
leases other offices around the world 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 material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
11
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Thomas H. Reslewic 43 President, Chief Executive Officer
R. Scott Bausback 41 Executive Vice President, Chief Operating Officer
Conrad J. Fernandes 41 Vice President, Worldwide Sales
David C. Graef 45 Vice President, Research and Development
Raymond F. Kunzmann 45 Vice President, Finance, Chief Financial Officer,
Secretary and Treasurer
THOMAS H. RESLEWIC, who joined LeCroy in 1990, has served as President and
Chief Executive Officer since January 2002. Mr. Reslewic previously served the
Company as President from September 2001 until December 2001, President and
Chief Operating Officer from October 2000 until September 2001, and Executive
Vice President and Chief Operating Officer from February 1998 until October
2000. 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.
R. SCOTT BAUSBACK has served as Executive Vice President - Chief Operating
Officer of LeCroy since September 2001. Prior to joining the Company, Mr.
Bausback was employed by Tektronix, Inc. where he served as the Vice President
and General Manager for the Communications Business Unit from September 1998
until June 2001 and Director of Marketing for the Television and Communications
Business Unit from June 1997 until September 1998. Mr. Bausback has a Bachelor
of Science degree in electrical engineering from Rutgers College of Engineering.
CONRAD J. FERNANDES, who joined LeCroy in 1990, has served as Vice
President - Worldwide Sales since July 2001. Previously, Mr. Fernandes served as
Vice President - International Sales from 1999 until 2000 and as Director of
Asia-Pacific Sales from 1994 until 1999. Mr. Fernandes has a Bachelor of
Electronic Engineering degree and a Master of Business Administration degree
from City University of London.
DAVID C. GRAEF, who joined LeCroy in 1989, has served as the Vice President
- - Research and Development since January 1999. Previously, Mr. Graef served as
Engineering Manager from June 1996 to December 1998. Mr. Graef has a Bachelor of
Science degree in electrical engineering from the University of Bridgeport.
RAYMOND F. KUNZMANN has served as Vice President - Finance, Chief Financial
Officer, Secretary and Treasurer since February 2000. Before joining the
Company, Mr. Kunzmann was Vice President - Finance and Chief Financial Officer
of Axsys Technologies, Inc., a manufacturer of micro-positioning and precision
optical products, from June 1994 to February 2000. Mr. Kunzmann has a Bachelor
of Science degree in accounting from Fordham University and a Master of Business
Administration degree from Iona College.
Executive officers of the Company are appointed by the Board of Directors
and serve until their successors have been duly elected and qualified. There are
no family relationships among any of the executive officers or directors of the
Company.
The Company has entered into indemnification agreements with its executive
officers and directors, pursuant to which the Company has agreed to indemnify
such persons to the fullest extent permitted by law, and providing for certain
other protections.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
LeCroy's Common Stock is traded on the NASDAQ National Market(R)
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.
HIGH LOW
---- ---
FISCAL YEAR 2002
First Quarter ............. $26.00 $13.52
Second Quarter............. 20.00 13.75
Third Quarter ............. 19.97 16.16
Fourth Quarter............. 17.65 10.05
FISCAL YEAR 2001
First Quarter ............. $18.19 $ 9.38
Second Quarter............. 20.75 11.75
Third Quarter ............. 28.00 12.38
Fourth Quarter............. 27.00 13.50
The Company has never declared nor 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 August 2,
2002, there were approximately 350 registered holders of record of the Common
Stock.
On June 30, 1999, the Company issued and sold an aggregate of 500,000
shares of its Series A Convertible Redeemable Preferred Stock ("Series A
Preferred Stock") for an aggregate purchase price of $10,000,000 and warrants to
purchase an aggregate of 250,000 shares of the Company's Common Stock for an
aggregate purchase price of $0.01, in reliance on Section 4(2) of the Securities
Act of 1933, as amended. The securities were sold to Advent Global GECC III
Limited Partnership, EnviroTech Investment Fund I Limited Partnership, Adwest
Limited Partnership, Oakstone Ventures Limited Partnership and Advent Partners
Limited Partnership, all of which are accredited investors as defined under
Regulation D of the Securities Act. Proceeds of the issuance of Series A
Preferred Stock and warrants to purchase Common Stock were allocated for general
working capital purposes.
The Series A Preferred Stock is convertible into shares of Common Stock at
any time at the option of the holder and, under certain circumstances specified
in the Company's Certificate of Incorporation, the Series A Preferred Stock is
automatically convertible into shares of Common Stock. The warrants are
exercisable, at an exercise price of $20 per share of Common Stock, at any time
until June 30, 2006.
In August 2000, the Company sold 517,520 shares of its Common Stock for
gross proceeds of $5.2 million in a private equity placement. Proceeds from this
sale of securities were used to repay existing indebtedness, fund working
capital requirements and other general corporate purposes.
In August 2001, the Company sold 1,428,572 shares of its Common Stock for
gross proceeds of $25.0 million. The Company intends to use the proceeds for
operating needs and to fund growth through acquisitions and other transactions.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected Consolidated Statements of Operations Data for the
five years ended June 30, 2002 and the Consolidated Balance Sheet data at June
30, 2002, 2001, 2000, 1999 and 1998 are derived from the Consolidated Financial
Statements of the Company and have been adjusted to reflect the discontinuance
of the Vigilant Networks business segment. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Company's Consolidated Financial Statements
and related Notes thereto included elsewhere in this Form 10K.
13
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
YEARS ENDED JUNE 30,
In thousands, except per share amounts 2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Revenues:
Digital oscilloscopes and related products............ $101,077 $ 129,425 $ 110,237 $ 100,366 $ 101,584
High energy physics products.......................... 1,419 3,757 4,132 7,362 6,167
Service and other (1)................................. 8,960 8,206 7,031 11,763 11,831
-------- --------- --------- --------- ---------
Total revenues...................................... 111,456 141,388 121,400 119,491 119,582
Cost of sales (2)........................................ 59,642 67,838 61,706 60,298 54,000
------- -------- -------- -------- ---------
Gross profit.......................................... 51,814 73,550 59,694 59,193 65,582
Operating expenses:
Selling, general and administrative (3)............... 42,265 45,726 36,998 44,299 43,497
Research and development (4).......................... 20,293 16,415 13,811 13,867 16,812
Acquisition charge (5)................................ - - - - 1,600
-------- --------- --------- --------- ---------
Total operating expenses............................ 62,558 62,141 50,809 58,166 61,909
-------- --------- --------- --------- ---------
Operating (loss) income ................................. (10,744) 11,409 8,885 1,027 3,673
(Loss) gain from sale of marketable securities........ (122) - 2,460 - -
Other income (expense), net........................... 310 (471) (276) 158 (3)
-------- --------- --------- --------- ---------
(Loss) income from continuing operations
before income taxes .................................. (10,556) 10,938 11,069 1,185 3,670
(Benefit from) provision for income taxes............. (4,307) (897) 3,498 2,499 3,160
-------- --------- --------- --------- ---------
(Loss) income from continuing operations................. (6,249) 11,835 7,571 (1,314) 510
(Loss) from discontinued operations, net of tax....... - (1,994) (11,009) (5,474) (2,390)
-------- --------- --------- --------- ---------
Net (loss) income before the cumulative effect of an
accounting change..................................... (6,249) 9,841 (3,438) (6,788) (1,880)
Cumulative effect of an accounting change for
revenue recognition, net of tax....................... - 4,417 - - -
-------- -------- --------- --------- ---------
Net (loss) income........................................ (6,249) 5,424 (3,438) (6,788) (1,880)
Charges related to convertible preferred stock........... 1,876 1,700 1,540 1,844 -
Cumulative effect of an accounting change for
preferred stock....................................... - 1,848 - - -
-------- -------- --------- --------- ---------
Net (loss) income applicable to common stockholders.... $ (8,125) $ 1,876 $ (4,978) $ (8,632) $ (1,880)
======== ======== ========= ========= =========
Income (loss) per common share-basic:
(Loss) income from continuing operations............ $ (0.81) $ 1.20 $ 0.78 $ (0.41) $ 0.07
(Loss) from discontinued operations................. - (0.24) (1.42) (0.72) (0.32)
Cumulative effect of an accounting change........... - (0.74) - - -
-------- -------- --------- --------- ---------
Net (loss) income................................... $ (0.81) $ 0.22 $ (0.64) $ (1.13) $ (0.25)
======== ======== ========= ========= =========
Income (loss) per common share-diluted:
(Loss) income from continuing operations............ $ (0.81) $ 1.15 $ 0.76 $ (0.41) $ 0.06
(Loss) from discontinued operations................. - (0.23) (1.38) (0.72) (0.29)
Cumulative effect of an accounting change........... - (0.71) - - -
-------- -------- --------- --------- ---------
Net (loss) income................................... $ (0.81) $ 0.21 $ (0.62) $ (1.13) $ (0.23)
======== ======== ========= ========= =========
Weighted average number of common shares:
Basic ............................................ 10,052 8,476 7,749 7,621 7,375
Diluted ............................................ 10,052 8,847 7,977 7,621 8,055
(See legend on following page)
14
(1) Service and other revenue in each of fiscal 2002 and 2001 includes the
recognition of $1.3 million of revenue that was deferred with the adoption
of the Securities and Exchange Commission's Staff Accounting Bulletin No.
101 "Revenue Recognition in Financial Statements" (see Note 1 to the
Consolidated Financial Statements). Included in Service and other revenue
in fiscal 1999 and 1998 were license fees of $4.9 million and $5.5 million,
respectively.
(2) Included in Cost of sales in fiscal 2002 is $0.7 million in severance
related to a slowdown in the technology market and $3.6 million of excess
and obsolete inventory charges related to the cost of inventory associated
with discontinued product lines and inventory levels that had been deemed
to be in excess of forecasted requirements. Included in Cost of sales in
fiscal 1999 and fiscal 1998 are inventory write-downs of $2.2 million and
$2.7 million, respectively, pursuant to restructuring of the Company's
business.
(3) Included in Selling, general and administrative expense in fiscal 2002 is
$3.6 million of severance charges related to a slowdown in the technology
market. In fiscal 2001, the Company recorded a severance charge of $0.9
million, partially offset by the reversal of an unused 1999 restructuring
reserve of $0.2 million. In fiscal 2000, the Company reversed $2.0 million
of a restructuring reserve established in fiscal 1999 (see Note 2 to the
Consolidated Financial Statements). In 1999, the Company recorded charges
of $6.8 million related to the consolidation of its oscilloscope
operations. In 1998, the Company recorded charges of $5.9 million related
to a restructuring of the business in reaction to uncertainties in the
Pacific region.
(4) Included in Research and development in fiscal 2002 is a $4.0 million fee
for access to third party technology.
(5) Incident to an acquisition in fiscal 1998, there was a purchase of
incomplete technology that resulted in a $1.6 million pre-tax charge.
YEARS ENDED JUNE 30,
----------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital (6)............................ $ 62,710 $ 41,610 $ 24,129 $31,516 $27,697
Total assets ................................... 126,991 122,160 100,849 99,685 89,110
Total debt and capitalized leases............... 375 456 11,000 8,200 2,294
Redeemable convertible preferred stock.......... 13,266 11,390 9,692 8,152 -
Total stockholders' equity...................... 81,505 60,480 47,109 51,855 54,107
(6) At June 30, 2000, all of the Company's outstanding debt of $11.0 million
under its bank credit facility was classified as current and was included
in net working capital.
15
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 related Notes thereto included elsewhere in this Form 10-K.
OVERVIEW
LeCroy currently operates as one business segment in the Test and
Measurement Instrument market. Using its core competency of WaveShape Analysis,
defined as the capture and analysis of complex electronic signals, the Company
develops, manufactures, sells and licenses signal acquisition and analysis
products. Its principal product line consists of a family of high-performance
digital oscilloscopes used primarily by electrical design engineers in various
markets, including communications test, data storage and power measurement. The
Company also produces modular digitizers and various electronic components. In
addition, it generates revenue by offering service on all of its products beyond
the normal warranty period.
CONSOLIDATED RESULTS OF OPERATIONS
The following table indicates the percentage of total revenues represented
by each item in the Company's Consolidated Statements of Operations for the
fiscal years ended June 30, 2002, 2001 and 2000. On August 25, 2000, the Company
sold substantially all of the assets and business of its Vigilant Networks
business segment. Accordingly, the results of operations of this business
segment have been reflected as discontinued operations.
YEARS ENDED JUNE 30,
2002 2001 2000
---- ---- ----
Revenues:
Digital oscilloscopes and related products................................... 90.7% 91.5% 90.8%
High energy physics products................................................. 1.3 2.7 3.4
Service and other............................................................ 8.0 5.8 5.8
------- ------- -------
Total revenues............................................................ 100.0 100.0 100.0
Cost of sales (included in fiscal 2002 is $0.7 million (0.6% of sales) of
severance and $3.6 million (3.2% of sales) of inventory charges)................ 53.5 48.0 50.8
------- ------- -------
Gross profit ............................................................. 46.5 52.0 49.2
Operating expenses:
Selling, general and administrative (included in fiscal 2002 and 2001 were
severance charges of $3.6 million and $0.7 million (3.2% and 0.5% of
sales), respectively, and in fiscal 2000, a $2.0 million (1.6% of sales)
credit to reverse a prior year restructuring reserve)..................... 37.9 32.4 30.5
Research and development (included in fiscal 2002 is a
$4.0 million (3.6% of sales) technology access fee)....................... 18.2 11.6 11.4
------- ------- -------
Total operating expenses.................................................. 56.1 44.0 41.9
Operating (loss) income........................................................... (9.6) 8.0 7.3
(Loss) gain on sale of marketable securities................................ (0.1) - 2.0
Other income (expense), net................................................. 0.2 (0.3) (0.2)
------- ------- -------
(Loss) income from continuing operations before income taxes...................... (9.5) 7.7 9.1
(Benefit from) provision for income taxes................................... (3.9) (0.6) 2.9
------- ------- -------
(Loss) income from continuing operations.......................................... (5.6) 8.3 6.2
(Loss) from discontinued operations, net of tax................................... - (1.4) (9.0)
------- ------- -------
Net (loss) income before the cumulative effect of an
accounting change............................................................. (5.6) 6.9 (2.8)
Cumulative effect of an accounting change for revenue
recognition, net of tax benefit................................................ - 3.1 -
------- ------- -------
Net (loss) income................................................................. (5.6)% 3.8% (2.8)%
======= ======= =======
16
COMPARISON OF FISCAL YEARS 2002 AND 2001
Total revenues were $111.5 million in fiscal 2002 compared to $141.4
million in fiscal 2001, a decrease of 21.2%, or $29.9 million. Revenues from
digital oscilloscopes and related products decreased 21.9%, or $28.3 million, in
fiscal 2002 primarily due to the impact of the current difficult economic
environment on the Company's higher end products and execution issues in the
Company's U.S. sales channel. Revenues from high energy physics products
declined by $2.3 million, or 62.2%, in fiscal 2002 as a result of the Company's
decision in December 2001 to discontinue this product line. Service and other
revenue in both fiscal 2002 and 2001 includes the recognition of $1.3 million of
revenue that was deferred with the adoption of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" as of the beginning of fiscal 2001 (see Note 1 to the Consolidated
Financial Statements).
