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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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)
Indicate by check mark ("X") whether the registrant: (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JANUARY 27, 2003
----- -------------------------------
Common stock, par value $.01 share 10,350,242
LeCROY CORPORATION
FORM 10-Q
INDEX
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
December 31, 2002 (Unaudited) and June 30, 2002 3
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months ended December 31, 2002 and 2001 and Six Months ended
December 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Six Months ended December 31, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 17
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 18
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 19
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LeCROY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------
December 31, June 30,
In thousands, except par value and share data 2002 2002
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 27,873 $ 27,322
Accounts receivable, net 21,442 24,096
Inventories, net 23,655 28,108
Other current assets 8,322 11,657
------- --------
Total current assets 81,292 91,183
Property and equipment, net 20,775 21,354
Other assets 19,092 14,454
---------- ----------
TOTAL ASSETS $ 121,159 $ 126,991
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,801 $ 12,971
Accrued expenses and other liabilities 14,414 14,947
---------- ----------
Total current liabilities 24,215 27,918
Deferred revenue and other non-current liabilities 4,046 4,302
---------- ----------
Total liabilities 28,261 32,220
Redeemable convertible preferred stock, $.01 par value (authorized 5,000,000
shares; 500,000 shares issued and outstanding; liquidation value, $14,892 and
$14,049 as of December 31, 2002 and June 30, 2002, respectively) 14,298 13,266
Stockholders' equity:
Common stock, $.01 par value (authorized 45,000,000 shares; 10,350,242 and
10,323,071 shares issued and outstanding as of
December 31, 2002 and June 30, 2002, respectively) 103 103
Additional paid-in capital 80,512 81,279
Warrants to purchase common stock 2,165 2,165
Accumulated other comprehensive loss (2,782) (3,695)
Retained earnings (deficit) (1,398) 1,653
---------- ----------
Total stockholders' equity 78,600 81,505
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 121,159 $ 126,991
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
LeCROY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
December 31, December 31,
In thousands, except per share data 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues:
Digital oscilloscopes and related products $ 24,382 $ 25,884 $ 46,855 $ 53,480
High-energy physics products - 293 - 1,388
Service and other 2,255 2,196 4,773 4,270
------- ------- ------- -------
Total revenues 26,637 28,373 51,628 59,138
Cost of sales (included in Q2 of FY`03 is $2,280 of asset impairment charges,
and in Q2 of FY`02 is $3,601 of inventory charges; included in the six
months of FY`03 is $2,280 of asset impairment charges and $204 of
severance, and in the six months of FY`02 is $3,601
of inventory charges) 15,007 18,366 27,511 33,109
------- ------- ------- -------
Gross profit 11,630 10,007 24,117 26,029
Operating expenses:
Selling, general and administrative (included in Q2 of FY`02 is $1,928 of
severance; included in the six months of FY`03 and FY`02 is $2,450 and
$1,928 of severance, respectively) 9,363 11,294 20,461 20,799
Research and development 4,358 3,825 8,348 8,281
------- ------- ------- -------
Total operating expenses 13,721 15,119 28,809 29,080
Operating loss (2,091) (5,112) (4,692) (3,051)
Other (expense) income, net (47) (19) (151) 252
------- ------- ------- -------
Loss before income taxes (2,138) (5,131) (4,843) (2,799)
Benefit from income taxes 791 1,921 1,792 1,435
------- ------- -------- -------
Net loss (1,347) (3,210) (3,051) (1,364)
Charges related to convertible preferred stock 517 468 1,032 935
------- ------- -------- --------
Net loss applicable to common stockholders $(1,864) $ (3,678) $ (4,083) $ (2,299)
======= ======= ======== ========
Loss per common share applicable to common stockholders:
Basic $ (0.18) $ (0.36) $ (0.40) $ (0.23)
Diluted $ (0.18) $ (0.36) $ (0.40) $ (0.23)
Weighted average number of common shares:
Basic 10,340 10,216 10,332 9,850
Diluted 10,340 10,216 10,332 9,850
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
LeCROY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------
Six Months Ended
December 31,
In thousands 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,051) $(1,364)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,464 2,893
Deferred income taxes (1,871) (910)
Inventory charges and severance costs - 3,772
Impairment of intangible assets 2,030 -
Change in operating assets and liabilities:
Accounts receivable 3,327 3,539
Inventories 4,556 (2,199)
Other current and non-current assets 398 (174)
Accounts payable, accrued expenses and other liabilities (4,392) (7,752)
------- -------
Net cash provided by (used in) operating activities 4,461 (2,195)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,482) (2,307)
Purchase of intangible assets (2,010) -
------- ------
Net cash (used in) investing activities (3,492) (2,307)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of borrowings (45) (42)
Proceeds from the issuance of common stock - 23,231
Proceeds from employee stock purchase and option plans 245 575
------- -------
Net cash provided by financing activities 200 23,764
------- -------
Effect of exchange rate changes on cash (618) 135
------- -------
Net increase in cash and cash equivalents 551 19,397
Cash and cash equivalents at beginning of the period 27,322 11,449
------- -------
Cash and cash equivalents at end of the period $ 27,873 $ 30,846
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
LeCROY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements
include all the accounts of LeCroy Corporation (the "Company" or "LeCroy") and
its wholly-owned subsidiaries. These condensed consolidated financial statements
are unaudited and should be read in conjunction with the audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 2002. The condensed consolidated balance sheet as
of June 30, 2002 has been derived from these audited consolidated financial
statements. Certain reclassifications have been made to prior-year amounts to
conform to the current-year presentation. All material inter-company
transactions and balances have been eliminated.
