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 March 28, 2009
OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 0-26634
LeCROY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE
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13-2507777
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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|
|
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700 CHESTNUT RIDGE ROAD
CHESTNUT RIDGE, NEW YORK
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10977
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(Address of Principal Executive Office)
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(Zip Code)
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(845) 425-2000
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark (X) whether the registrant: (1) has filed all reports required 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 whether the registrant has
submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). YES
¨
NO
¨
Indicate by check mark (X) whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company
(as defined in Rule 12b-2 of the Exchange Act).
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|
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-Accelerated filer
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¨
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Smaller Reporting Company
|
|
¨
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Indicate by check mark (X) whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES
¨
NO
x
Number of shares of common stock outstanding as of May 4, 2009 was 12,396,844.
LeCROY CORPORATION
FORM 10-Q
INDEX
LeCroy®, Wavelink, WaveMaster®, WavePro®, WaveJet®, WaveRunner®,
WaveScan , WaveSurfer, WaveExpert, MAUI, CATC and WaveAce are our trademarks, among others not referenced in this document. All other trademarks or servicemarks referred to in this Form 10-Q are the property of
their respective owners.
PART I. FINANCIAL INFORMATION
ITEM 1.
|
FINANCIAL STATEMENTS
|
LeCROY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
In thousands, except par value and share data
|
|
March 28,
2009
|
|
|
June 28,
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,802
|
|
|
$
|
10,224
|
|
Accounts receivable, net of reserves of $809 and $742 at March 28, 2009 and June 28, 2008, respectively
|
|
|
25,685
|
|
|
|
33,274
|
|
Inventories, net
|
|
|
36,104
|
|
|
|
32,886
|
|
Other current assets
|
|
|
10,750
|
|
|
|
10,214
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
79,341
|
|
|
|
86,598
|
|
|
|
|
Property, plant and equipment, net
|
|
|
21,439
|
|
|
|
21,683
|
|
Goodwill
|
|
|
|
|
|
|
105,771
|
|
Other non-current assets
|
|
|
11,223
|
|
|
|
12,934
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
112,003
|
|
|
$
|
226,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13,275
|
|
|
$
|
22,280
|
|
Accrued expenses and other current liabilities
|
|
|
14,138
|
|
|
|
19,201
|
|
Current portion of bank debt
|
|
|
15,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
42,913
|
|
|
|
41,481
|
|
|
|
|
Convertible notes
|
|
|
50,000
|
|
|
|
62,000
|
|
Deferred revenue and other non-current liabilities
|
|
|
4,410
|
|
|
|
4,545
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
97,323
|
|
|
|
108,026
|
|
|
|
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Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
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Stockholders equity:
|
|
|
|
|
|
|
|