On a geographical basis, the Americas comprised $33.1 million, or 30%, of
fiscal 2002 revenues compared to $48.7 million, or 34%, of fiscal 2001, Europe
and the Middle East comprised $33.1 million, or 30%, of fiscal 2002 revenues
compared to $40.0 million, or 28%, of fiscal 2001 and the Asia/Pacific region
accounted for $45.3 million, or 40%, of fiscal 2002 revenues compared to $52.7
million, or 38%, of fiscal 2001. The decline in revenues from the Americas as a
percentage of total sales in fiscal 2002 was primarily due to the impact of the
current difficult economic environment in the U.S. and execution issues in the
Company's U.S. sales channel. The Company addressed these execution issues in
the fourth quarter of fiscal 2002 by hiring new sales management and converting
the U.S. sales channel from partial coverage by manufacturers' sales
representatives to full coverage by the Company's direct sales force.
Gross margin, excluding $0.7 million (0.6% of sales) in severance charges
and a $3.6 million (3.2% of sales) charge for excess and obsolete inventory, was
50.3% in fiscal 2002 compared to 52.0% in fiscal 2001. This inventory charge
relates to the cost of inventory associated with discontinued product lines and
inventory levels that had been deemed to be in excess of forecasted
requirements. The decrease in gross margin from the prior year was due to the
unfavorable absorption of costs resulting from lower sales volume, an
unfavorable sales mix of lower margin products and higher technology related
royalties. These negative impacts were partially offset by favorable margins on
the Company's new high-end WaveMaster product line of digital oscilloscopes
released in the third quarter of fiscal 2002.
Selling, general and administrative expense, excluding $3.6 million of
severance charges in fiscal 2002 and $0.7 million in fiscal 2001, decreased by
14.2%, or $6.4 million, from $45.1 million in fiscal 2001 to $38.7 million in
fiscal 2002. This decrease is attributable to the cost reduction initiatives
taken by the Company in light of the poor economic environment including
headcount reductions, salary freezes, reduced incentive payments and controls on
discretionary spending, as well as lower variable selling costs. As a percentage
of sales, excluding the severance charge (3.2% and 0.5% of sales in fiscal 2002
and 2001, respectively), Selling, general and administrative expense was 34.7%
in fiscal 2002, compared with 31.9% in fiscal 2001. This increase as a
percentage of sales was primarily due to the inability to leverage the costs of
fixed infrastructure over the lower sales base. These fixed costs increased in
fiscal 2002 as a result of the conversion, in the fourth quarter, of the U.S.
sales force from partial coverage by manufacturers' representatives to full
coverage by the Company's direct sales force.
Research and development expense, excluding a $4.0 million technology
access fee, decreased by 0.1%, or $0.1 million, from $16.4 million in fiscal
2001 to $16.3 million in fiscal 2002. Despite the effects of the difficult
economy, the Company maintained its commitment to product development in fiscal
2002 as evidenced by the successful launch of WaveMaster, the Company's first
silicon germanium based family of oscilloscopes. As a percentage of sales,
excluding the purchased technology (3.6% of sales), Research and development
expense increased from 11.6% in fiscal 2001 to 14.6% in fiscal 2002. This
increase as a percentage of sales was primarily due to the inability to fully
leverage expenses over the lower sales base. The Company intends to continue to
invest a substantial percentage of its revenues in its research and development
efforts.
During the fourth quarter of fiscal 2002, the Company sold the remaining
1.0 million shares of its equity investment in Iwatsu. This transaction
generated $1.8 million of cash and resulted in a pre-tax loss of $0.1 million.
No shares of Iwatsu stock were sold during fiscal 2001.
Other income (expense), net, which consists of net interest income and
foreign exchange gains or losses, was income of $0.3 million in fiscal 2002,
compared to an expense of $0.5 million in fiscal 2001. The decrease in expense
was due to a $0.7 million reduction of foreign exchange losses as a result of
17
the Company's hedging program initiated in the third quarter of fiscal 2001. In
addition, there was a $0.1 million improvement in net interest due to higher
cash balances from the net proceeds of $23.2 million raised from a private
equity placement in August 2001 and no significant bank borrowings during fiscal
2002.
In fiscal 2002, the Company recorded a tax benefit of $4.3 million, or an
effective tax rate of (40.8)%, compared to a tax benefit of $0.9 million, or an
effective tax rate of (8.2)%, in fiscal 2001. The (40.8)% effective tax rate
consists of the Company's (37.0)% annual effective tax rate increased by the
release of a $0.4 million tax reserve related to a favorable audit settlement.
During fiscal 2001, the Company used $8.2 million of net operating losses ($3.2
million of tax benefit) to offset taxable income from continuing operations and
reversed, during the fourth quarter of fiscal 2001, $4.1 million of its
valuation allowance into income. Partially offsetting these items, the Company
recorded a tax expense of $1.6 million for the projected repatriation of cash
from one of its foreign subsidiaries. Excluding these items, the Company's tax
provision in fiscal 2001 would have been $4.7 million, or an effective tax rate
of 43.3%.
See "Discontinued Operations" for a discussion and analysis of such
amounts.
See "Recently Issued Accounting Standards" for a discussion and analysis
of the cumulative effect of an accounting change for revenue recognition.
COMPARISON OF FISCAL YEARS 2001 AND 2000
Total revenues were $141.4 million in fiscal 2001 compared to $121.4
million in fiscal 2000, an increase of 16.5%, or $20.0 million. Revenues from
digital oscilloscopes and related products increased 17.4%, or $19.2 million, in
fiscal 2001 primarily due to the successful launches of the new high-end WavePro
line of oscilloscopes in the second quarter of fiscal 2001 and the lower-end
Waverunner-2 oscilloscopes in the third quarter of fiscal 2001. Also
contributing to the improved digital oscilloscopes and other related products
revenue were increased sales of probes and accessories. Revenues from high
energy physics products declined by $0.4 million, or 9.1%, in fiscal 2001. The
Company expects that high energy physics products revenue will continue to
decline as it exits from this product line. Service and other revenue increased
by $1.2 million, or 16.7%, due to the recognition of $1.3 million of revenue
that was deferred with the adoption of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
at the beginning of fiscal 2001 (see Note 1 to the Consolidated Financial
Statements).
On a geographical basis, the Americas comprised $48.7 million, or 34%, of
fiscal 2001 revenues compared to $45.1 million, or 37%, of fiscal 2000, Europe
and the Middle East comprised $40.0 million, or 28%, of fiscal 2001 revenues
compared to $34.7 million, or 29%, of fiscal 2000 and the Asia/Pacific region
accounted for $52.7 million, or 38%, of fiscal 2001 revenues compared to $41.6
million, or 34%, of fiscal 2000.
Gross margin was 52.0% in fiscal 2001 compared to 49.2% in fiscal 2000.
This improvement was due to a favorable mix of higher margin WavePro products
introduced in the second quarter of fiscal 2001 and the recognition of $1.3
million of deferred revenue noted above with no associated costs of sales.
Selling, general and administrative expense, excluding $0.7 million of
severance charges in fiscal 2001 and a $2.0 million reversal of a restructuring
reserve in fiscal 2000, increased by 15.5%, or $6.1 million, from $39.0 million
in fiscal 2000 to $45.1 million in fiscal 2001. As a percentage of sales,
excluding severance charges (0.5% of sales) in fiscal 2001 and the reversal of a
restructuring reserve (1.6% of sales) in fiscal 2000, Selling, general and
administrative expense was 31.9% in fiscal 2001, compared with 32.1% in fiscal
2000. The slight decrease as a percentage of sales was due primarily to
efficiencies from the leveraging of the costs of fixed infrastructure over a
higher sales volume substantially offset by the absence of any allocation of
general and administrative costs to the discontinued Vigilant operation since
the measurement date in August 2000.
Research and development expense increased by 18.9%, or $2.6 million, from
$13.8 million in fiscal 2000 to $16.4 million in fiscal 2001. As a percentage of
sales, Research and development expense increased from 11.4% in fiscal 2000 to
11.6% in fiscal 2001. The increase as a percentage of sales was primarily
attributable to higher spending in personnel and outsourced non-recurring
engineering related to new product development. The Company intends to continue
to invest a substantial percentage of its revenues in its research and
development efforts.
18
In fiscal 2000, the Company recorded a pre-tax gain of $2.5 million on the
sale of 2.7 million shares of Iwatsu common stock. No shares of Iwatsu stock
were sold during fiscal 2001. As of June 30, 2001, the Company had 1.0 million
shares of such equity securities remaining that are recorded on the Consolidated
Balance Sheets at their fair value of $2.0 million.
Other (expense) income, net, which consists of net interest income and
foreign exchange gains or losses, was an expense of $0.5 million in fiscal 2001,
compared to an expense of $0.3 million in fiscal 2000. The increase in expense
was due to foreign exchange losses of $0.8 million in fiscal 2001 compared to
foreign exchange gains of $0.6 million in fiscal 2000. Substantially offsetting
this increase in expense was net interest income in fiscal 2001 of $0.1 million
compared to net interest expense of $0.9 million in fiscal 2000. The improvement
in net interest was due to higher cash balances and lower bank borrowings in
fiscal 2001.
In fiscal 2001, the Company recorded a tax benefit of $0.9 million, or an
effective tax rate of (8.2)%, compared to a tax provision of $3.5 million, or an
effective tax rate of 31.6%, in fiscal 2000. During fiscal 2001, the Company
used $8.2 million of net operating losses ($3.2 million of tax benefit) to
offset taxable income from continuing operations and reversed, during the fourth
quarter of fiscal 2001, $4.1 million of its valuation allowance into income.
Partially offsetting these items, the Company recorded a tax expense of $1.6
million for the projected repatriation of cash from one of its foreign
subsidiaries. Excluding these items, the Company's tax provision in fiscal 2001
would have been $4.7 million, or an effective tax rate of 43.3%. This 43.3%
effective tax rate in fiscal 2001 was higher than the 31.6% effective tax rate
in fiscal 2000 primarily due to the use of restructuring payments to offset
taxable income in fiscal 2000.
See "Discontinued Operations" for a discussion and analysis of such
amounts.
See "Recently Issued Accounting Standards" for a discussion and analysis
of the cumulative effect of an accounting change for revenue recognition.
RESTRUCTURING AND OTHER CHARGES (CREDITS), NET
The Company took steps during fiscal 2002 to reduce its expenses in
response to the continued weakness in the technology sector of the economy. As
part of this effort, LeCroy reduced its workforce by 69 employees, approximately
15%. In connection with these workforce reductions, the Company recorded a $4.3
million charge ($0.7 million in Cost of sales and $3.6 million in Selling,
general and administrative expense) for severance and related expenses,
including costs associated with the succession of the Company's Chief Executive
Officer. Of the $4.3 million total charge, $4.1 million was initially credited
to Accrued expenses and other liabilities and $0.2 million, representing a
non-cash expense for the amendment of employee stock options, was credited to
Additional paid-in capital. As of June 30, 2002, $1.9 million has been paid and
$2.2 million remains accrued in Compensation and benefits.
During the second quarter of fiscal 2002, the Company increased its
allowance for excess and obsolete inventory by $3.6 million through a charge to
Cost of sales. This inventory charge relates to the cost of inventory associated
with discontinued product lines and inventory levels that were deemed to be in
excess of forecasted requirements.
During the fourth quarter of fiscal 2001, in anticipation of continued
weakness of the economy, the Company reduced its workforce by 25 employees,
approximately 5%. As a result of this workforce reduction, the Company recorded
a severance charge of $0.9 million. Substantially all of the $0.9 million
severance and related expenses have been paid as of June 30, 2002.
During fiscal 1999, the Company adopted a restructuring plan, the
objectives of which were to consolidate its oscilloscope operations in order to
enhance operating efficiencies and to dedicate resources to the development of
advanced technologies. In connection with this consolidation, the Company
recorded total restructuring and other charges of $11.3 million, $10.4 million
of which related to restructuring costs. The remaining $0.9 million of the total
charge related to additional costs to redeploy manufacturing, engineering and
employee resources. The restructuring costs comprised inventory write-offs of
$2.2 million, which were included in Cost of sales, an accrual for the future
minimum lease payments for the Geneva, Switzerland manufacturing facility of
$3.4 million, severance and employee benefit costs of $3.0 million for the
reduction of full-time and part-time employees, the write-down of plant
assets and capitalized management information system software and other costs
of $1.8 million.
19
During fiscal 2001, the 1999 restructuring plan was completed. Cumulative
through fiscal 2001, $8.2 million of the initial restructuring reserve
established had been paid or used to reduce asset balances. Of this $8.2
million, $2.1 million related to inventories, $3.0 million related to severance
and other employee benefit costs, $1.3 million related to the Geneva facility
lease and $1.8 million related to plant assets, capitalized management
information system software and other costs. In addition, during fiscal 2000,
the Company negotiated the assignment of the remaining lease payments on the
Geneva facility to a third party as of August 1, 2000. As such, a restructuring
credit of $2.0 million relating to the reversal of the remaining lease payments,
net of fees, was recorded in the fourth quarter of fiscal 2000. The residual
balance of $0.2 million was credited to Selling, general and administrative
expense in fiscal 2001.
DISCONTINUED OPERATIONS
In August 2000, the Company divested its Vigilant Networks business
segment, which comprised its Vigilant Networks, Inc. ("Vigilant") and Digitech
Industries, Inc. ("Digitech") subsidiaries. Vigilant Networks' principal
product, the Big Tangerine network analyzer, was a new product which was also
being sold into a new market for the Company. Since this product's inception,
LeCroy had made substantial investments in the Vigilant Networks business
segment in terms of selling, marketing, research and development, and
administrative expenses. While the network analyzer had a unique technology, the
Company decided that it could not continue to invest the financial resources
necessary to capitalize on its future growth potential.
The Company closed on the sale of the assets and business of Vigilant and a
portion of the assets and business of Digitech in August 2000 for gross proceeds
of $12.0 million. The remaining business of Digitech is being discontinued. The
buyer also assumed certain liabilities of Vigilant. In connection with the sale,
the Company issued warrants to purchase 200,000 shares of LeCroy Common Stock at
$10.05 per share to the buyer. Using the Black-Scholes option pricing model,
these warrants were valued at approximately $1.3 million. After deducting the
value of these warrants, along with fees and certain retained liabilities, the
Company recorded a loss of $0.6 million, net of a $0.3 million tax benefit, on
the sale and discontinuance of the Vigilant Networks business segment. This
includes a $1.4 million adjustment to the loss recorded in the fourth quarter of
fiscal 2001 due to changes in estimates. For fiscal years ended 2001 and 2000,
revenues from discontinued operations were $0.4 million (through the measurement
date) and $7.4 million, respectively, and losses from discontinued operations,
net of tax, were $1.4 million (through the measurement date) and $11.0 million,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $62.7 million at June 30, 2002, which represented a
working capital ratio of 3.2 to 1, compared to $41.6 million, or 1.9 to 1, at
June 30, 2001. The increase in working capital was due primarily to net proceeds
of $23.2 million raised from a private equity placement in August 2001.