The Company's condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States, which require management to make estimates and assumptions that
affect the consolidated financial statements and related disclosures. These
estimates and assumptions are based on judgment and available information and,
consequently, actual results could differ from these estimates. In addition,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted.
These unaudited condensed consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, that are, in the
opinion of management, necessary for a fair statement of the financial position
and the results of operations for the interim periods presented. Interim period
operating results may not be indicative of the operating results for a full
year.
2. RESTRUCTURING
During the first quarter of fiscal 2003, the Company adopted a plan to
implement new management operating systems designed to improve processes in
sales, order management, customer relationship management and financial
performance management. These new systems are projected to improve operating
efficiencies and to further reduce the Company's headcount requirements by 38
employees or approximately 9.3% as compared to June 30, 2002. In connection with
the adoption of this plan, the Company recorded a charge for severance and other
related expenses of $2.6 million; $0.2 million of which was recorded in Cost of
sales and $2.4 million recorded in Selling, general and administrative expense
in the Condensed Consolidated Statement of Operations for the six months ended
December 31, 2002. As of December 31, 2002, $1.1 million of the total $2.6
million has been paid and $1.5 million remains accrued in Accrued expenses and
other liabilities in the Condensed Consolidated Balance Sheet. Severance and
other related payments under this plan will be completed by the end of fiscal
2004.
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 or
approximately 15% as compared to June 30, 2001. 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 during the second quarter of
fiscal 2002. 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 December 31, 2002, $3.2 million of
the total $4.1 million has been paid and $0.9 million remains accrued in Accrued
expenses and other liabilities in the Condensed Consolidated Balance Sheet.
Severance and other related payments, including costs associated with the
succession of the Company's Chief Executive Officer, will be completed by the
end of the second quarter of fiscal 2004.
3. DERIVATIVES
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 were ($0.4) million and $29,000 for the six months ended December 31,
2002 and 2001, respectively, and are included in Other (expense) income, net in
the Condensed Consolidated Statements of Operations. At December 31, 2002 and
June 30, 2002, the Company had approximately $4.2 million and $12.8 million,
respectively, of open foreign exchange forward contracts all with maturities of
less than three months.
6
LeCROY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)
4. COMPREHENSIVE (LOSS) INCOME
For the three months ended December 31, 2002, the Company's comprehensive
loss totaled ($0.2) million, compared to a comprehensive loss of ($4.4) million
for the three months ended December 31, 2001. Comprehensive loss for the three
months ended December 31, 2002 included foreign currency translation gains of
$1.2 million. Comprehensive loss for the three months ended December 31, 2001
included foreign currency translation losses of ($1.0) million and unrealized
losses on marketable equity securities classified as available for sale of
($0.1) million.
For the six months ended December 31, 2002 the Company's comprehensive loss
was ($2.1) million compared to a comprehensive loss of ($0.9) million for the
six months ended December 31, 2001. Comprehensive loss for the six months ended
December 31, 2002 included foreign currency translation gains of $0.9 million.
Comprehensive loss for the six months ended December 31, 2001, included foreign
currency translation gains of $1.2 million and an unrealized loss on marketable
equity securities classified as available for sale of ($0.8) million.