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Preferred stock, $.01 par value (authorized 5,000,000 shares; none issued and outstanding as of March 28, 2009 and June 28, 2008)
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value (authorized 45,000,000 shares; 12,800,144 shares issued at March 28, 2009 and 12,656,899 shares issued at
June 28, 2008)
|
|
|
128
|
|
|
|
127
|
|
Additional paid-in capital
|
|
|
116,043
|
|
|
|
113,693
|
|
Accumulated other comprehensive income
|
|
|
757
|
|
|
|
3,451
|
|
(Accumulated deficit) retained earnings
|
|
|
(99,150
|
)
|
|
|
4,102
|
|
Treasury stock, at cost (403,215 and 297,523 shares at March 28,2009 and June 28, 2008, respectively)
|
|
|
(3,098
|
)
|
|
|
(2,413
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
14,680
|
|
|
|
118,960
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
112,003
|
|
|
$
|
226,986
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
1
LeCROY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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|
|
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Quarter Ended
|
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Three Quarters Ended
|
|
In thousands, except per share data
|
|
March 28,
2009
|
|
|
March 29,
2008
|
|
|
March 28,
2009
|
|
|
March 29,
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Test and measurement products
|
|
$
|
24,725
|
|
|
$
|
37,761
|
|
|
$
|
100,103
|
|
|
$
|
112,431
|
|
Service and other
|
|
|
2,198
|
|
|
|
2,793
|
|
|
|
6,651
|
|
|
|
7,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
26,923
|
|
|
|
40,554
|
|
|
|
106,754
|
|
|
|
119,827
|
|
|
|
|
|
|
Cost of revenues
|
|
|
12,621
|
|
|
|
17,993
|
|
|
|
49,149
|
|
|
|
51,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,302
|
|
|
|
22,561
|
|
|
|
57,605
|
|
|
|
68,332
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Selling, general and administrative
|
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11,352
|
|
|
|
12,681
|
|
|
|
36,774
|
|
|
|
38,329
|
|
Research and development
|
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|
8,185
|
|
|
|
8,371
|
|
|
|
24,797
|
|
|
|
23,877
|
|
Reimbursement from escrow account
|
|
|
|
|
|
|
(240
|
)
|
|
|
|
|
|
|
(240
|
)
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
105,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
19,537
|
|
|
|
20,812
|
|
|
|
167,342
|
|
|
|
61,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(5,235
|
)
|
|
|
1,749
|
|
|
|
(109,737
|
)
|
|
|
6,366
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of convertible debt, net of issue cost write-off
|
|
|
8,570
|
|
|
|
|
|
|
|
8,822
|
|
|
|
|
|
Interest income
|
|
|
19
|
|
|
|
72
|
|
|
|
80
|
|
|
|
227
|
|
Interest expense
|
|
|
(925
|
)
|
|
|
(1,020
|
)
|
|
|
(2,750
|
)
|
|
|
(3,359
|
)
|
Other, net
|
|
|
242
|
|
|
|
(83
|
)
|
|
|
531
|
|
|
|
(421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
7,906
|
|
|
|
(1,031
|
)
|
|
|
6,683
|
|
|
|
(3,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
2,671
|
|
|
|
718
|
|
|
|
(103,054
|
)
|
|
|
2,813
|
|
Provision for income taxes
|
|
|
663
|
|
|
|
65
|
|
|
|
199
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,008
|
|
|
$
|
653
|
|
|
$
|
(103,253
|
)
|
|
$
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.17
|
|
|
$
|
0.06
|
|
|
$
|
(8.63
|
)
|
|
$
|
0.21
|
|
Diluted
|
|
$
|
0.17
|
|
|
$
|
0.05
|
|
|
$
|
(8.63
|
)
|
|
$
|
0.21
|
|
|
|
|
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,037
|
|
|
|
11,763
|
|
|
|
11,960
|
|
|
|
11,759
|
|
Diluted
|
|
|
12,098
|
|
|
|
12,032
|
|
|
|
11,960
|
|
|
|
12,000
|
|
The accompanying notes are an integral part of these consolidated financial statements.