Net cash (used in) provided by operating activities for the fiscal years
ended June 30, 2002, 2001 and 2000 was $(6.9) million, $0.6 million and $4.9
million, respectively. The increase in cash used in operating activities in
fiscal 2002 versus 2001 was primarily due to a decrease in accounts payable,
accrued expenses and other liabilities, partially offset by a decrease in
accounts receivable balances related to lower revenue and improved collections
experience on past due balances. The reduction in accounts payable, accrued
expenses and other liabilities reflect $3.1 million of payments on retained
discontinued operations liabilities, severance payments and a reduction in
accounts payable levels. The decrease in cash provided by operating activities
in fiscal 2001 from fiscal 2000 was primarily due to increases in accounts
receivable and inventories to support the Company's revenue growth partially
offset by increases in accounts payable and accrued liabilities and higher
fiscal 2001 earnings.
Net cash (used in) provided by investing activities for the fiscal years
ended June 30, 2002, 2001 and 2000 was $(2.2) million, $5.0 million and $(0.6)
million, respectively. The decrease in cash provided by investing activities in
fiscal 2002 was primarily due to the gross proceeds of $12.0 million received
from the sale of the assets and business of the Vigilant Networks business
segment in fiscal 2001, which effect was partially offset by the proceeds from
the sale of marketable securities of $1.8 million in fiscal 2002. The increase
in cash provided by investing activities from fiscal 2000 to 2001 was primarily
due to the sale of the assets and business of the Vigilant Networks segment in
fiscal 2001 noted above partially offset by $7.6 million of proceeds from the
sale of marketable securities in fiscal 2000.
20
Net cash provided by (used in) financing activities for the fiscal years
ended June 30, 2002, 2001 and 2000 was $24.8 million, $(3.3) million and $3.7
million, respectively. The increase in cash provided by financing activities in
fiscal 2002 was primarily due to net proceeds of $23.2 million raised from a
private equity placement in August 2001. The decrease in cash provided by
financing activities from fiscal 2000 to fiscal 2001 was primarily due to the
repayment of $11.0 million of borrowings under the Company's credit facility,
partially offset by net proceeds of $4.8 million raised from a private equity
placement.
The Company has a $15.0 million revolving line of credit with a commercial
bank expiring on September 30, 2003, which can be used to provide funds for
general corporate purposes and acquisitions. Borrowings under this line bear
interest at prime plus a margin of between .25% and 1.25%, or LIBOR plus a
margin of between 1.5% and 2.5%, depending on the Company's Leverage Ratio. As
of June 30, 2002, there were no borrowings outstanding under this line of
credit.
On June 12, 2000, the Company secured a $2.0 million capital lease line of
credit to fund certain capital expenditures. As of June 30, 2002, the Company
had $0.4 million outstanding under this line of credit, $0.1 million of which
was included in Accrued expenses and other liabilities and the remaining $0.3
million in Non-current liabilities on the Consolidated Balance Sheets. The
outstanding borrowings under this line bear interest at 12.2%.
In addition to the above U.S. based facilities, the Company maintains
certain short-term foreign credit facilities, principally facilities with two
Japanese banks totaling 150 million yen ($1.3 million as of June 30, 2002). No
amounts were outstanding under such facilities as of June 30, 2002.
The Company has operating leases covering plant, certain office facilities
and equipment that expire at various dates through 2012. Future minimum annual
lease payments required during the years ending in fiscal 2003 through 2007 and
later years, under noncancelable operating leases having an original term of
more than one year, are $2.0 million, $1.6 million, $1.1 million, $0.9 million,
$0.9 million and $2.7 million, respectively.
The Company believes that its cash on hand, cash flow generated by its
continuing operations and availability under its revolving credit agreement will
be sufficient to fund working capital and capital expenditure requirements for
at least the next twelve months and provide funds for potential acquisition
opportunities.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are described in Note 1 to
the Consolidated Financial Statements. The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and accompanying
notes. These estimates and assumptions are based on management's judgment and
available information and, consequently, actual results could be different from
these estimates.
The Company believes that the critical accounting policies discussed below
involve significant management judgment due to the sensitivity of the methods,
assumptions, and estimates necessary in determining the related assets,
liability, revenue and expense amounts.
Allowance for Doubtful Accounts - The Company maintains an allowance for
doubtful accounts relating to the portion of the accounts receivable that has
been recognized as revenue which it may not collect. The Company analyzes
historical bad debts, customer concentrations, customer creditworthiness,
current economic trends and changes in customer payment terms when evaluating
the adequacy of the allowance for doubtful accounts. The allowance for doubtful
accounts, which includes the allowance for anticipated returns, was $0.4 million
and $0.2 million at June 30, 2002 and June 30, 2001, respectively. Changes in
the overall economic environment or in the financial condition of our customers
may require adjustments to the allowance for doubtful accounts.
Allowance for Excess and Obsolete Inventory - The Company writes down its
inventory for estimated excess and obsolete inventory equal to the difference
between the cost of inventory and estimated market value based on assumptions
relating to future demand and market conditions. The allowance for excess and
obsolete inventory was $1.5 million and $3.6 million at June 30, 2002 and June
30, 2001, respectively. The decrease in the allowance during fiscal 2002 was due
21
to the physical disposal of excess and obsolete inventory. If actual market
conditions prove less favorable than those projected by management, additional
inventory write downs may be required.
Valuation of Long-Lived and Intangible Assets - The carrying value of
long-lived assets and identifiable intangibles (including technology,
manufacturing and distribution rights) are assessed for impairment whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. If required, an impairment charge is recorded for the difference
between the fair value and the carrying value of the asset. Factors which could
trigger an impairment review include the following: significant underperformance
of the Company relative to expected historical or projected future operating
results; significant changes in the manner of the Company's use of the acquired
assets or the strategy for the overall business; significant negative industry
or economic trends; and the Company's market capitalization relative to net book
value.
The cost of technology, manufacturing and distribution rights acquired is
amortized primarily on the basis of the higher of units shipped over the
contract periods through June 2005 or on a straight-line basis. The Company
assesses the recoverability of these rights on the basis of actual and
forecasted production units as well as the average selling price and standard
costs of the related products after the amortization of the rights to determine
profitability. If required, an impairment charge is recorded.
SFAS No. 142 requires goodwill to be tested for impairment annually under a
two-step approach, or more frequently, if events or changes in circumstances
indicate that the asset might be impaired. Impairment is assessed at the
"reporting unit" level by applying a fair value-based test. A reporting unit is
defined as the same as or one level below the operating segment level as
described in SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Under the two-step approach, the carrying amount of the
reporting unit is compared with its fair value. If the carrying amount of the
reporting unit exceeds its fair value, the "implied" fair value (as defined in
SFAS No. 142) of the reporting unit's goodwill is compared with its carrying
amount to measure the amount of the impairment loss, if any. When the carrying
amount of the reporting unit's goodwill exceeds the implied fair value of the
goodwill, an impairment loss is recognized in an amount equal to the excess.
Deferred Tax Assets - The Company has recorded $18.4 million of deferred
tax assets on its Consolidated Balance Sheets as of June 30, 2002 for the future
tax benefit of certain expenses reported for financial statement purposes that
have not yet been deducted on its tax returns. Significant components of the
Company's deferred tax assets are Federal, state and foreign loss and credit
carryforwards, inventory reserves, employee severance and other costs. The
recognition of this tax asset is based on the assessment that it is more likely
than not that the Company will be able to generate sufficient future taxable
income within statutory carryforward periods to realize the benefit of these tax
deductions. The factors that the Company considers in assessing the likelihood
of realization include the forecast of future taxable income and available tax
planning strategies that could be implemented to realize the deferred tax
assets. Based on this information, the Company recorded a valuation allowance of
$4.9 million as of June 30, 2002 to reserve for those tax assets the Company
believes are not more likely than not to be realized in future periods.
Adjustments to the valuation allowance may be made in the future if it is
determined that the realized amount of net operating losses and other tax assets
is greater or less than the amount recorded.
Warranty - Provisions for estimated expenses related to product warranties
are made at the time products are sold. These estimates are established using
historical information on the nature, frequency and average cost of warranty
claims. The Company actively studies trends of warranty claims and takes action
to improve quality and minimize its warranty exposure. Management believes that
the warranty reserve is appropriate; however, actual claims incurred could
differ from the original estimates, requiring adjustments to the reserve.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB 101"), "Revenue Recognition in Financial
Statements," which summarizes certain of the SEC Staff's views in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements. Under SAB 101, which the Company adopted in
fiscal 2001, certain previously recognized license fee revenue was deferred and
recognized in future periods over the term of the agreements. The adoption of
SAB 101 was recorded as of the beginning of fiscal 2001 and resulted in a
non-cash charge for the cumulative effect of an accounting change of $4.4
million, net of a tax benefit of $2.7 million. The deferred revenue will be
amortized into revenue over 5.5 years, the remaining terms of the license
agreements. The Company recognized pre-tax deferred license fee revenue of $1.3
million during fiscal 2002 and 2001. Such license fees were included in Service
and other revenue in the Consolidated Statements
22
of Operations. As of June 30, 2002, the remaining balance of pre-tax deferred
license fee revenue was $4.5 million. The Company has not entered into an
agreement in which it has recognized license fee revenue since the third quarter
of fiscal 1999.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets" effective July 1, 2001. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets
acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill. The adoption of SFAS No. 141 did not impact
the Company in fiscal 2002.
Under SFAS No. 142, goodwill is no longer amortized but reviewed for
impairment annually or more frequently if certain indicators arise. The Company
has completed the required annual impairment test and determined that there is
no impairment to its recorded goodwill balances. Had the Company been accounting
for its goodwill under SFAS No. 142 for all fiscal years presented, the
Company's net income and earnings per share from continuing operations would
have been as follows:
YEARS ENDED JUNE 30,
In thousands, except per share amounts 2002 2001 2000
-------------- -------------- ---------------
Reported net (loss) income........................... $ (6,249) $ 5,424 $ (3,438)
Add back goodwill amortization, net of tax........... - 279 294
-------------- ------------- --------------
Adjusted net (loss) income........................... $ (6,249) $ 5,703 $ (3,144)
============== ============= ==============
Income (loss) per common share - basic:
Reported net (loss) income..................... $ (0.81) $ 1.20 $ 0.78
Goodwill amortization, net of tax.............. - 0.03 0.04
-------------- ------------- --------------
Adjusted net (loss) income..................... $ (0.81) $ 1.23 $ 0.82
============== ============= ==============
Income (loss) per common share - diluted:
Reported net (loss) income..................... $ (0.81) $ 1.15 $ 0.76
Goodwill amortization, net of tax.............. - 0.03 0.03
-------------- ------------- --------------
Adjusted net (loss) income..................... $ (0.81) $ 1.18 $ 0.79
============== ============= ==============
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 144 requires that long-lived
assets be measured at the lower of carrying amount or fair value, less cost to
sell, whether reported in continuing operations or in discontinued operations.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. The adoption of SFAS No. 144 is not
expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections 5". SFAS No. 145 eliminates the requirement under SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," to report gains and
losses from extinguishments of debt as extraordinary items in the income
statement. Accordingly, gains or losses from extinguishments of debt for fiscal
years beginning after May 15, 2002 shall not be reported as extraordinary items
unless the extinguishment qualifies as an extraordinary item under the
provisions of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." Upon adoption of
this pronouncement, any gain or loss on extinguishment of debt previously
classified as an extraordinary item in prior periods that does not meet the
criteria of Opinion 30 for such classification should be reclassified to conform
with the provisions of SFAS No. 145. Management does not believe the adoption of
this standard will have a material impact on the Company's consolidated
financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 nullifies EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred,
whereas EITF No. 94-3 had recognized the liability at the commitment date to an
exit plan. The Company is required to adopt the provisions of SFAS No. 146
effective for exit or disposal activities initiated after
23
December 31, 2002. Management has not yet determined the effect, if any, the
adoption of SFAS No. 146 will have on the Company's consolidated financial
statements.
FORWARD-LOOKING STATEMENTS
This Form 10-K may contain "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, including without limitation,
statements regarding the intent, belief or current expectations of the Company
or its directors or officers with respect to, among other things, (i) market
trends in the Company's industries and the projected impact on the Company, (ii)
the increasing importance of signal shape analysis; (iii) the Company's ability
to meet its customers' evolving needs; (iv) the Company's position within its
industries and ability to effectively compete; (v) the Company's ability to
expand into new markets; (vi) the success of the Company's new product
introductions; (vii) trends in the seasonality of the Company's sales; (viii) a
shift in technology towards higher speed digital signals containing more complex
data and the demands of users of signal analyzer products; (ix) market
opportunities for dedicated signal analyzers; (x) the resolution of certain
environmental remediation activities; (xi) sufficiency of the Company's cash
balances, cash flow and the availability of external financing sources to fund
working capital, capital expenditure requirements and business or technology
acquisitions; (xii) trends affecting the Company's financial condition and
results of operations; (xiii) the Company's business and growth strategies;
(xiv) the impact of adoption of accounting conventions; and (xv) certain other
statements identified or qualified by words such as "likely," "will,"
"suggests," "may," "would," "could," "should," "expects," "anticipates,"
"estimates," "plans," "projects," "believes," "is optimistic about," or similar
expressions (and variants of such words or expressions). Investors are cautioned
that forward-looking statements are inherently uncertain. These forward-looking
statements represent the best judgment of the Company as on the date of this
Form 10-K, and the Company cautions readers not to place undue reliance on such
statements. Actual performance and results of operations may differ materially
from those projected or suggested in the forward-looking statements due to
certain risks and uncertainties including, without limitation, risks associated
with fluctuations in the Company's operating results; volume and timing of
orders received; changes in the mix of products sold; competitive factors,
including pricing pressure, technological developments and products offered by
competitors; the Company's ability to deliver a timely flow of competitive new
products and market acceptance of these products; the Company's ability to
anticipate changes in the market; the Company's ability to negotiate or maintain
financing arrangements with lenders on terms that are acceptable; the Company's
ability to attract and retain qualified personnel, including the Company's
management; changes in the global economy and fluctuations in foreign currency
rates; inventory risks due to changes in market demand or the Company's business
strategies; risks due to an interruption in supply or an increase in price for
the Company's parts, components and sub-assemblies; the Company's ability to
realize sufficient margins on the sales of its products, as well as other risk
factors listed from time to time in the Company's reports filed with the
Securities and Exchange Commission and press releases, specifically, those
discussed in the section entitled "Risk Factors" in the Form S-3 Registration
Statements No. 333-64848 and No. 333-43690.
RISK FACTORS THAT MAY IMPACT FUTURE RESULTS
Included in this Form 10-K are a number of important risk factors and
uncertainties that should be considered by stockholders and by potential
investors in the Company. Also, readers should carefully review the Company's
reports filed with the Securities and Exchange Commission and press releases,
specifically, those sections entitled "Risk Factors" in the Form S-3
Registration Statements No. 333-64848 and No. 333-43690.
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company purchases materials from suppliers and sells its products
around the world and maintains investments in foreign subsidiaries, all
denominated in a variety of currencies. As a consequence, it 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, the European monetary
unit, Swiss franc, British pound, Japanese yen and Korean won.