During the fourth quarter of fiscal 2002, the Company sold its remaining
shares of marketable equity securities classified as available for sale.
Cumulative foreign currency translation losses were ($2.8) million at December
31, 2002 and ($3.7) million at June 30, 2002.
5. 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 December 31, 2002 and June 30,
2002, the Company netted approximately $2.5 million and $4.8 million,
respectively, of accounts receivable against accounts payable on the Condensed
Consolidated Balance Sheets.
6. INVENTORIES, NET
Inventories, including demonstration units in finished goods, are stated at
the lower of cost (first-in, first-out method) or market.
December 31, June 30,
2002 2002
---- ----
In thousands
Raw materials............................. $ 6,467 $ 7,735
Work in process........................... 5,175 5,571
Finished goods............................ 12,013 14,802
----------- ---------
$ 23,655 $ 28,108
=========== =========
The value of demonstration units included in finished goods was $8.5
million and $7.5 million at December 31, 2002 and June 30, 2002, respectively.
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.
7. OTHER CURRENT ASSETS
Other current assets consist of the following:
December 31, June 30,
2002 2002
---- ----
In thousands
Deferred tax assets, net.................. $ 4,817 $ 8,700
Other..................................... 3,505 2,957
----------- ---------
$ 8,322 $ 11,657
=========== =========
7
LeCROY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)
8. PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
December 31, June 30,
2002 2002
---- ----
In thousands
Land and building......................... $ 13,153 $ 12,814
Furniture, machinery and equipment........ 32,988 31,556
Computer software......................... 6,074 6,074
----------- -----------
52,215 50,444
Less: Accumulated depreciation and
amortization ............................. (31,440) (29,090)
----------- -----------
$ 20,775 $ 21,354
=========== ===========
Depreciation and amortization expense related to property and equipment for
the six month periods ended December 31, 2002 and 2001 was $2.3 million and $2.1
million, respectively.
9. OTHER ASSETS
Other assets consist of the following:
December 31, June 30,
2002 2002
---- ----
In thousands
Intangibles, net.......................... $ 5,578 $ 6,707
Deferred tax assets, net.................. 10,514 4,760
Goodwill.................................. 1,574 1,574
Other..................................... 1,426 1,413
----------- -----------
$ 19,092 $ 14,454
=========== ===========
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" effective July 1, 2001. Under
SFAS 142, goodwill is no longer amortized but reviewed for impairment annually
or more frequently if certain indicators arise. The Company completed the annual
impairment test required under SFAS No. 142 during the fourth quarter of fiscal
2002 and determined that there was no impairment to its recorded goodwill
balances.
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 Condensed Consolidated Balance Sheets as of the dates indicated:
December 31, June 30,
2002 2002
---- ----
In thousands
Intangible assets:
Amortized intangible assets:
Technology, manufacturing and distribution rights..$ 10,251 $ 10,332
Patents and other intangible assets................ 201 201
Effect of currency translation on intangible assets 178 162
Accumulated amortization........................... (5,052) (3,988)
-------- --------
Net carrying amount..................................$ 5,578 $ 6,707
======== ========
Non-amortized intangible assets:
Goodwill...........................................$ 1,574 $ 1,574
======== ========
8
LeCROY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)
During the second quarter of fiscal 2003, the Company recorded a $2.1
million charge for the impairment of technology, manufacturing and distribution
rights and a $0.2 million charge for a future royalty payment, both of which are
recorded in Cost of sales. The impairment resulted from the Company's strategic
decision to exit certain older product lines and to make significant changes to
its manufacturing strategy to further improve operating efficiency. This
reduction to Other assets for the impairment of technology, manufacturing and
distribution rights was substantially offset by the purchase of a new $2.0
million technology license recorded in Other assets in the Condensed
Consolidated Balance Sheet.
Amortization expense for those intangible assets with finite lives was $1.1
million and $0.7 million for the six months ended December 31, 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 2008 or on a straight-line basis. The Company
estimates amortization expense on a straight-line basis during the years ending
in fiscal 2003 through 2008 will approximate $2.0 million, $1.5 million, $1.7
million, $0.4 million, $0.4 million and $0.4 million, respectively.
10. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
December 31, June 30,
2002 2002
---- ----
In thousands
Compensation and benefits.........................$ 4,909 $ 5,348
Income taxes...................................... 2,475 2,634
Deferred license fee revenue...................... 1,296 1,296
Warranty.......................................... 1,235 1,247
Retained liabilities from discontinued operations. 1,046 1,474
Other............................................. 3,453 2,948
--------- --------
$ 14,414 $ 14,947
========= ========
11. 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.
12. 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 December 31, 2002 was $14.9 million.
9
LeCROY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)
13. REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("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 terms 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 $0.3
million and $0.6 million for the three and six months ended December 31, 2002
and 2001, respectively. Such license fees were included in Service and other
revenue in the Condensed Consolidated Statements of Operations. As of December
31, 2002, the remaining balance of pre-tax deferred license fee revenue was $3.9
million. The Company has not entered into an agreement in which it has
recognized license fee revenue since the third quarter of fiscal 1999.
14. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 nullifies Emerging Issues Task Force ("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 Issue No.
94-3 had recognized the liability at the commitment date to an exit plan. The
Company adopted the provisions of SFAS No. 146 effective for exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 will change the
timing of liability and expense recognition related to exit or disposal
activities, but not the ultimate amount of such expenses.
In October 2002, the EITF issued EITF Issue No. 00-21, "Accounting for
Revenue Arrangements with Multiple Deliverables." This issue addresses revenue
recognition accounting by a vendor for arrangements under which it will perform
multiple revenue-generating activities. This issue is to be effective for the
Company's fiscal year 2004. Management believes the adoption of the provisions
of this issue will not have a material effect on the Company's consolidated
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". This Statement amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. This Statement also amends the disclosure
provisions of SFAS No. 123 and APB No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. Management believes the adoption of SFAS No. 148 will
not have a material effect on the Company's financial position or results of
operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 and sells 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 computer / semi-conductor, data storage, communications and
automotive. 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 Condensed Consolidated Statements of Operations
for the three and six months ended December 31, 2002 and 2001.
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
---- ---- - ---- - ----
Revenues:
Digital oscilloscopes and related products................................. 91.5% 91.2% 90.8% 90.4%
High-energy physics products............................................... - 1.0 - 2.4
Service and other.......................................................... 8.5 7.8 9.2 7.2
------- -------- ------- -------
Total revenues........................................................... 100.0 100.0 100.0 100.0
Costof sales (included in Q2 of FY`03 is $2.3 million (8.6% of sales) of asset
impairment charges, and in Q2 of FY`02 is $3.6 million (12.7% of sales) of
inventory charges; included in the six months of FY`03 is $2.3 million (4.4%
of sales) of asset impairment charges and $0.2 million (0.4%
of sales) of severance, and in the six months of FY`02 is $3.6 million
(6.1% of sales) of inventory charges)...................................... 56.3 64.7 53.3 56.0
------- -------- ------- -------
Gross profit............................................................ 43.7 35.3 46.7 44.0
Operating expenses:
Selling, general and administrative (included in Q2 of FY`02 is $1.9 million
of severance (6.8% of sales); included in the six months of FY`03
and FY`02 is $2.4 million (4.8% of sales) and $1.9 million (3.3% of
sales) of severance, respectively)........................................ 35.1 39.8 39.6 35.2
Research and development................................................... 16.4 13.5 16.2 14.0
------ ------- ------ -------
Total operating expenses................................................. 51.5 53.3 55.8 49.2
Operating loss................................................................ (7.8) (18.0) (9.1) (5.2)
Other (expense) income, net.............................................. (0.2) (0.1) (0.3) 0.5
------ ------- ------ ------
Loss before income taxes...................................................... (8.0) (18.1) (9.4) (4.7)
Benefit from income taxes................................................ (2.9) (6.8) (3.5) (2.4)
------ ------- ------ ------
Net loss...................................................................... (5.1)% (11.3)% (5.9)% (2.3)%
====== ======= ====== ======
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
Total revenues were $26.6 million in the second quarter of fiscal 2003,
compared to $28.4 million in the second quarter of fiscal 2002, a decrease of
6.1%, or $1.7 million. This decrease was primarily due to lower sales from
discontinued product lines and lower component sales in the second quarter of
fiscal 2003 as compared to the same quarter in fiscal 2002 as well as the
shipment of a large United States Government order in the second quarter of
fiscal 2002. These negative impacts were partially offset by sales of the
Company's new high-end WaveMaster(TM) product line of digital oscilloscopes
launched in the third quarter of fiscal 2002 and an increase in sales in the
Waverunner(TM) product line in the second quarter of fiscal 2003.