2
LeCROY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Quarters ended
|
|
In thousands
|
|
March 28,
2009
|
|
|
March 29,
2008
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(103,253
|
)
|
|
$
|
2,522
|
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Impairment of goodwill
|
|
|
105,771
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,925
|
|
|
|
5,389
|
|
Share-based compensation
|
|
|
1,759
|
|
|
|
3,714
|
|
Amortization of debt issuance costs
|
|
|
493
|
|
|
|
539
|
|
Deferred income taxes
|
|
|
(485
|
)
|
|
|
(946
|
)
|
Loss (gain) on disposal of property and equipment, net
|
|
|
40
|
|
|
|
(136
|
)
|
Gross profit on non-cash sale
|
|
|
|
|
|
|
(44
|
)
|
Gain on extinguishment of convertible debt, net of issue cost write-off
|
|
|
(8,822
|
)
|
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,773
|
|
|
|
2,569
|
|
Inventories
|
|
|
(4,994
|
)
|
|
|
3,175
|
|
Other current and non-current assets
|
|
|
(154
|
)
|
|
|
778
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(7,444
|
)
|
|
|
(348
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(6,391
|
)
|
|
|
17,212
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
(2,950
|
)
|
|
|
(2,299
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,950
|
)
|
|
|
(2,299
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Borrowings under credit line
|
|
|
18,500
|
|
|
|
|
|
Repurchase of convertible notes
|
|
|
(8,378
|
)
|
|
|
|
|
Payments made on capital leases
|
|
|
(174
|
)
|
|
|
(227
|
)
|
Repayment of borrowings under credit line
|
|
|
(3,000
|
)
|
|
|
(9,410
|
)
|
Payment of note payable to related party for business acquisition
|
|
|
|
|
|
|
(3,500
|
)
|
Proceeds from employee stock purchase and option plans
|
|
|
397
|
|
|
|
450
|
|
Purchase of treasury stock
|
|
|
(685
|
)
|
|
|
(2,126
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
6,660
|
|
|
|
(14,813
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(741
|
)
|
|
|
1,045
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(3,422
|
)
|
|
|
1,145
|
|
Cash and cash equivalents at beginning of the period
|
|
|
10,224
|
|
|
|
10,448
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
6,802
|
|
|
$
|
11,593
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosure
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,517
|
|
|
$
|
2,408
|
|
Income taxes, net of refunds
|
|
|
246
|
|
|
|
525
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Transfer of inventory into property, plant and equipment
|
|
|
1,629
|
|
|
|
1,520
|
|
Vendor supplied capital lease agreement
|
|
|
|
|
|
|
718
|
|
Receipt of advertising in exchange for test and measurement product
|
|
|
|
|
|
|
62
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
LeCROY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited
Consolidated Financial Statements include all the accounts of LeCroy Corporation (the Company or LeCroy) and its wholly-owned subsidiaries. These Consolidated Financial Statements are unaudited and should be read in
conjunction with the audited Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 28, 2008. The accompanying Consolidated Balance Sheet as of June 28, 2008 has been
derived from those audited Consolidated Financial Statements. Inter-company transactions and balances have been eliminated in consolidation. The Companys fiscal years end on the Saturday closest to June 30, which resulted in reporting
periods ended on March 28, 2009, March 29, 2008 and June 28, 2008.
The Companys Consolidated Financial
Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (US GAAP), which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the revenues and expenses reported during the period. The most significant of these estimates and assumptions relate to
revenue recognition, reserves for accounts receivable, allowance for excess and obsolete inventory, valuation of long-lived and intangible assets, goodwill, income taxes, share-based compensation expense and estimation of warranty liabilities. These
estimates and assumptions are based on managements judgment and available information and, consequently, actual results could differ from these estimates.
These unaudited Consolidated Financial Statements reflect all adjustments, of a normal recurring nature, that are, in the opinion of management, necessary for a fair presentation 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. Certain reclassifications were made to prior year amounts to conform to the current year
presentation. Additionally, certain reclassifications were made to prior quarter amounts to conform to the current year to date presentation.
Change in
Accounting Policy for Classification of Certain Shipping and Handling Costs
The Companys shipping and handling costs associated
with transporting its products to customers were previously recorded as a component of Selling, general and administrative expenses in the Consolidated Statements of Operations. In accordance with Emerging Issues Task Force Issue No. 00-10
Accounting for Shipping and Handling Fees and Costs
, the Company disclosed the amount of these shipping and handling costs that were included as Selling, general and administrative expenses (SG&A) in the notes to
the Consolidated Financial Statements on Form 10-K.
Beginning in fiscal 2009, the Company changed its accounting policy to classify
certain shipping and handling costs as Cost of revenues in the Consolidated Statement of Operations. The amounts classified as Cost of revenues represent shipping and handling costs associated with the distribution of finished product from their
point of manufacturing directly to customers, distributors and wholly-owned international subsidiaries. Management believes that the classification of these shipping and handling costs as Cost of revenues better reflects the cost of producing and
distributing its products and aligns external financial reporting with the results used internally to evaluate the Companys operational performance. Shipping and handling costs associated with the transportation of demonstration units shipped
to sales personnel and customers, as well as distribution costs associated with servicing the Companys international customers through its foreign sales offices are recorded as SG&A, as they are considered direct selling expenses.