During the third quarter of fiscal 2001, the Company began a program of
entering into foreign exchange forward contracts to minimize the risks
associated with currency fluctuations on assets or liabilities denominated in
other than the functional currency of LeCroy or its subsidiaries. It cannot be
assured, however, that this program will effectively offset all of the Company's
foreign currency risk related to these assets or liabilities. Other than this
program, the Company does not attempt to reduce its foreign currency exchange
risks by entering into foreign currency management programs and it has no plans
to do so in the near term. As a consequence, there can be no assurance that
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 U.S. dollar, the Company's financial reporting
currency, or otherwise, will not adversely affect the Company's results of
operations. Moreover, fluctuations in exchange rates could affect the demand for
our products. During fiscal 2002, 2001 and 2000, the Company reported foreign
currency exchange (losses) gains on assets or liabilities denominated in other
than their functional currencies and related foreign exchange forward contracts
of $(0.1) million, $(0.8) million, and $0.6 million, respectively. At June 30,
2002 and 2001, the Company had approximately $12.8 million and $16.9 million,
respectively, of open foreign exchange forward contracts all with short-term
maturities of three months or less.
The Company performed a sensitivity analysis assuming a hypothetical 10%
adverse change in foreign currency exchange rates on its foreign exchange
forward contracts and its assets or liabilities denominated in other than their
functional currencies. In management's opinion, a 10% adverse change in foreign
currency exchange rates would not have a material effect on these instruments
or, therefore, the Company's results of operations, financial position or cash
flows.
25
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
LECROY CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors.......................................................................... 27
Consolidated Balance Sheets as of June 30, 2002 and 2001................................................ 28
Consolidated Statements of Operations for the years ended June 30, 2002, 2001 and 2000.................. 29
Consolidated Statements of Stockholders' Equity for the years ended June 30, 2002, 2001 and 2000........ 30
Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000.................. 31
Notes to Consolidated Financial Statements.............................................................. 32
26
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, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 2002. 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 auditing standards generally
accepted in the United States. 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 as of June 30, 2002 and 2001, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 2002, in conformity with accounting principles generally accepted
in the United States. 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
MetroPark, New Jersey
July 31, 2002
27
LECROY CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------
June 30,
In thousands, except share and per share amounts 2002 2001
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents......................................................... $ 27,322 $ 11,449
Accounts receivable, net of reserves of $422 and $241
at June 30, 2002 and 2001, respectively......................................... 24,296 32,982
Inventories, net.................................................................. 28,108 31,415
Other current assets.............................................................. 11,657 11,017
-------- --------
Total current assets......................................................... 91,383 86,863
Property and equipment, net............................................................ 21,354 21,427
Marketable securities.................................................................. - 2,043
Other assets........................................................................... 14,254 11,827
-------- --------
Total assets................................................................. $126,991 $122,160
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................................. $ 12,971 $ 23,661
Accrued expenses and other liabilities............................................ 15,702 21,592
-------- --------
Total current liabilities.................................................... 28,673 45,253
Deferred revenue and other non-current liabilities..................................... 3,547 5,037
-------- --------
Total liabilities............................................................ 32,220 50,290
Contingencies and commitments.......................................................... - -
Redeemable convertible preferred stock, $.01 par value (authorized 5,000,000
shares; 500,000 shares issued and outstanding; liquidation value,
$14.0 million and $12.5 million at June 30, 2002 and 2001, respectively)............. 13,266 11,390
Stockholders' Equity:
Common stock, $.01 par value (authorized 45,000,000 shares; 10,323,071 and
8,734,505 issued and outstanding at June 30, 2002 and 2001, respectively)...... 103 87
Additional paid-in capital........................................................ 81,279 56,315
Warrants to purchase common stock................................................. 2,165 1,848
Accumulated other comprehensive loss.............................................. (3,695) (7,548)
Retained earnings................................................................. 1,653 9,778
-------- --------
Total stockholders' equity................................................... 81,505 60,480
-------- --------
Total liabilities and stockholders' equity................................... $126,991 $122,160
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
28
LECROY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------
Years Ended June 30,
In thousands, except per share amounts 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Revenues:
Digital oscilloscopes and related products.............................. $ 101,077 $ 129,425 $ 110,237
High energy physics products............................................ 1,419 3,757 4,132
Service and other....................................................... 8,960 8,206 7,031
--------- --------- ----------
Total revenues....................................................... 111,456 141,388 121,400
Cost of sales (included in 2002 is $0.7 million of severance and
$3.6 million of inventory charges) .................................. 59,642 67,838 61,706
--------- --------- ----------
Gross profit......................................................... 51,814 73,550 59,694
Operating expenses:
Selling, general and administrative (included in 2002 and 2001 were
severance charges of $3.6 million and $0.7 million, respectively, and in
fiscal 2000, a $2.0 million credit to reverse a prior year restructuring
reserve).............................................................. 42,265 45,726 36,998
Research and development (included in 2002 is a $4.0
million technology access fee)........................................ 20,293 16,415 13,811
--------- --------- ----------
Total operating expenses............................................. 62,558 62,141 50,809
--------- --------- ----------
Operating (loss) income...................................................... (10,744) 11,409 8,885
(Loss) gain from sale of marketable securities.......................... (122) - 2,460
Other income (expense), net............................................. 310 (471) (276)
--------- --------- ---------
(Loss) income from continuing operations before income taxes................. (10,556) 10,938 11,069
(Benefit from) provision for income taxes............................... (4,307) (897) 3,498
--------- --------- ---------
(Loss) income from continuing operations..................................... (6,249) 11,835 7,571
Discontinued operations:
Loss from operations, net of tax benefit of $1.0 million
and $2.7 million in 2001 and 2000, respectively....................... - (1,442) (11,009)
(Loss) on sale, net of tax benefit of $0.3 million...................... - (552) -
--------- --------- ---------
Net (loss) income before the cumulative effect of an accounting change....... (6,249) 9,841 (3,438)
Cumulative effect of an accounting change for revenue
recognition, net of tax benefit of $2.7 million....................... - 4,417 -
--------- --------- ---------
Net (loss) income............................................................ (6,249) 5,424 (3,438)
Charges related to convertible preferred stock............................... 1,876 1,700 1,540
Cumulative effect of an accounting change for preferred stock................ - 1,848 -
--------- --------- ----------
Net (loss) income applicable to common stockholders.......................... $ (8,125) $ 1,876 $ (4,978)
========= ========= =========
Income (loss) per common share-basic:
(Loss) income from continuing operations................................ $ (0.81) $ 1.20 $ 0.78
(Loss) from discontinued operations..................................... - (0.24) (1.42)
Cumulative effect of an accounting change.............................. - (0.74) -
--------- --------- ---------
Net (loss) income...................................................... $ (0.81) $ 0.22 $ (0.64)
========= ========= =========
Income (loss) per common share-diluted:
(Loss) income from continuing operations................................ $ (0.81) $ 1.15 $ 0.76
(Loss) from discontinued operations..................................... - (0.23) (1.38)
Cumulative effect of an accounting change.............................. - (0.71) -
--------- --------- ---------
Net (loss) income...................................................... $ (0.81) $ 0.21 $ (0.62)
========= ========= =========
Weighted average number of common shares:
Basic.................................................................. 10,052 8,476 7,749
Diluted................................................................ 10,052 8,847 7,977
The accompanying notes are an integral part of these
consolidated financial statements.
29
LECROY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK COMMON ADDITIONAL OTHER
------------- STOCK PAID-IN COMPREHENSIVE RETAINED
SHARES AMOUNT WARRANTS CAPITAL (LOSS) EARNINGS TOTAL
In thousands
- -------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999................... 7,705 $ 77 $ 1,848 $41,021 $(3,970) $12,879 $51,855
Comprehensive loss:
Net loss............................... (3,438) (3,438)
Foreign currency translation........... (853) (853)
Unrealized gain on marketable
securities .......................... 194 194
-------
Total comprehensive loss................... (4,097)
Stock option and stock purchase plans...... 98 1 951 952
Charges related to convertible preferred
stock ............................... (1,540) (1,540)
Securities offering costs.................. (61) (61)
------ ----- ------- ------- ------- ------- -------
Balance at June 30, 2000 .................. 7,803 78 1,848 41,911 (4,629) 7,901 47,109
Comprehensive income:
Net income............................. 5,424 5,424
Foreign currency translation........... (2,412) (2,41)
Unrealized loss on marketable securities (507) (507)
-------
Total comprehensive income................. 2,505
Stock option and stock purchase plans...... 188 2 2,427 2,429
Tax benefit from exercise of stock options. 3,135 3,135
Charges related to convertible preferred
stock ............................... 1,847 (3,547) (1,700)
Issuance of shares in private placements... 517 5 5,191 5,196
Issuance of shares for acquisition......... 100 1 974 975
Issuance of stock warrants................. 1,366 (106) 1,260
Exercise of stock warrants................. 126 1 (1,366) 1,366 1
Securities offering costs.................. (430) (430)
------ ----- ------- ------- ------- ------- -------
Balance at June 30, 2001................... 8,734 87 1,848 56,315 (7,548) 9,778 60,480
Comprehensive loss:
Net loss............................... (6,249) (6,249)
Foreign currency translation........... 4,213 4,213
Reversal of cumulative unrealized
gain on sale of marketable
securities........................... (360) (360)
-------
Total comprehensive loss................... (2,396)
Stock option and stock purchase plans...... 160 2 2,031 2,033
Tax benefit from exercise of stock options. 82 82
Charges related to convertible preferred
stock ............................... (1,876) (1,876)
Issuance of shares in private placement.... 1,429 14 24,986 25,000
Issuance of stock warrants................. 317 (317) -
Securities offering costs.................. (1,818) (1,818)
------ ----- ------- ------- ------- ------- -------
Balance at June 30, 2002................... 10,323 $ 103 $ 2,165 $81,279 $(3,695) $ 1,653 $81,505
====== ===== ======= ======= ======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
30
LECROY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------
Years Ended June 30,
In thousands 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income .......................................................... $ (6,249) $ 5,424 $ (3,438)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization............................................ 6,215 5,231 5,868
Inventory charges, severance costs and restructuring (credits)........... 3,772 - (2,000)
Deferred income taxes.................................................... (4,466) (3,957) -
Tax benefit from exercise of stock options............................... 82 537 -
Loss (gain) on sale of marketable securities............................. 122 - (2,460)
Loss on sale of discontinued operations, net of taxes.................... - 552 -
Cumulative effect of an accounting change, net of taxes.................. - 4,417 -
Change in operating asset and liabilities:
Accounts receivable...................................................... 7,325 (8,130) 2,164
Inventories.............................................................. 630 (7,661) 186
Other current and non-current assets..................................... 1,117 (1,978) 1,035
Accounts payable, accrued expenses and other liabilities................. (15,411) 6,151 3,499
--------- --------- ---------
Net cash (used in) provided by operating activities.............................. (6,863) 586 4,854
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................................... (4,095) (4,858) (6,766)
Investment in computer software............................................. - (2,097) (1,463)
Proceeds from the sale of marketable securities............................. 1,849 - 7,630
Proceeds from the sale of business segment.................................. - 12,000 -
--------- --------- ---------
Net cash (used in) provided by investing activities.............................. (2,246) 5,045 (599)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term debt............................................... - - (1,575)
Borrowings under line of credit and capital leases ......................... - 458 4,400
Repayment of borrowings under line of credit and capital leases............. (81) (11,000) -
Issuance of common stock.................................................... 23,182 4,766 -
Stock options exercised and stock purchase plans............................ 1,722 2,429 891
--------- --------- ---------
Net cash provided by (used in) financing activities.............................. 24,823 (3,347) 3,716
--------- --------- ---------
Effect of exchange rate changes on cash.......................................... 159 114 (711)
--------- --------- ---------
Net increase in cash and cash equivalents................................... 15,873 2,398 7,260
Cash and cash equivalents, beginning of the year............................ 11,449 9,051 1,791
--------- --------- ---------
Cash and cash equivalents, end of the year.................................. $ 27,322 $ 11,449 $ 9,051
========= ========= =========
Supplemental Cash Flow Disclosure
Cash paid during the year for:
Interest.............................................................. $ 119 $ 462 $ 1,016
Income taxes.......................................................... 716 590 880
Issuance of shares for acquisition......................................... - 1,000 -
The accompanying notes are an integral part of these
consolidated financial statements.
31
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The LeCroy Corporation (the "Company"), founded and incorporated in the
State of New York in 1964 and reincorporated in the State of Delaware in 1995,
develops, manufactures and markets electronic signal acquisition and WaveShape
Analysis products and services. The Company's core business is the production of
high-performance digital oscilloscopes, which are used by design engineers and
researchers in a broad range of industries, including electronics, computers and
communications.
Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of the U.S.
parent company and its wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation. Certain reclassifications
have been made to prior-year amounts to conform to the current-year
presentation. The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. These estimates
and assumptions are based on management's judgment and available information
and, consequently, actual results could be different from these estimates.
Fiscal Year Ending Dates
The operations of the U.S. parent company, LeCroy Corporation, have a
fiscal year ending on the Saturday closest to June 30 (June 29, 2002, June 30,
2001 and July 1, 2000). Each of these fiscal years represented a 52-week period.
The majority of foreign subsidiaries have a June 30 fiscal year-end. The
consolidated financial statement year-end references are stated as June 30.
Revenue Recognition
Revenue is recognized when products are shipped or services are rendered
to customers, net of allowances for anticipated returns. Revenues from service
contracts are recognized ratably over the contract period. A deferral is
recorded for post-contract support and any other further deliverables included
within the sales contract agreement. This deferral is earned as contract
elements are completed. Beginning in fiscal 2001 with the adoption of the
Securities and Exchange Commission's Staff Accounting Bulletin No. 101 ("SAB
101") "Revenue Recognition in Financial Statements", revenue from license fees
under agreements that have exclusivity clauses and, from the licensee's
perspective, have ongoing requirements or expectations that are more than
perfunctory, are recognized over the term of the related agreement. An on-going
requirement or expectation would be considered more than perfunctory if any
party to the contract considers it to be "essential to the functionality" of the
delivered product or service or failure to complete the activities would result
in the customer receiving a full or partial refund or rejecting the products
delivered or services performed to date. Prior to adopting SAB 101, revenue from
license agreements was recognized when non-refundable payments were received and
all significant obligations under the license agreements were fulfilled.
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.
32
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Cash and Cash equivalents
Cash and cash equivalents in excess of current operating requirements are
invested in short-term, highly liquid interest bearing investments with
maturities of three months or less at the date of purchase and are stated at
cost, which approximates market value.
Marketable Securities
The Company classifies its equity investments as available for sale and
reports them at fair market value. Unrealized gains or losses are reported net
of tax and foreign exchange effect in stockholders' equity until disposition. In
October 1999, the Company recorded a pre-tax gain of $2.5 million on the sale of
2.7 million shares of its equity investment in Iwatsu Electric Co. ("Iwatsu").