Gross margin was 43.7% in the second quarter of fiscal 2003 compared to
35.3% in the same period in fiscal 2002. Included in Cost of sales in the second
quarter of fiscal 2003 was a $2.3 million (8.6% of sales) charge for the
write-off of impaired assets resulting from the Company's decision to exit
certain product lines and to make a significant change
11
in its manufacturing strategy. In the second quarter of fiscal 2002, the Company
increased its allowance for excess and obsolete inventory by $3.6 million (12.7%
of sales) through a charge to Cost of sales to write-down inventory associated
with discontinued product lines and inventory levels considered to be in excess
of forecasted requirements. Excluding these charges, pro forma gross margin was
52.3% in the second quarter of fiscal 2003 compared to 48.0% in the same period
in fiscal 2002. The increase resulted from favorable margins on the Company's
new high-end WaveMaster product line of digital oscilloscopes launched in the
third quarter of fiscal 2002, more favorable product margins on the existing
base of products due to increased operational efficiency in the second quarter
of fiscal 2003, and a lower-margin shipment of a large United States Government
order in the second quarter of fiscal 2002.
Selling, general and administrative expense was $9.4 million in the second
quarter of fiscal 2003 compared to $11.3 million in the same period in fiscal
2002. Included in Selling, general and administrative expense in the second
quarter of fiscal 2002 was a $1.9 million (6.8% of sales) charge for severance
expense, including costs associated with the succession of the Company's Chief
Executive Officer. Excluding that charge, pro forma Selling, general and
administrative expense in the second quarter of fiscal 2002 was $9.4 million,
virtually flat compared to the second quarter of fiscal 2003. As a percentage of
sales, pro forma Selling general and administrative expense, excluding $1.9
million (6.8% of sales) in severance charges in the second quarter of fiscal
2002, increased from 33.0% in the second quarter of fiscal 2002 to 35.1% in the
second quarter of fiscal 2003. 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 and an increase in fixed selling costs as a result of
the conversion, in the fourth quarter of fiscal 2002, 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 was $4.4 million in the second quarter of
fiscal 2003, compared to $3.8 million in the second quarter of fiscal 2002, an
increase of 13.9% or $0.5 million. The increase was primarily due to the timing
of certain research and development expenses. As a percentage of sales, Research
and development expense increased from 13.5% in the second quarter fiscal 2002
to 16.4% in the second quarter of fiscal 2003. 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.
Other (expense) income, net, which consists primarily of net interest
income or expense and foreign exchange gains or losses, was an expense of
($47,000) in the second quarter of fiscal 2003, compared to an expense of
($19,000) in the second quarter of fiscal 2002. This increase is primarily due
to lower net interest income earned on the Company's cash balances.
The Company's effective tax rate was 37.0% in the second quarter of fiscal
2003, compared to 37.4% in the second quarter of fiscal 2002.
Charges related to convertible preferred stock, the Preferred Stock
dividend and the accretion for the value of fully exercisable warrants granted
in connection with the private placement of the Preferred Stock, was $0.5
million in the second quarter of fiscal 2003 and 2002.
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 2002 AND 2001
Total revenues were $51.6 million in the six months ended December 31,
2002, compared to $59.1 million in the six months ended December 31, 2001, a
decrease of 12.7%, or $7.5 million. This decrease was primarily due to the
continuing impact of the current difficult economic environment, lower sales
from discontinued product lines, and lower component sales, as well as the
shipment of a large United States Government order in the in the second quarter
of fiscal 2002. These negative impacts were partially offset by sales of the
Company's new high-end WaveMaster product line of digital oscilloscopes launched
in the third quarter of fiscal 2002.
Gross margin was 46.7% in the six months ended December 31, 2002 compared
to 44.0% in the same period in fiscal 2002. Included in Cost of sales in the six
months ended December 31, 2002 was a $2.3 million (4.4% of sales) charge for the
write-off of impaired assets resulting from the Company's decision to exit
certain product lines and to make a significant change in its manufacturing
strategy and $0.2 million (0.4% of sales) of severance charges. In the second
quarter of fiscal 2002, the Company increased its allowance for excess and
obsolete inventory by $3.6 million (6.1% of sales) through a charge to Cost of
sales to write-down inventory associated with discontinued product lines and
inventory levels considered to be in excess of forecasted requirements.