During the fourth quarter of fiscal 2002, the Company sold the remaining 1.0
million shares of its equity investment in Iwatsu and recorded a pre-tax loss of
$0.1 million on the sale.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Maintenance and repairs are charged to expense as incurred. For financial
reporting purposes, depreciation and amortization of property and equipment is
provided on a straight-line basis over the asset's estimated useful life or
related lease term as follows:
Building......................................... 20-32 years
Furniture, machinery and equipment............... 2-12 years
Computer software................................ 5-7 years
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Impairment of Long-Lived Assets, excluding Goodwill
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of,"
the Company reviews long-lived assets used in operations when indicators of
impairment are present. If the anticipated undiscounted operating cash flow
generated by those assets is less than the assets' carrying value, an impairment
charge is recorded for the difference between the fair value and the carrying
value of the asset.
Concentration of Credit Risk
The Company develops and manufactures electronic equipment, principally
digital oscilloscopes, which it sells primarily to design engineers and
researchers in a broad range of industries, including electronics, computers and
communications. Sales are to all regions of the United States as well as to a
multitude of foreign countries. Revenue derived from one customer accounted for
11% of the Company's consolidated revenues in fiscal 2002. No other customer
accounted for more than 10% of the Company's consolidated revenues in any of the
last three fiscal years. The Company does not consider this customer to be a
collection risk. Other than this customer, 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. Credit
losses have been minimal and within management's expectations.
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.
33
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Income Taxes
Deferred tax assets and liabilities are recognized under the liability
method based upon the difference between the amounts reported for financial
reporting and tax purposes. These deferred taxes are measured by applying
current enacted tax rates. In general, 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. During the fourth quarter of fiscal 2001, the Company determined that it
was likely it would repatriate excess cash balances held by one of its foreign
subsidiaries. Accordingly, included in the Company's fiscal 2001 tax provision
is the U.S. tax expense anticipated to be due when such amounts are repatriated.
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 translation
adjustments that result from translating the balance sheets at different rates
than the income statements are included in Accumulated other comprehensive loss,
which is a separate component of stockholders' equity in the Consolidated
Balance Sheets. Transaction gains and losses that arise from exchange rate
fluctuations on transactions denominated in a currency other than the functional
currency are included in Other income (expense), net in the Consolidated
Statements of Operations. (Losses) gains in fiscal 2002, 2001 and 2000 resulting
from foreign currency transactions, net of gains or losses on related foreign
exchange forward contracts, approximated $(0.1) million, $(0.8) million and $0.6
million, respectively.
Derivative Financial Instruments
The Company enters into foreign exchange forward contracts that are
designated as fair value hedges to minimize the risks associated with foreign
currency fluctuations on assets or liabilities denominated in other than the
functional currency of the Company or its subsidiaries. These foreign exchange
forward contracts are highly inversely correlated to the hedged items and are
considered effective as hedges of the underlying assets and liabilities. The net
gains or losses resulting from changes in the fair value of these derivatives
and on assets or liabilities denominated in other than their functional
currencies are included in Other income (expense), net in the Consolidated
Statements of Operations. At June 30, 2002 and 2001, the Company had
approximately $12.8 million and $16.9 million, respectively, of open foreign
exchange forward contracts all with short-term maturities of less than three
months.
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 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.
Per Share Information
Basic earnings per share ("EPS") excludes potential dilution and is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if stock options or other contracts to
issue common stock were exercised and resulted in the issuance of common stock
that then shared in the earnings of the Company. Diluted EPS is computed using
the treasury stock method when the effect of common stock equivalents would be
dilutive. Common stock equivalents are comprised of convertible preferred stock,
employee stock options and warrants to purchase common stock. Common stock
equivalents related to employee stock options and warrants to purchase common
stock were 333,000, 371,000 and 228,000, in fiscal 2002, 2001 and 2000,
respectively. In fiscal 2002, 2001, and 2000, 500,000 of common stock
equivalents related to the Company's convertible preferred stock and, in fiscal
2002, all common stock equivalents were excluded from the loss per common share
calculation because the effect would be anti-dilutive.
34
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Comprehensive Income (Loss)
Comprehensive income (loss) for the three years ended June 30, 2002, 2001
and 2000 included foreign currency translation gains (losses) of $4.2 million,
$(2.4) million and $(0.9) million, respectively. The cumulative foreign currency
translation losses were $3.7 million at June 30, 2002 and $7.9 million at June
30, 2001.
Comprehensive income (loss) also included unrealized gains (losses) on
marketable equity securities classified as available for sale of $(0.5) million
in fiscal 2001 and $0.2 million in fiscal 2000. During fiscal 2002, the Company
sold its remaining shares of marketable equity securities classified as
available for sale and reversed $0.4 million of unrealized gains previously
recorded in comprehensive income. The cumulative unrealized gains on marketable
equity securities classified as available for sale were $0.4 million at June 30,
2001 and $0.9 million at June 30, 2000. These unrealized gains were net of
deferred tax liabilities of $0.1 million and $0.3 million at June 30, 2001 and
2000, respectively.
Change in Accounting Estimate
The Company has experienced improved quality on its newer product
offerings and refined its methodology to reflect these improvements in its
assessment of warranty exposure during fiscal 2000. As a result, the Company
reduced its warranty reserve and increased operating income by $0.6 million in
the third quarter of fiscal 2000.
Goodwill and Intangible Assets
The Company adopted SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" effective July 1, 2001. SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 141 also specifies criteria
that intangible assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill. The adoption of SFAS No.
141 did not impact the Company in fiscal 2002.
Under SFAS No. 142, goodwill is no longer amortized but reviewed for
impairment annually or more frequently if certain indicators arise. The Company
has completed the required annual impairment test and determined that there is
no impairment to its recorded goodwill balances. Had the Company been accounting
for its goodwill under SFAS No. 142 for all fiscal years presented, the
Company's net income and earnings per share from continuing operations would
have been as follows:
JUNE 30,
2002 2001 2000
-------------- ------------- -------------
Reported net (loss) income.................................. $ (6,249) $ 5,424 $ (3,438)
Add back goodwill amortization, net of tax.................. - 279 294
------------- ------------- -------------
Adjusted net (loss) income.................................. $ (6,249) $ 5,703 $ (3,144)
============= ============= =============
Income (loss) per common share - basic:
Reported net (loss) income............................ $ (0.81) $ 1.20 $ 0.78
Goodwill amortization, net of tax..................... - 0.03 0.04
------------- ------------- -------------
Adjusted net (loss) income............................ $ (0.81) $ 1.23 $ 0.82
============= ============= =============
Income (loss) per common share - diluted:
Reported net (loss) income............................ $ (0.81) $ 1.15 $ 0.76
Goodwill amortization, net of tax..................... - 0.03 0.03
------------- ------------- -------------
Adjusted net (loss) income............................ $ (0.81) $ 1.18 $ 0.79
============= ============= =============
35
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table reflects the gross carrying amount and accumulated
amortization of the Company's goodwill and intangible assets included in Other
assets on the Consolidated Balance Sheet as of the dates indicated:
JUNE 30,
---------
2002 2001
---- ----
Intangible assets:
Amortized intangible assets:
Technology, manufacturing and distribution rights..... $ 10,494 $ 10,081
Patents and other intangible assets................... 201 201
Accumulated amortization.............................. (3,988) (2,045)
------------ ------------
Net carrying amount..................................... $ 6,707 $ 8,237
============ ============
Non-amortized intangible assets:
Goodwill, net........................................ $ 1,574 $ 1,574
============ ============
Amortization expense for those intangible assets still required to be
amortized under SFAS No. 142 was $1.7 million and $1.3 million for fiscal 2002
and 2001, respectively. The cost of technology, manufacturing and distribution
rights acquired is amortized primarily on the basis of the higher of units
shipped over the contract periods through June 2005 or on a straight-line basis.
The Company estimates amortization expense on a straight-line basis will
approximate $2.4 million in fiscal 2003 and 2004 and $1.7 million in 2005. The
impact of foreign exchange translation on amortized intangible assets during
fiscal 2002 was an increase in the net carrying amount of $0.2 million.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
SAB 101, "Revenue Recognition in Financial Statements," which summarizes certain
of the SEC Staff's views in applying accounting principles generally accepted in
the United States to revenue recognition in financial statements. Under SAB 101,
which the Company adopted in fiscal 2001, certain previously recognized license
fee revenue was deferred and recognized in future periods over the term of the
agreements. The adoption of SAB 101 was recorded as of the beginning of fiscal
2001 and resulted in a non-cash charge for the cumulative effect of an
accounting change of $4.4 million, net of a tax benefit of $2.7 million. The
deferred revenue will be amortized into revenue over 5.5 years, the remaining
terms of the license agreements. The Company recognized pre-tax deferred license
fee revenue of $1.3 million during fiscal 2002 and 2001. Such license fees were
included in Service and other revenue in the Consolidated Statements
of Operations. As of June 30, 2002, the remaining balance of pre-tax deferred
license fee revenue was $4.5 million. The Company has not entered into an
agreement in which it has recognized license fee revenue since the third quarter
of fiscal 1999.
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS No. 144 requires that long-lived
assets be measured at the lower of carrying amount or fair value, less cost to
sell, whether reported in continuing operations or in discontinued operations.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. The adoption of SFAS No. 144 is not
expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections 5". SFAS No. 145 eliminates the requirement under SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," to report gains and
losses from extinguishments of debt as extraordinary items in the income
statement. Accordingly, gains or losses from extinguishments of debt for fiscal
years beginning after May 15, 2002 shall not be reported as extraordinary items
unless the extinguishment qualifies as an extraordinary item under the
provisions of APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." Upon adoption of
this pronouncement, any gain or loss on extinguishment of debt previously
classified as an extraordinary item in prior periods that does not meet the
36
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
criteria of Opinion 30 for such classification should be reclassified to conform
with the provisions of SFAS No. 145. Management does not believe the adoption of
this standard will have a material impact on the Company's consolidated
financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 nullifies EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred,
whereas EITF No. 94-3 had recognized the liability at the commitment date to an
exit plan. The Company is required to adopt the provisions of SFAS No. 146
effective for exit or disposal activities initiated after December 31, 2002.
Management has not yet determined the effect, if any, the adoption of SFAS No.
146 will have on the Company's consolidated financial statements.
Discontinued Operations
The Consolidated Statements of Operations have been restated to segregate
the operating results of the Vigilant Networks business segment, which comprised
its Vigilant Networks, Inc. ("Vigilant") and Digitech Industries, Inc.
("Digitech") subsidiaries, and to report them as "Loss from discontinued
operations" for all periods presented. In addition, the net assets of the
Vigilant Networks business segment that were sold in August 2000, along with the
assets related to any remaining portion of the Vigilant Networks business
segment not included in the sale but which will be discontinued, have been
reclassified as "Net assets of discontinued operations" and included in Other
current assets on the Consolidated Balance Sheets for all periods presented (see
Note 3).
2. RESTRUCTURING AND OTHER CHARGES (CREDITS), NET
The Company took steps during fiscal 2002 to reduce its expenses in
response to the continued weakness in the technology sector of the economy. As
part of this effort, LeCroy reduced its workforce by 69 employees, approximately
15%. In connection with these workforce reductions, the Company recorded a $4.3
million charge ($0.7 million in Cost of sales and $3.6 million in Selling,
general and administrative expense) for severance and related expenses,
including costs associated with the succession of the Company's Chief Executive
Officer. Of the $4.3 million total charge, $4.1 million was initially credited
to Accrued expenses and other liabilities and $0.2 million, representing a
non-cash expense for the amendment of employee stock options, was credited to
Additional paid-in capital. As of June 30, 2002, $1.9 million has been paid and
$2.2 million remains accrued in Compensation and benefits.
During the second quarter of fiscal 2002, the Company increased its
allowance for excess and obsolete inventory by $3.6 million through a charge to
Cost of sales. This inventory charge relates to the cost of inventory associated
with discontinued product lines and inventory levels that were deemed to be in
excess of forecasted requirements.
During the fourth quarter of fiscal 2001, in anticipation of continued
weakness of the economy, the Company reduced its workforce by 25 employees,
approximately 5%. As a result of this workforce reduction, the Company recorded
a severance charge of $0.9 million. Substantially all of the $0.9 million
severance and related expenses have been paid as of June 30, 2002.
During fiscal 1999, the Company adopted a restructuring plan, the
objectives of which were to consolidate its oscilloscope operations in order to
enhance operating efficiencies and to dedicate resources to the development of
advanced technologies. In connection with this consolidation, the Company
recorded total restructuring and other charges of $11.3 million, $10.4 million
of which related to restructuring costs. The remaining $0.9 million of the total
charge related to additional costs to redeploy manufacturing, engineering and
employee resources. The restructuring costs comprised inventory write-offs of
$2.2 million, which were included in Cost of sales, an accrual for the future
minimum lease payments for the Geneva, Switzerland manufacturing facility of
$3.4 million, severance and employee benefit costs of $3.0 million for the
reduction of full-time and part-time employees, the write-down of plant
assets and capitalized management information system software and other costs of
$1.8 million.
37
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
During fiscal 2001, the 1999 restructuring plan was completed. Cumulative
through fiscal 2001, $8.2 million of the initial restructuring reserve
established had been paid or used to reduce asset balances. Of this $8.2
million, $2.1 million related to inventories, $3.0 million related to severance
and other employee benefit costs, $1.3 million related to the Geneva facility
lease and $1.8 million related to plant assets, capitalized management
information system software and other costs. In addition, during fiscal 2000,
the Company negotiated the assignment of the remaining lease payments on the
Geneva facility to a third party as of August 1, 2000. As such, a restructuring
credit of $2.0 million relating to the reversal of the remaining lease payments,
net of fees, was recorded in the fourth quarter of fiscal 2000. The residual
balance of $0.2 million was credited to Selling, general and administrative
expense in fiscal 2001.
3. DISCONTINUED OPERATIONS
In August 2000, the Company divested its Vigilant Networks business
segment, which comprised its Vigilant Networks, Inc. ("Vigilant") and Digitech
Industries, Inc. ("Digitech") subsidiaries. Vigilant Networks' principal
product, the Big Tangerine network analyzer, was a new product which was also
being sold into a new market for the Company. Since this product's inception,
LeCroy had made substantial investments in the Vigilant Networks business
segment in terms of selling, marketing, research and development, and
administrative expenses. While the network analyzer had a unique technology, the
Company decided that it could not continue to invest the financial resources
necessary to capitalize on its future growth potential.
The Company closed on the sale of the assets and business of Vigilant and a
portion of the assets and business of Digitech in August 2000 for gross proceeds
of $12.0 million. The remaining business of Digitech is being discontinued. The
buyer also assumed certain liabilities of Vigilant. In connection with the sale,
the Company issued warrants to purchase 200,000 shares of LeCroy Common Stock at
$10.05 per share to the buyer. Using the Black-Scholes option pricing model,
these warrants were valued at approximately $1.3 million. After deducting the
value of these warrants, along with fees and certain retained liabilities, the
Company recorded a loss of $0.6 million, net of a $0.3 million tax benefit, on
the sale and discontinuance of the Vigilant Networks business segment. This
includes a $1.4 million adjustment to the loss recorded in the fourth quarter of
fiscal 2001 due to changes in estimates. For fiscal years ended 2001 and 2000,
revenues from discontinued operations were $0.4 million (through the measurement
date) and $7.4 million, respectively, and losses from discontinued operations,
net of tax, were $1.4 million (through the measurement date) and $11.0 million,
respectively.
4. ACCOUNTS RECEIVABLE, NET
During the second quarter of fiscal 2002, the Company entered into an
agreement with one of its customers, who is also a vendor, in which it was
granted the legal right to offset outstanding accounts receivable balances
against outstanding accounts payable balances. At June 30, 2002, the Company
netted approximately $4.8 million of accounts receivable against accounts
payable on the Consolidated Balance Sheets. At June 30, 2001, the accounts
receivable balance on the Consolidated Balance Sheets included $3.8 million due
from this customer.
5. INVENTORIES
Inventories, including demonstration units in finished goods, are stated at
the lower of cost (first-in, first-out method) or market.
JUNE 30,
-------------
2002 2001
---- ----
Raw materials....................................... $ 7,735 $ 7,349
Work in process..................................... 5,571 7,399
Finished goods...................................... 14,802 16,667
----------- ---------
$ 28,108 $ 31,415
=========== =========
The allowance for excess and obsolete inventory included above amounted to
$1.5 million in fiscal 2002 and $3.6 million in fiscal 2001. The value of
demonstration units included in finished goods were $7.5 million and $9.6
million at June 30, 2002 and 2001, respectively.
38
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. OTHER CURRENT ASSETS
Other current assets consist of the following:
JUNE 30,
-------
2002 2001
---- ----
Deferred tax assets, net............................ $ 8,700 $ 7,786
Net assets of discontinued operations............... 125 241
Other............................................... 2,832 2,990
----------- -----------
$ 11,657 $ 11,017
=========== ===========
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
JUNE 30,
---------
2002 2001
---- ----
Land and building................................... $ 12,814 $ 12,472
Furniture, machinery and equipment.................. 31,556 28,378
Computer software................................... 6,074 5,852
----------- -----------
50,444 46,702
Less: Accumulated depreciation and amortization.... (29,090) (25,275)
------------ -----------
$ 21,354 $ 21,427
=========== ===========
Depreciation and amortization expense for the fiscal years ended June 30,
2002, 2001 and 2000 was $4.3 million, $3.3 million and $3.5 million,
respectively.
8. OTHER ASSETS
Other assets consist of the following:
JUNE 30,
---------
2002 2001
---- ----
Manufacturing and distribution rights, net.......... $ 6,629 $ 8,133
Deferred tax assets, net............................ 4,760 1,085
Excess of cost over net assets acquired, net........ 1,574 1,574
Other............................................... 1,291 1,035
----------- -----------
$ 14,254 $ 11,827
=========== ===========
Manufacturing and distribution rights are net of accumulated amortization
of $3.9 million and $2.0 million as of June 30, 2002 and 2001, respectively. In
fiscal 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," and accordingly no longer amortizes goodwill with indefinite useful
lives, but instead performs an annual test for impairment. The excess of cost
over net assets acquired is net of accumulated amortization of $1.2 million as
of June 30, 2002 and 2001.
9. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
JUNE 30,
---------
2002 2001
---- ----
Compensation and benefits........................... $ 5,348 $ 6,834
Retained liabilities from discontinued operations... 1,283 4,439
Warranty............................................ 1,247 1,529
Deferred revenue.................................... 1,057 1,321
Income taxes........................................ 2,634 3,417
Other............................................... 4,133 4,052
----------- -----------
$ 15,702 $ 21,592
=========== ===========
39
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
10. INCOME TAXES
The components of (loss) income from continuing operations before income
taxes are as follows:
JUNE 30,
---------
2002 2001 2000
---- ---- ----
Domestic................................................. $(10,569) $ 10,032 $ 4,913
Foreign.................................................. 13 906 6,156
-------- -------- ---------
$(10,556) $ 10,938 $ 11,069
======== ======== =========
The income tax benefit (provision) from continuing operations consists of
the following:
JUNE 30,
---------
2002 2001 2000
---- ---- ----
Current:
U.S. Federal.......................................... $ 325 $ (1,262) $ (2,540)
U.S. State and local.................................. (128) (410) (490)
Foreign............................................... (356) (646) (468)
Deferred:
U.S. Federal.......................................... 4,105 2,575 -
U.S. State and local.................................. 361 583 -
Foreign............................................... - 57 -
-------- -------- ---------
$ 4,307 $ 897 $ (3,498)
======== ======== =========
The reconciliations between the benefit (provision) for income taxes at the
U.S. federal statutory rate and the Company's effective tax rate from continuing
operations is as follows:
JUNE 30,
---------
2002 2001 2000
---- ---- ----
Benefit (provision) at U.S. federal statutory rate....... $ 3,695 $ (3,828) $ (3,874)
(Increase) reduction to statutory tax from:
Difference between U.S. and foreign rates........... (352) (305) (21)
Use of net operating losses to offset taxable
income.......................................... - 3,159 -
Reversal of tax contingency reserve................. 400 - -
Tax effect of restructuring........................ - - 1,156
Adjustment of net tax assets........................ 644 4,096 160
Repatriation of foreign earnings.................... - (1,622) (444)
State income taxes, net of federal benefit.......... (80) (627) (319)
Other, net.......................................... - 24 (156)
-------- -------- --------
Income tax benefit (provision)........................... $ 4,307 $ 897 $ (3,498)
======== ======== ========
Significant components of the Company's net deferred tax as of June 30,
2002 and 2001 were as follows:
JUNE 30,
---------
2002 2001
---- ----
Federal and state loss and credit carryforwards........................ $ 12,568 $ 6,970
Foreign loss and credit carryforwards.................................. 1,908 1,949
Inventory and other reserves........................................... 3,924 4,248
-------- ---------
Deferred tax assets before valuation allowance................ 18,400 13,167
Valuation allowance........................................... (4,940) (4,296)
-------- ---------
Net deferred tax assets................................................ $ 13,460 $ 8,871
======== =========
40
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
At June 30, 2002 and 2001, $8.7 million and $7.8 million, respectively, of
the Company's net deferred tax assets were included on the Consolidated Balance
Sheets in Other current assets, with the remaining $4.8 million and $1.1
million, respectively, included in Other assets.
Under SFAS No. 109, "Accounting for Income Taxes," the Company is required
to recognize all or a portion of its net deferred tax asset if it believes that
it is 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 will be
realized. Management assesses the realizability of its net deferred tax assets
at each interim and annual balance sheet date based on actual and forecasted
operating results. Based upon its assessment as of June 30, 2001, management
concluded that it was more likely than not that the Company would realize
benefits from a portion of its remaining deferred tax assets. Accordingly, the
Company reduced its reserve against such assets by $6.7 million in the fourth
quarter of fiscal 2001, $2.6 million of which related to deductions from
employee stock option exercises and was credited to Additional paid-in-capital
on the Consolidated Balance Sheet. In addition, during fiscal 2001, the Company
utilized $8.2 million of net operating losses ($3.2 million tax benefit) to
offset taxable income from continuing operations. During fiscal 2002, the
Company adjusted the value of certain deferred tax assets by $1.2 million and,
based upon its assessment of all deferred tax assets, increased its valuation
allowance by $0.6 million. The net impact of these adjustments was an increase
in deferred taxes of $0.6 million. 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.
Historically, it has been the practice of the Company to reinvest
unremitted earnings of foreign subsidiaries. During the fourth quarter of fiscal
2001, however, the Company determined that it would repatriate approximately
$7.0 million in future periods from one of its foreign subsidiaries. The Company
believes repatriation of these earnings will result in additional taxes in the
amount of $1.6 million and has provided for that amount in that year's tax
provision. The cumulative amount of all other undistributed earnings of
consolidated foreign subsidiaries, for which U.S. federal income tax has not
been provided, was $19.8 million at June 30, 2002. These earnings, which reflect
full provision for non-U.S. income taxes, are anticipated to be reinvested
permanently outside the United States. Determining the U.S. income tax liability
that might result if these earnings were remitted is not practicable.
At June 30, 2002, the Company has U.S. federal income tax net operating
loss carryforwards of $21.0 million available to offset future taxable income.
The carryforwards expire in 2012 through 2022. Foreign tax net operating losses
of $0.6 million at June 30, 2002 are available to offset future taxable income
of certain foreign subsidiaries. Those foreign losses beginning to expire at
various dates starting in 2004 are $0.5 million and those that do not expire are
$0.1 million. Federal, state and foreign tax credits expire at various dates
between 2003 and 2021.
11. DEBT
As of June 30, 2002, the Company had a $15.0 million revolving line of
credit with a commercial bank expiring on September 30, 2003, which can be used
to provide funds for general corporate purposes and acquisitions. Borrowings
under this line bear interest at prime plus a margin of between .25% and 1.25%,
or LIBOR plus a margin of between 1.5% and 2.5%, depending on the Company's
Leverage Ratio. A commitment fee of between .375% and .50% per annum, depending
on the Company's Leverage Ratio, is payable on any unused amount under the line.
This revolving line of credit is secured by a lien on substantially all of the
domestic assets of the Company. As of June 30, 2002, the Company has met its
financial covenant requirements and there were no borrowings outstanding under
this line of credit.
On June 12, 2000, the Company secured a $2.0 million capital lease line of
credit to fund certain capital expenditures. As of June 30, 2002, the Company
had $0.4 million outstanding under this line of credit, $0.1 million of which
was included in Accrued expenses and other liabilities and the remaining $0.3
million in Non-current liabilities on the Consolidated Balance Sheet. The
outstanding borrowings under this line bear interest at 12.2%.
In addition to the above U.S. based facilities, the Company maintains
certain short-term foreign credit facilities, principally facilities with two
Japanese banks totaling 150 million yen ($1.3 million as of June 30, 2002). No
amounts were outstanding under such facilities as of June 30, 2002.
41
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The carrying amount of the Company's debt approximates fair value.
Interest expense included in Other income (expense), net in the
Consolidated Statements of Operations was $0.2 million in fiscal 2002, $0.5
million in fiscal 2001 and $1.0 million in fiscal 2000.
12. STOCK COMPENSATION PLANS
Stock Option Plans
The Company maintains two stock option plans, the Amended and Restated 1993
Stock Incentive Plan ("1993 Plan") and the 1998 Non-Employee Director Stock
Option Plan ("1998 Plan").
Under the 1993 Plan, 1,521,739 shares of Common Stock can be issued through
the exercise of stock options, increasing annually by 5% of the common shares
outstanding each July 1 during the term of the 1993 Plan. At July 1, 2002, a
maximum of 4,235,352 shares were reserved for issuance of incentive stock
options, non-qualified stock options and restricted stock awards since the
inception of the 1993 Plan. Under the 1993 Plan, options can be issued to
full-time employees, including officers and non-employee consultants to purchase
shares of Common Stock at an exercise price not less than 100% of the fair
market value on the date of grant. For individuals who own more than 10% of the
Common Stock of the Company, the exercise price of incentive stock options may
not be less than 110% of the fair market value on the date of grant. No more
than an aggregate of 2,608,696 shares of Common Stock may be issued pursuant to
the exercise of incentive stock options granted under the 1993 Plan. This
limitation does not apply to non-qualified stock options or restricted stock
awards that may be granted under the 1993 Plan. The vesting period and
expiration of each grant is determined by the Compensation Committee of the
Board of Directors. In general, the vesting period is 25% per annum over a four
year period, or 50% after the second year and 25% for the third and fourth
years. The lives of the options are either ten or eleven years from the date of
grant.
During fiscal 2002, 17,210 shares of restricted stock were granted to
certain key employees. The fair market value of the restricted stock on the date
of grant is being amortized to expense ratably over three years, the period in
which restrictions are removed.
In October 1998, the Board of Directors and stockholders terminated the
1995 Non-Employee Director Stock Option Plan ("1995 Plan") and adopted the 1998
Plan. As of June 30, 2002, stock options issued pursuant to the 1995 Plan of
13,441 are outstanding and vested according to the provisions of the 1995 Plan
on the date the plan was terminated. Pursuant to the 1998 Plan, each
non-employee director received a stock option grant of 15,000 shares exercisable
at market price on the date the plan was adopted or upon initial election to the
Board of Directors. These options vest ratably over a 36 month period.
Additionally, each non-employee director will receive an annual stock option
grant of 7,000 shares (5,000 shares prior to an amendment dated October 25,
2000) exercisable at the market price on the date of grant. These options vest
immediately. A total of 500,000 shares of Common Stock can be issued during the
term of the 1998 Plan.
42
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Stock option transactions for fiscal years 2002, 2001 and 2000 under all
plans are as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE
SHARES PER SHARE PRICE
----------------------------------------------
Outstanding at June 30, 1999..................................... 2,050,091 $ 5.95 - $37.00 $ 18.37
Granted.......................................................... 728,000 10.13 - 17.50 14.08
Exercised........................................................ (36,220) 5.95 - 9.20 6.83
Cancelled........................................................ (303,190) 5.95 - 36.75 21.56
---------- --------------- --------
Outstanding at June 30, 2000..................................... 2,438,681 5.95 - 37.00 16.85
Granted.......................................................... 222,929 13.88 - 25.00 19.20
Exercised........................................................ (144,438) 5.95 - 23.50 12.90
Cancelled........................................................ (245,389) 5.95 - 32.25 20.87
---------- --------------- --------
Outstanding at June 30, 2001..................................... 2,271,783 6.33 - 37.00 16.85
Granted.......................................................... 678,228 10.24 - 23.49 17.15
Exercised........................................................ (102,498) 6.33 - 17.50 11.67
Cancelled........................................................ (170,422) 6.33 - 23.50 17.56
---------- --------------- --------
Outstanding at June 30, 2002..................................... 2,677,091 $ 6.33 - $37.00 $ 17.15
========== =============== ========
The following table summarizes information about stock options outstanding
at June 30, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
AT JUNE 30, 2002 AT JUNE 30, 2002
---------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE CONTRACTUAL NUMBER OF EXERCISE
RANGE SHARES PRICE LIFE (YEARS) SHARES PRICE
----- ------- ----- ------------ ------- -----
$ 6.33 - $ 12.00 330,709 $ 7.94 5.15 211,369 $ 6.60
$ 12.01 - $ 18.00 1,233,898 15.13 7.02 662,860 15.10
$ 18.01 - $ 24.00 1,021,583 21.48 6.65 699,899 21.97
$ 24.01 - $ 37.00 90,901 29.35 5.96 68,402 30.79
---------- ------- ----- --------- -------
Total 2,677,091 $ 17.15 6.61 1,642,530 $ 17.58
========== =========
Of the total stock options outstanding, 1,642,530, 1,193,719 and 1,024,658
were exercisable at June 30, 2002, 2001 and 2000, respectively. Stock options
available for grant were 955,114, 963,983 and 484,774 at June 30, 2002, 2001 and
2000, respectively.
Pro forma information regarding net income (loss) and earnings (loss) 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:
weighted average risk-free interest rates of 4.09% for 2002, 4.82% for 2001 and
6.1% for 2000; no dividends; volatility factors of the expected market price of
the Company's Common Stock of 0.712 for 2002, 0.724 for 2001 and 0.592 for 2000
and a weighted average expected life of the options of 4.4 years for 2002, 4.4
years for 2001 and 4.3 years for 2000.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that 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.