Excluding these charges, pro forma gross margin was 51.5% in the six months
ended December 31, 2002 compared to 50.1% in the same period in fiscal 2002. The
increase resulted from favorable margins on the Company's new high-end
WaveMaster product line of digital oscilloscopes launched in the third quarter
of fiscal 2002, more favorable product margins on the existing base of products
due to increased operational efficiencies in fiscal 2003, and a lower-margin
shipment of a large United States Government order in the six months ended
December 31, 2001.
12
Selling, general and administrative expense was $20.5 million for the six
months ended December 31, 2002 compared to $20.8 million in the same period in
fiscal 2002. Included in Selling, general and administrative expense in the six
months ended December 31, 2002 was a $2.4 million (4.8% of sales) charge for
severance expense. Included in Selling, general and administrative expense in
the six months ended December 31, 2001 was a $1.9 million (3.3% of sales) charge
for severance expense, including costs associated with the succession of the
Company's Chief Executive Officer. Excluding that charge, pro forma Selling,
general and administrative for the six months ended December 31, 2002 was $18.1
million, compared to $18.9 million for the six months ended December 31, 2001, a
decrease of 4.2%, or $0.8 million. As a percentage of sales, pro forma Selling
general and administrative expense, excluding the severance charges, increased
from 31.9% in the six months ended December 31, 2001 to 34.8% in the six months
ended December 31, 2002. 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 and an increase in fixed selling costs as a result of the
conversion, in the fourth quarter of fiscal 2002, 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 for the six months ended December 31, 2002
was $8.3 million, virtually flat compared to the same period in fiscal 2002. As
a percentage of sales, Research and development expense increased from 14.0% for
the six months ended December 31, 2001 to 16.2% for the six months ended
December 31, 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.
Other (expense) income, net, which consists primarily of net interest
income or expense and foreign exchange gains or losses, was an expense of ($0.2)
million for the six months ended December 31, 2002, compared to income of $0.3
million for the six months ended December 31, 2001. This decrease is primarily
due to foreign exchange losses on assets or liabilities denominated in other
than the functional currency of the Company or its subsidiaries and lower net
interest income earned on the Company's cash balances.
The Company's effective tax rate was 37.0% for the six months ended
December 31, 2002, compared to 51.3% for the six months ended December 31, 2001.
The effective tax rate for the six months ended December 31, 2001 was based on
an estimated annual effective tax rate of approximately 37.0%, increased by the
release of a $0.4 million tax reserve related to a favorable audit settlement in
the first quarter of fiscal 2002.
Charges related to convertible preferred stock, the Preferred Stock
dividend and the accretion for the value of fully exercisable warrants granted
in connection with the private placement of the Preferred Stock, was $1.0
million in the six months ended December 31, 2002 and 2001.
RESTRUCTURING
During the first quarter of fiscal 2003, the Company adopted a plan to
implement new management operating systems designed to improve processes in
sales, order management, customer relationship management and financial
performance management. These new systems are projected to improve operating
efficiencies and to further reduce the Company's headcount requirements by 38
employees or approximately 9.3% as compared to June 30, 2002. In connection with
the adoption of this plan, the Company recorded a charge for severance and other
related expenses of $2.6 million; $0.2 million of which was recorded in Cost of
sales and $2.4 million recorded in Selling, general and administrative expense
in the Condensed Consolidated Statement of Operations for the six months ended
December 31, 2002. As of December 31, 2002, $1.1 million of the total $2.6
million has been paid and $1.5 million remains accrued in Accrued expenses and
other liabilities in the Condensed Consolidated Balance Sheet. Severance and
other related payments under this plan will be completed by the end of fiscal
2004.
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 or
approximately 15% as compared to June 30, 2001. 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 during the second quarter of
fiscal 2002. 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 December 31, 2002, $3.2 million of
the total $4.1 million has been paid and $0.9 million remains accrued in Accrued
expenses and other liabilities in the Condensed Consolidated Balance Sheet.
Severance and other related payments, including costs associated with the
succession of the Company's Chief Executive Officer, will be completed by the
end of the second quarter of fiscal 2004.
13
LIQUIDITY AND CAPITAL COMMITMENTS
Working capital was $57.1 million at December 31, 2002, which represented a
working capital ratio of 3.4 to 1, compared to $63.3 million, or 3.3 to 1 at
June 30, 2002.