43
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
For purposes of pro forma disclosures, the estimated fair value of the
options granted in fiscal 2002, 2001 and 2000 is amortized to expense over the
option vesting periods. The pro forma amortization is reflected on the
anniversary date of each vesting period. The weighted average grant date fair
value of options granted during fiscal years 2002, 2001 and 2000 was $9.93,
$11.18 and $7.47, respectively. The Company's pro forma information follows:
PRO FORMA
-----------
2002 2001 2000
---- ---- ----
Pro forma net loss applicable to common stockholders.................... $(11,498) $ (663) $(7,776)
Pro forma net loss per common share applicable to common
stockholders:
Basic ............................................................. $ (1.14) $ (0.08) $ (1.00)
Diluted ........................................................... $ (1.14) $ (0.08) $ (0.97)
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.
Employee Stock Purchase Plan
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, 330,890 shares have been issued under the
Employee Stock Purchase Plan and 103,893 shares were available for future
issuance.
13. COMMON STOCK
On August 15, 2001 (the "Closing"), the Company sold 1,428,572 shares of
its Common Stock for gross proceeds of $25.0 million in a private equity
placement. The Company intends to use the proceeds for operating needs and to
fund growth through acquisitions and other transactions. In connection with the
private equity placement, the Company issued to its placement agent a warrant to
purchase up to 28,571 shares of Common Stock at an exercise price of $17.50. On
the Closing, the Company used the Black-Scholes option-pricing model to assign
an aggregate value of $0.3 million to this warrant.
During the third quarter of fiscal 2001, the holders of warrants to
purchase 220,701 shares of Common Stock at $10.05 per share exercised their
rights to a cashless conversion. As a result, 126,646 shares of Common Stock
were issued and $1.4 million, representing the fair value of the warrants at the
date of issue, was transferred from Warrants to purchase common stock to
Additional paid-in capital on the Consolidated Balance Sheet.
In August 2000, the Company sold 517,520 shares of its Common Stock for
gross proceeds of $5.2 million in a private equity placement. Proceeds from this
sale of securities were used to repay existing indebtedness, fund working
capital requirements and other general corporate purposes.
14. STOCKHOLDER RIGHTS PLAN
On November 2, 1998 the Company's Board of Directors declared a dividend
distribution of one right in respect to each share of the Company's Common Stock
outstanding at the record date, November 18, 1998. Initially, the rights will
trade together with the Common Stock and will not be exercisable or separately
tradable. The rights will be exercisable if a person or group acquires, in the
future, 15% or more of the Company's stock or announces a tender offer. Right
holders, other than the acquiring person or group, are then entitled to purchase
an amount of the Company's stock at a 50% discount to the share price at that
time. The amount of stock that a right holder is entitled to purchase is based
on the exercise price. Under certain circumstances, the right will entitle the
stockholder to buy shares in an acquiring entity at a discount.
44
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company's Board of Directors may redeem the rights at a price of $0.001
per right up until 10 days following a public announcement that any person or
group has acquired 15% or more of LeCroy's Common Stock. The rights will expire
on November 2, 2008, unless redeemed prior to that date.
15. REDEEMABLE CONVERTIBLE PREFERRED STOCK
On June 30, 1999 (the "Closing"), the Company completed a private placement
of 500,000 shares of convertible redeemable preferred stock (the "Preferred
Stock") for proceeds of $10.0 million. The shares of the Preferred Stock are
convertible at any time by the holders into 500,000 shares of Common Stock.
After the fifth anniversary of the Closing, the holders may redeem their shares
at cost plus a 12% compounding annual dividend since the date of issue. The
shares of Preferred Stock automatically convert to Common Stock on a one-for-one
basis in the event of a firmly underwritten public offering raising at least
$20.0 million, provided that the price per share is at least $40 if the offering
takes place after the second anniversary of the Closing (an "automatic
conversion"). Upon an automatic conversion, the holders of the Preferred Stock
will also receive payment of all accrued 12% dividends from the issue date to
the conversion date. The holders of the Preferred Stock are also entitled to
payment of the 12% compounding annual dividend in the event of a liquidation of
the Company or upon a merger or sale of substantially all of the Company's
assets. Using the 12% dividend rate, the liquidation value of the Preferred
Stock at June 30, 2002 was $14.0 million.
In connection with the private placement of Preferred Stock, the Company
issued 250,000 fully exercisable warrants to purchase shares of Common Stock at
an exercise price of $20. On the Closing, the Company used the Black-Scholes
option-pricing model to assign an aggregate value of $1.8 million to the 250,000
warrants. As such, $1.8 million of the $10.0 million proceeds was allocated to
Additional paid-in capital and the remaining $8.2 million was allocated to
redeemable Preferred Stock. The value assigned to the warrants of $1.8 million
accretes to the value of the Preferred Stock over five years. The Company
currently records a non-cash charge to net income of approximately $0.4 million
per year to arrive at net income available to common stockholders.
On the Closing, the Company's stock price was $23.69 per share. This caused
the conversion feature of the redeemable Preferred Stock to be "in the money."
As a result, the intrinsic value of this conversion feature was calculated to be
$1.8 million. This $1.8 million was treated as an additional preferred dividend
to the preferred investors and was charged to Additional paid-in capital. This
additional preferred dividend was deducted from net income to arrive at net
income applicable to common stockholders in the calculation of earnings per
share for fiscal 1999.
During fiscal 2001, the Company adopted the provisions of the Financial
Accounting Standards Board's Emerging Issues Task Force ("EITF") Issue No. 00-27
"Application of EITF Issue No. 95-5, `Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,' to
Certain Convertible Instruments." EITF No.00-27 adjusts the calculation of the
original conversion discount charge by requiring that the fair value of the
Preferred Stock be reduced by the value assigned to warrants to buy common stock
that were issued with the Preferred Stock. As a result, the Company recorded an
additional $1.8 million cash conversion discount charge in fiscal 2001 that had
been presented as the cumulative effect of a change in accounting principle in
determining net income applicable to common stockholders.
16. EMPLOYEE BENEFIT PLANS
The Company has a trusteed employee 401(k) savings plan for eligible U.S.
employees under which it makes an unconditional match up to 50% of employee
contributions up to a maximum employer contribution of 5% of the employee's
eligible compensation. Prior to July 1, 2001, such match was discretionary. For
fiscal 2002, 2001 and 2000, the Company has expensed $0.3 million, $0.5 million
and $0.1 million, respectively, in contributions to the plan. In fiscal 2000,
the Company decided not to make the discretionary matching contribution accrued
in fiscal 1999. As such, this accrual was reversed and credited to income in
fiscal 2000.
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 $0.3
million in 2002, $0.3 million in 2001 and $0.4 million in 2000 were charged to
expense in each respective period.
45
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company maintained a qualified Employee Stock Ownership Plan ("ESOP" or
the "Plan") which had 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"). The Company did not
contribute to the Plan in the years ended June 30, 2002, 2001 and 2000,
respectively. During fiscal 2002, the Company decided to terminate the ESOP
given the inactivity of the Plan and the need to streamline the Company's
benefits program. On June 11, 2002, the IRS issued a favorable determination
ruling allowing the Company to terminate the ESOP and to distribute the funds
contributed to participants. The Company intends to terminate the ESOP during
the first quarter of fiscal 2003.
17. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in the signal analysis segment of the Test and
Measurement Instrument market, in which it develops, manufactures, sells and
licenses signal acquisition and analysis products principally in the form of
high-performance digital oscilloscopes. These products are used by design
engineers and researchers in a broad range of industries, including electronics,
computers and communications.
Revenues are attributed to countries based on customer ship-to addresses.
Revenues by geographic area are as follows:
2002 2001 2000
---- ---- ----
North America.............................................. $ 33,052 $ 48,706 $ 45,106
Europe and Middle East..................................... 33,056 40,042 34,674
Asia and Pacific........................................... 45,348 52,640 41,620
--------- --------- -----------
$ 111,456 $ 141,388 $ 121,400
========= ========= ===========
Total assets by geographic area are as follows:
2002 2001
---- ----
North America........................................................... $ 91,599 $ 89,455
Europe and Middle East.................................................. 25,585 24,221
Asia and Pacific........................................................ 9,807 8,484
--------- ---------
$ 126,991 $ 122,160
========= =========
Revenue derived from one customer, Iwatsu, accounted for 11% of the
Company's consolidated revenues in fiscal 2002. No other customer accounted for
more than 10% of the Company's consolidated revenues in any of the last three
fiscal years. Revenues attributable to Canada and Mexico are included in North
America and represent less than 7% and .2%, respectively, of North American
revenues in all fiscal years presented.
Revenue attributable to individual countries that account for 10% or more
of total revenues in fiscal 2002 include the United States ($31.2 million),
Japan ($25.6 million) and Germany ($11.8 million); in fiscal 2001 include the
United States ($45.2 million), Japan ($18.2 million) and Germany ($14.3
million); and in fiscal 2000 include the United States ($42.5 million), Japan
($22.7 million) and Germany ($12.5 million).
18. COMMITMENTS AND CONTINGENCIES
Leases
The Company has operating leases covering plant, certain office facilities,
and equipment that expire at various dates through 2012. Future minimum annual
lease payments required during the years ending in fiscal 2003 through 2007 and
later years, under noncancelable operating leases having an original term of
more than one year, are $2.0 million, $1.6 million, $1.1 million, $0.9 million,
$0.9 million and $2.7 million, respectively. Aggregate rental expense on
noncancelable operating leases for the years ended June 30, 2002, 2001 and 2000
approximated $1.9 million, $1.7 million and $1.6 million, respectively.
46
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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
was an intellectual property claim in fiscal 1994 in the form of a lawsuit that
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 an initial payment of
$1.5 million and a license agreement providing for minimum annual future royalty
payments of $3.5 million over ten years with potential additional amounts
contingent on future product sales not to exceed an aggregate of $3.5 million.
Royalty expense, which approximated $0.5 million and $1.0 million for the years
ended June 30, 2001 and 2000, respectively, is included in cost of sales in the
Consolidated Statements of Operations. As of June 30, 2001, the Company has
expensed the maximum royalty payments due under the settlement and license
agreements.
Environmental
The Company's subsidiary, Digitech Industries, Inc., was notified by the
Connecticut Department of Environmental Protection (the "DEP") that it may be
responsible for environmental damage that occurred at its previously leased
facilities in Ridgefield, Connecticut (the "Ridgefield Site"). Based upon
recommendations made by the DEP, Digitech engaged environmental consultants to
assist it in evaluating the costs associated with the DEP's recommendations for
monitoring and remediation of the environmental damage.
In May 1999, the Company, Digitech Industries, Inc. and the former owners
of the Ridgefield Site entered into an agreement with the current owners of the
Ridgefield Site. The current owners have purchased an insurance policy providing
for $2.0 million of coverage against certain environmental liabilities related
to the Ridgefield Site. This insurance policy names both the Company and
Digitech as insured parties. The current owners of the Ridgefield Site have also
agreed to remediate all environmental problems associated with the property and
to obtain all applicable approvals and certifications from the DEP. The current
owners of the Ridgefield Site have also agreed to hold both the Company and
Digitech Industries harmless in the event of a claim made against them relating
to these environmental matters. In return for the above, forty-five days after
the DEP has provided written notification to the Company that the site
remediation has been accomplished to its satisfaction, the Company has agreed to
pay the former owners of the Ridgefield Site $0.2 million as compensation for
the reduced sale value of the property due to the environmental problems
existing on the site. The Company has retained this liability after the sale of
the Vigilant segment.
19. ACQUISITIONS
In July 2000, the Company issued 100,000 shares of its Common Stock to
acquire all of the outstanding common stock of Lightspeed Electronics
Corporation ("Lightspeed"). The acquisition of Lightspeed was recorded using the
purchase method of accounting. The excess of cost over net assets acquired of
$1.0 million was amortized over a five year period until June 30, 2001 when SFAS
No. 142, "Goodwill and Other Intangible Assets" was adopted (see Note 1).
In April 1998 the Company acquired selected assets of its Korean sales
distributor, Woojoo Hi-Tech Corporation, for approximately $1.7 million. A
non-compete agreement of $0.6 million was amortized over 30 months. The
investment in excess of fair market value of assets purchased of $0.8 million
was being amortized over a 15 year period until June 30, 2001 when SFAS No. 142,
"Goodwill and Other Intangible Assets" was adopted (see Note 1).
47
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized unaudited quarterly operating results for fiscal year 2002 and
2001 are as follows:
QUARTERS ENDED
------------------------------------------------------------------------------
FISCAL YEAR 2001 FISCAL YEAR 2002
-------------------------------------- --------------------------------------
SEPT. DEC. MAR. JUNE SEPT. DEC. MAR. JUNE
30, 31, 31, 30, 30, 31, 31, 30,
2000 2000 2001 2001 2001 2001 2002 2002
-------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
Revenues (1)
Digital oscilloscopes and related
products............................. $26,356 $32,206 $34,181 $36,682 $27,596 $25,884 $21,333 $26,264
High energy physics products............ 987 778 1,257 735 1,095 293 31 -
Service and other ...................... 2,114 2,002 1,976 2,114 2,074 2,196 2,244 2,446
------- ------- ------- ------- ------- ------- -------- -------
Total revenues....................... 29,457 34,986 37,414 39,531 30,765 28,373 23,608 28,710
------- ------- ------- ------- ------- ------- -------- -------
Cost of sales (2)......................... 14,495 16,920 17,785 18,638 14,743 18,366 12,409 14,124
------- ------- ------- ------- ------- ------- -------- -------
Gross profit........................ 14,962 18,066 19,629 20,893 16,022 10,007 11,199 14,586
Selling, general and administrative
expenses (3)........................... 9,889 11,488 11,716 12,633 9,879 11,586 10,236 10,564
Research and development expenses (4)..... 3,881 3,884 4,255 4,395 4,082 3,533 4,866 7,812
------- ------- ------- ------- ------- ------- -------- -------
Operating income (loss)................. 1,192 2,694 3,658 3,865 2,061 (5,112) (3,903) (3,790)
(Loss) from sale of marketable securities. - - - - - - - (122)
Other (expense) income, net............... (2) (245) (111) (113) 271 (19) (397) 455
------- ------- ------- ------- ------- ------- -------- -------
Income (loss) from continuing
operations before income taxes......... 1,190 2,449 3,547 3,752 2,332 (5,131) (4,300) (3,457)
Provision for (benefit from) income taxes. 137 478 727 (2,239) 486 (1,921) (1,591) (1,281)
------- ------- ------- ------- ------- ------- -------- -------
Income (loss) from continuing operations.. 1,053 1,971 2,820 5,991 1,846 (3,210) (2,709) (2,176)
Loss from discontinued operations, net of
tax ................................... 1,545 - - 449 - - - -
------- ------- ------- ------- ------- ------- -------- -------
Net (loss) income before the cumulative
effect of a change in accounting principle (492) 1,971 2,820 5,542 1,846 (3,210) (2,709) (2,176)
Cumulative effect of an accounting change for
revenue recognition, net of tax......... 4,417 - - - - - - -
------- ------- ------- ------- ------- ------- -------- -------
Net (loss) income........................ (4,909) 1,971 2,820 5,542 1,846 (3,210) (2,709) (2,176)
Charges related to convertible preferred
stock ................................. 425 424 425 426 467 468 469 472
Cumulative effect of an accounting change
for preferred stock..................... - 1,848 - - - - - -
(Loss) income applicable to common ------- ------- ------- ------- ------- ------- -------- -------
stockholders .......................... $(5,334) $ (301) $ 2,395 $ 5,116 $ 1,379 $(3,678) $ (3,178) $(2,648)
======= ======= ======= ======= ======= ======= ======== =======
Income (loss) per common share-basic:
Income (loss) from continuing operations $ 0.08 $ 0.18 $ 0.28 $ 0.64 $ 0.15 $ (0.36) $ (0.31) $ (0.26)
(Loss) from discontinued operations.... (0.19) - - (0.05) - - - -
Cumulative effect of accounting change.. (0.54) (0.22) - - - - - -
------- ------- ------- ------- ------- ------- -------- -------
Net (loss) income ...................... $ (0.65) $ (0.04) $ 0.28 $ 0.59 $ 0.15 $ (0.36) $ (0.31) $ (0.26)
======= ======= ======= ======= ======= ======= ======== =======
Income (loss) per common share-diluted:
Income (loss) from continuing operations $ 0.08 $ 0.18 $ 0.26 $ 0.61 $ 0.14 $ (0.36) $ (0.31) $ (0.26)
(Loss) from discontinued operations..... (0.19) - - (0.05) - - - -
Cumulative effect of accounting change.. (0.54) (0.21) - - - - - -
------- ------- ------- ------- ------- ------- -------- -------
Net (loss) income ...................... $ (0.65) $ (0.03) $ 0.26 $ 0.56 $ 0.14 $ (0.36) $ (0.31) $ (0.26)
======= ======= ======= ======= ======= ======= ======== =======
Weighted average number of shares:
Basic.................................. 8,153 8,490 8,622 8,726 9,468 10,216 10,233 10,281
Diluted................................ 8,153 8,872 9,163 9,083 10,051 10,216 10,233 10,281
(1) Included in Service and other revenue and pre-tax income for each of the
four quarters in fiscal 2002 and 2001, is $0.3 million related to the
recognition of deferred revenue associated with the adoption of SAB 101.
Included in Digital oscilloscopes and related products revenue and pre-tax
income in the quarter ended June 30, 2002 is $0.5 million for the reversal
of various accounts receivable credits determined not to be owed to
customers.
(2) Included in Cost of sales in the quarter ended December 31, 2001 is a
$3.6 million charge for excess and obsolete inventory. Included in the
quarters ended March 31, 2002 and June 30, 2002 are severance charges of
$0.6 million and $0.1 million, respectively.
(3) Included in Selling, general and administrative expense are severance
charges of $0.7 million, $1.9 million, $1.4 million and $0.3 million for
the quarters ended June 30, 2000, December 31, 2001, March 31, 2002 and
June 30, 2002, respectively.
48
LECROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(4) Included in Research and development expense in the fourth quarter of fiscal
2002 is a $4.0 million charge for a technology access fee. In June 2002, the
Company entered into an agreement with IBM in which it committed to pay $4.0
million for access to their next-generation silicon germanium technology.
The Company will use this technology to develop components that are expected
to deliver higher density, greater speed and reduced power consumption than
those currently available. Such components will be used in future high-speed
digital oscilloscopes.
-----------------------------------------------------
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
50
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 2002 Annual Meeting of
Stockholders, which is scheduled to be held October 30, 2002; 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 2002 Annual Meeting of Stockholders, which is
scheduled to be held on October 30, 2002; 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 2002
Annual Meeting of Stockholders, which is scheduled to be held on October 30,
2002; 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 2002 Annual Meeting of
Stockholders, which is scheduled to be held on October 30, 2002; said
information is incorporated herein by reference.
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.
2.2 Agreement and Plan of Merger and Reorganization between the
Registrant, the Merger Sub, Lightspeed, the Selling Stockholder
and Mickey Miller, filed as Exhibit 2.1 to Form S-3 Registration
Statement No.333-43690 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.
3.3 Amendment to the By-Laws of the Registrant, dated August 16, 2000,
filed as Exhibit 3.3 to the quarterly report on Form 10-Q for the
quarter ended September 30, 2000, and is incorporated herein by
reference.
4.1 Share Purchase Agreement, dated August 15, 2000, between the
Registrant and the State of Wisconsin Investment Board.
4.2 Placement Agent Agreement, dated August 15, 2000, between the
Registrant and SG Cowen Securities Corporation.
4.3 Warrant, dated August 16, 2000, issued to SG Cowen Securities
Corporation to purchase 20,701 shares of the Registrant's Common
Stock.
4.4 Warrant, dated August 25, 2000, issued to Big T-2 Company LLC to
purchase 200,000 shares of the Registrant's Common Stock, filed as
Exhibit 10.3 to Form 8-K dated August 31, 2000, and is
incorporated herein by reference.
4.5 Stock Purchase Agreement, dated August 15, 2001, between the
Registrant and ValueAct Capital Partners, L.P., ValueAct Capital
Partners II, L.P. and ValueAct Capital International, Ltd.
4.6 Placement Agent Agreement, dated August 15, 2001, between the
Registrant and SG Cowen Securities Corporation.
4.7 Warrant, dated August 15, 2001, issued to SG Cowen Securities
Corporation to purchase 28,571 shares of the Registrant's Common
Stock.
52
Exhibit
Number Description
- ------- -----------
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 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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, filed as Exhibit 10.11 to Form 10-K
for the year ended June 30, 1997, and is incorporated herein by
reference.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
53
Exhibit
Number Description
- ------- -----------
10.18 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.
10.19 OEM Purchase and Technology License Agreement, between the
Registrant and Guzik Technical Enterprises, 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.
10.20 Agreement and Plan of Merger and Reorganization between the
Registrant and Digitech Industries, Inc., dated December 10, 1997
filed as Exhibit 2 to Form S-3 Registration Statement No.
333-43699, and is incorporated herein by reference.
10.21 Amended and Restated Multicurrency Credit Agreement dated as of
March 31, 1999 between the Company, Chase Manhattan Bank and
BankBoston, filed as exhibit 1.1 to the quarterly report on Form
10-Q for the quarter ended March 31, 1999, and is incorporated
herein by reference.
10.22 Series A Convertible, Redeemable Preferred Stock Purchase
Agreement dated as of June 30, 1999 between the registrant and the
purchasers named therein and is incorporated herein by reference.
10.23 First Amendment dated June 12, 1999 to the Amended and Restated
Multicurrency Credit Agreement between the Company, Chase
Manhattan Bank and Fleet National Bank filed as Exhibit 10.23 to
Form 10-Q for the quarter ended March 31, 2000, and is
incorporated herein by reference.
10.24 Second Amendment dated September 7, 1999 to the Amended and
Restated Multicurrency Credit Agreement between the Compnay, Chase
Manhattan Bank and Fleet National Bank filed as Exhibit 10.24 to
Form 10-Q for the quarter ended March 31, 2000, and is
incorporated herein by reference.
10.25 Third Amendment dated April 19, 2000 to the Amended and Restated
Multicurrency Credit Agreement between the Company, Chase
Manhattan Bank and Fleet National Bank filed as Exhibit 10.25 to
Form 10-Q for the quarter ended March 31, 2000, and is
incorporated herein by reference.
10.26 Fourth Amendment dated May 5, 2000 to the Amended and Restated
Multicurrency Credit Agreement between the Company, Chase
Manhattan Bank and Fleet National Bank filed as Exhibit 10.26 to
Form 10-Q for the quarter ended March 31, 2000, and is
incorporated herein by reference.
10.27 Fifth Amendment dated May 18, 2000 to the Amended and Restated
Multicurrency Credit Agreement between the Company, Chase
Manhattan Bank and Fleet National Bank filed as Exhibit 10.27 to
Form 10-Q for the quarter ended March 31, 2000, and is
incorporated herein by reference.
10.28 Term Loan Agreement dated May 12, 2000 between the Company, Chase
Manhattan Bank and Fleet National Bank filed as Exhibit 10.28 to
Form 10-Q for the quarter ended March 31, 2000, and is
incorporated herein by reference.
10.29 First Amendment dated May 18, 2000 to the Term Loan Agreement
between the Company, Chase Manhattan Bank and Fleet National Bank
filed as Exhibit 10.29 to Form 10-Q for the quarter ended March
31, 2000, and is incorporated herein by reference.
10.30 Executive Employment Agreement, dated as of July 14, 2000, between
the Registrant and Robert Miller, filed as Exhibit 10.0 to Form
S-3 Registration Statement No. 333-43690, and is incorporated
herein by reference.
10.31 Asset Purchase Agreement, dated August 23, 2000, by and among the
Registrant, Vigilant Networks, Inc., Digitech Industries, Inc. and
GenTek Inc., filed as Exhibit 10.1 to Form 8-K dated August 31,
2000, and is incorporated herein by reference.
10.32 License and Supply Agreement, dated August 23, 2000 by and between
the Registrant and Big T-1 Company LLC, filed as Exhibit 10.2 to
Form 8-K dated August 31, 2000, and is incorporated herein by
reference.
10.33 Amendment to the LeCroy Corporation Amended and Restated 1993
Stock Incentive Plan, dated August 16, 2000, filed as Exhibit
10.33 to the quarterly report on Form 10-Q for the quarter ended
September 30, 2000, and is incorporated herein by reference.
54
Exhibit
Number Description
- ------- -----------
10.34 Amendment to the LeCroy Corporation 1998 Non-Employee Director
Stock Option Plan, dated August 16, 2000, filed as Exhibit 10.34
to the quarterly report on Form 10-Q for the quarter ended
September 30, 2000, and is incorporated herein by reference.
10.35 Amendment to the LeCroy Corporation 1998 Non-Employee Director
Stock Option Plan, dated October 25, 2000, filed as Exhibit 10.35
to the quarterly report on Form 10-Q for the quarter ended
September 30, 2000, and is incorporated herein by reference.
10.36 Credit Agreement, dated October 11, 2000, between the Registrant
and The Bank of New York, as Administrative Agent, filed as
Exhibit 10.36 to the quarterly report on Form 10-Q for the quarter
ended September 30, 2000, and is incorporated herein by reference.
10.37 Amendment to the Certificate of Designation of the Series A
Convertible Redeemable Preferred Stock as of April 9, 2001, filed
as Exhibit 10.37 to the quarterly report on Form 10-Q for the
quarter ended March 31, 2001, and is incorporated herein by
reference.
10.38 Employment Agreement, dated August 13, 2001, between the
Registrant and Scott Bausback.
10.39 Amended and Restated Employment Agreement, dated January 18, 2002,
between the Registrant and Lutz P. Henckels.
10.40 Employment Agreement, dated January 1, 2002, between the
Registrant and Thomas H. Reslewic.
10.41 Form of Restricted Stock Purchase Agreement.
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K, dated August 15, 2001, to report the sale of
1,428,572 shares of its Common Stock for gross proceeds of $25.0 million on
August 15, 2001 in a private equity placement.
The Company filed a Form 8-K, dated July 23, 2001, announcing in a press
release a range of anticipated earnings for its fourth quarter ended June 30,
2001 and providing earnings guidance for its first quarter ending September 30,
2001 and the full year ending June 30, 2002.
55
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 30, 2002 By /s/ RAYMOND F. KUNZMANN
-----------------------
Raymond F. Kunzmann
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/ CHARLES A. DICKINSON Chairman of the Board and Director August 30, 2002
- ---------------------------------
Charles A. Dickinson
/s/ THOMAS H. RESLEWIC President, Chief Executive Officer August 30, 2002
- ---------------------------------
Thomas H. Reslewic and Director
(Principal Executive Officer)
/s/ RAYMOND F. KUNZMANN Vice President Finance, Chief August 30, 2002
- ---------------------------------
Raymond F. Kunzmann Financial Officer, Secretary
and Treasurer
(Principal Accounting Officer)
/s/ ROBERT E. ANDERSON Director August 30, 2002
- ---------------------------------
Robert E. Anderson
/s/ LUTZ P. HENCKELS Director August 30, 2002
- ---------------------------------
Lutz P. Henckels
/s/ PETER H. KAMIN Director August 30, 2002
- ---------------------------------
Peter H. Kamin
/s/ DOUGLAS A. KINGSLEY Director August 30, 2002
- ---------------------------------
Douglas A. Kingsley
/s/ WALTER O. LECROY, JR. Director August 30, 2002
- ---------------------------------
Walter O. LeCroy, Jr.
/s/ WILLIAM G. SCHEERER Director August 30, 2002
- ---------------------------------
William G. Scheerer
/s/ ALLYN C. WOODWARD, JR. Director August 30, 2002
- ----------------------------
Allyn C. Woodward, Jr.
56
CERTIFICATION PURSUANT TO RULE 13a-14,
AS ADOPTED PURSUANT TO SS. 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas H. Reslewic, Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of LeCroy Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report.
/s/ Thomas H. Reslewic
- -----------------------
Thomas H. Reslewic
Chief Executive Officer
August 30, 2002
57
CERTIFICATION PURSUANT TO RULE 13a-14,
AS ADOPTED PURSUANT TO SS. 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Raymond F. Kunzmann, Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of LeCroy Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report.
/s/ Raymond F. Kunzmann
- -----------------------
Raymond F. Kunzmann
Chief Financial Officer
August 30, 2002
58
Schedule II
LeCROY CORPORATION
Valuation and Qualifying Accounts
Years Ended June 30, 2002, 2001 and 2000
(in thousands)
Balance at Charged to Balance at
beginning costs and (1)(2) End
Description of period expenses Deductions/Other of period(3)
----------- --------- -------- ---------------- ------------
Against trade receivables--
Year ended June 30, 2000
Allowance for doubtful accounts........... 518 225 (202) 541
Year ended June 30, 2001
Allowance for doubtful accounts........... 541 108 (408) 241
Year ended June 30, 2002
Allowance for doubtful accounts........... 241 301 (120) 422
Against inventories--
Year ended June 30, 2000
Allowance for excess and obsolete......... 2,437 1,000 (794) 2,643
Year ended June 30, 2001
Allowance for excess and obsolete......... 2,643 1,000 (10) 3,633
Year ended June 30, 2002
Allowance for excess and obsolete......... 3,633 3,851 (4) (5,981) 1,503
Against deferred tax assets--
Year ended June 30, 2000
Valuation allowance....................... 10,700 3,448 -- 14,148
Year ended June 30, 2001
Valuation allowance....................... 14,148 (7,255) (2,597) (5) 4,296
Year ended June 30, 2002
Valuation allowance....................... 4,296 644 -- 4,940
- ------------
(1) Accounts written-off.
(2) Merchandise disposals and/or impact of foreign currency.
(3) Inventory reserves include $0.2 million of restructuring reserves in
fiscal 2000.
(4) Includes $3.6 million of excess and obsolete inventory charges related to
the cost of inventory associated with discontinued product lines and
inventory levels that had been deemed to be in excess of forecasted
requirements in fiscal 2002.
(5) Represents reduction of valuation allowance against the tax benefit of net
operating losses generated from employee stock option deductions.
Offsetting credit was recorded directly to equity rather than the current
year income statement.
59