Net cash provided by (used in) operating activities for the six months
ended December 31, 2002 was $4.5 million compared with ($2.2) million for the
comparable period in the prior year. The increase in net cash provided by
operating activities was primarily due to reductions in inventory of $4.6
million due to increased operating efficiencies and in accounts receivable of
$3.3 million resulting partly from enhanced collections activity and partly from
lower sales volume. These benefits to operating cash flows during the six months
ended December 31, 2002 were partially offset by a $4.4 million reduction in
accounts payable, accrued expenses and other liabilities resulting from
severance payments of $2.8 million and a $1.0 million payment related to a $4.0
million technology license purchased in the fourth quarter of fiscal 2002. For
the corresponding period in the prior year, net cash used in operating
activities reflects the reduction in accounts payable, accrued expenses and
other liabilities of $7.8 million, which primarily consisted of $2.4 million of
payments on retained discontinued operations liabilities, payment of prior year
incentive compensation, severance payments and a reduction in accounts payable
levels.
Net cash (used in) investing activities for the six months ended December
31, 2002 was ($3.5) million, compared with ($2.3) million for the comparable
period for the prior year. This increase in net cash used in investing
activities was primarily due to a $2.0 million acquisition of a technology
license partially offset by a $0.8 million reduction in capital expenditures.
Net cash provided by financing activities for the six months ended December
31, 2002 was $0.2 million, compared with $23.8 million for the comparable period
for the prior year. The decrease in cash provided by financing activities was
primarily due to net proceeds of $23.2 million raised from a private equity
placement in August 2001.
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 December 31, 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 December 31, 2002, the
Company had $0.3 million outstanding under this line of credit, $0.1 million of
which was included in Accrued expenses and other liabilities and the remaining
$0.2 million in Other non-current liabilities on the Condensed Consolidated
Balance Sheet. The outstanding borrowings under this line bear interest at
12.2%.
In addition to the above U.S.-based credit facilities, the Company
maintains certain short-term foreign credit facilities, principally with two
Japanese banks totaling 150 million yen ($1.3 million as of December 31, 2002).
No amounts were outstanding under such facilities as of December 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 2004 through 2008 and
later years, under noncancelable operating leases having an original term of
more than one year, are $1.6 million, $1.1 million, $0.9 million, $0.6 million
and $1.6 million, respectively. Future minimum lease payments of $1.0 million
are required for the second half of fiscal 2003.
As of December 31, 2002, the Company has two technology license agreements,
under which it is unconditionally committed to pay $1.3 million, $0.5 million
and $0.3 million in fiscal 2003, 2004 and 2005, 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.
14
CRITICAL ACCOUNTING POLICIES
The preparation of these condensed 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 condensed 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.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2002
which includes a description of the Company's critical accounting policies
involving significant judgment by the Company's management. In particular,
judgment is used in areas such as the allowance for doubtful accounts, allowance
for excess and obsolete inventory, valuation of long-lived and intangible
assets, valuation of deferred tax assets and estimation of warranty. There have
been no changes in the Company's critical accounting policies since June 30,
2002.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("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 terms 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 $0.3
million and $0.6 million for the three and six months ended December 31, 2002
and 2001, respectively. Such license fees were included in Service and other
revenue in the Condensed Consolidated Statements of Operations. As of December
31, 2002, the remaining balance of pre-tax deferred license fee revenue was $3.9
million. The Company has not entered into an agreement in which it has
recognized license fee revenue since the third quarter of fiscal 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 nullifies Emerging Issues Task Force ("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 Issue No.
94-3 had recognized the liability at the commitment date to an exit plan. The
Company adopted the provisions of SFAS No. 146 effective for exit or disposal
activities initiated after December 31, 2002. SFAS No. 146 will change the
timing of liability and expense recognition related to exit or disposal
activities, but not the ultimate amount of such expenses.
In October 2002, the EITF issued EITF Issue No. 00-21, "Accounting for
Revenue Arrangements with Multiple Deliverables." This issue addresses revenue
recognition accounting by a vendor for arrangements under which it will perform
multiple revenue-generating activities. This issue is to be effective for the
Company's fiscal year 2004. Management believes the adoption of the provisions
of this issue will not have a material effect on the Company's consolidated
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". This Statement amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. This Statement also amends the disclosure
provisions of SFAS No. 123 and APB No. 28, Interim Financial Reporting, to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. Management believes the adoption of SFAS No. 148 will
not have a material effect on the Company's financial position or results of
operations.
15
FORWARD-LOOKING INFORMATION
This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
the Company's actual results or activities to differ materially from these
forward-looking statements include but are not limited to: the effect of
economic conditions, including the effect on purchases by the Company's
customers; competitive factors, including pricing pressures, technological
developments and products offered by competitors; changes in product sales and
mix; the Company's ability to deliver a timely flow of competitive new products
and market acceptance of these products; inventory risks due to changes in
market demand or the Company's business strategies; currency fluctuations; risks
due to an interruption in supply or an increase in price for the Company's
parts, components and subassemblies; and other risk factors listed from time to
time in the Company's reports filed with the Securities and Exchange Commission
and press releases, specifically, those discussed in the section entitled "Risk
Factors" in the Form S-3 Registration Statement No. 333-64848.
RISK FACTORS THAT MAY IMPACT FUTURE RESULTS
Included in this Form 10-Q 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 Statement No. 333-64848.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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, Korean won and Singapore dollar.
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 the three months ended December 31, 2002 and 2001, 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 ($0.4) million and $29,000, respectively.
At December 31, 2002 and June 30, 2002, the Company had approximately $4.2
million and $12.8 million, respectively, of open foreign exchange forward
contracts all with maturities of less than three months.
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
the Company's results of operations, financial position or cash flows.
The Company is exposed to adverse changes in interest rates primarily in
its investment in cash and cash equivalents. Market risk is estimated as the
potential change in fair value resulting from a hypothetical ten percent adverse
change in interest rates, which would not have been significant to the Company's
results of operations during the second quarter of fiscal 2003.
16
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing date of this report, an
evaluation was carried out under the supervision and with the participation of
the Company's management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on that evaluation,
the CEO and CFO have concluded that the Company's disclosure controls and
procedures are effective to ensure that material information relating to the
Company and its consolidated subsidiaries is made known to them, particularly
during the period when our periodic reports are being prepared. Subsequent to
the date of management's evaluation, there were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the internal controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
17
LeCROY CORPORATION
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on October
30, 2002. The following matter was voted upon by common and preferred
stockholders at the meeting as follows:
Election of three Class I Directors,
each for a three-year term For Withheld Broker Non-Votes
---------------------------- --- -------- ----------------
Charles A. Dickinson 10,038,249 436,992 *
Lutz P. Henckels 9,921,398 553,843 *
Peter H. Kamin 10,171,252 303,989 *
* Not applicable.
The Company's proposal to approve the amendment and restatement of the
Company's 1993 Stock Incentive Plan (the "Plan"), which would extend the
termination date of the Plan from January 4, 2003 to January 4, 2008, was
withdrawn from consideration by the Board of Directors and not voted on by the
stockholders at the meeting. Accordingly, the Plan expired on January 4, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item 6(a) Exhibits
10.42 Separation Agreement, dated January 6, 2003, between the
Registrant and Raymond F. Kunzmann.
99.1 Chief Executive Officer certification pursuant to
18 U.S.C.ss.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer certification pursuant to 18
U.S.C.ss.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Item 6(b) Reports on Form 8-K
The Company filed a Form 8-K, dated November 27, 2002, to
report the Board of Directors decision to end the engagement of
Ernst & Young LLP as the Company's independent public
accountants, and authorized the engagement of KPMG LLP to serve
as the Company's independent public accountants for the fiscal
year ending June 30, 2003.
The Company filed a Form 8-K, dated January 6, 2003, to report
that Scott D. Kantor has been named Vice President, Finance and
Chief Financial Officer effective February 1, 2003. Mr. Kantor
succeeds Raymond F. Kunzmann, who will remain as a consultant
to the Company.
The Company filed a Form 8-K, dated January 16, 2003, reporting
under Item 5 "Other Events" and under Item 7 "Financial
Statements and Exhibits" the Company's earnings for the three
and six months ended December 31, 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LECROY CORPORATION
Date: February 7, 2003
/s/ Scott D. Kantor
------------------------------------------
Vice President and Chief Financial Officer,
Secretary and Treasurer
18
CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas H. Reslewic, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LeCroy
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Thomas H. Reslewic
----------------------
Thomas H. Reslewic
Chief Executive Officer
February 7, 2003
19
CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott D. Kantor, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of LeCroy
Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Scott D. Kantor
-------------------
Scott D. Kantor
Chief Financial Officer
February 7, 2003
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