For purposes of comparability, approximately $0.4 and $1.3 million of shipping and handling costs previously classified as SG&A for
the prior quarter and prior three quarters ended March 29, 2008, respectively has been reclassified to Cost of revenues to apply the new policy. This change in accounting principle and reclassification had no impact on operating income,
net income, or earnings per share.
2. Share-Based Compensation
Total share-based compensation expense recorded in the Consolidated Statement of Operations for the quarter ended March 28, 2009 and March 29, 2008 is approximately $0.7 million and $1.1 million,
respectively. For the three quarters ended, March 28, 2009 and March 29, 2008 total share-based compensation is approximately $1.8 million and $3.7 million, respectively.
4
Stock Options and Assumptions
The fair value of options granted is estimated on the date of grant using a Black-Scholes option pricing model. Expected volatilities are calculated based
on the historical volatility of the Companys stock. Management monitors share option exercise and employee termination patterns to estimate forfeiture rates. Separate groups of employees that have similar historical exercise behavior are
considered separately for valuation purposes. If the Companys actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the share-based compensation expense could be
significantly different from what was recorded in the current periods. The expected holding period of options represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the interest
rate of a 5-year U.S. Treasury note in effect on the date of the grant or such other period that most closely equals the expected term of the option.
The table below presents the assumptions used to calculate the fair value of options granted during the quarter and three quarters ended March 28, 2009 and March 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
March 28, 2009
|
|
|
Three Quarters
Ended
March 28, 2009
|
|
|
Quarter Ended
March 29, 2008
|
|
|
Three Quarters
Ended
March 29, 2008
|
|
Expected holding period (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Risk-free interest rate
|
|
|
1.97%-1.99
|
%
|
|
|
1.97%-3.23
|
%
|
|
|
2.67%-2.78
|
%
|
|
|
2.67%-4.57
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
49.96%-51.11
|
%
|
|
|
41.12%-51.11
|
%
|
|
|
43.51%-43.63
|
%
|
|
|
43.51%-48.64
|
%
|
Weighted average fair value of options granted
|
|
$
|
0.70
|
|
|
$
|
1.05
|
|
|
$
|
3.66
|
|
|
$
|
3.70
|
|
Changes in the Companys stock options for the quarter and three quarters ended
March 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Terms (Years)
|
|
Aggregate
Intrinsic Value
($000)
|
Outstanding at June 28, 2008
|
|
1,498,070
|
|
|
$
|
13.46
|
|
|
|
|
|
Granted
|
|
2,500
|
|
|
$
|
8.55
|
|
|
|
|
|
Exercised
|
|
(75
|
)
|
|
$
|
2.24
|
|
|
|
|
|
Expired
|
|
(1,689
|
)
|
|
$
|
12.52
|
|
|
|
|
|
Forfeited
|
|
(6,498
|
)
|
|
$
|
11.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 27, 2008
|
|
1,492,308
|
|
|
$
|
13.46
|
|
3.36
|
|
$
|
628
|
Granted
|
|
298,860
|
|
|
$
|
3.98
|
|
|
|
|
|
Exercised
|
|
(6,250
|
)
|
|
$
|
1.69
|
|
|
|
|
|
Expired
|
|
(156,023
|
)
|
|
$
|
14.97
|
|
|
|
|
|
Forfeited
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 27, 2008
|
|
1,628,895
|
|
|
$
|
11.62
|
|
3.38
|
|
$
|
98
|
Granted
|
|
499,540
|
|
|
$
|
1.56
|
|
|
|
|
|
Exercised
|
|
(1,676
|
)
|
|
$
|
2.24
|
|
|
|
|
|
Expired
|
|
(84,000
|
)
|
|
$
|
16.87
|
|
|
|
|
|
Forfeited
|
|
(65,205
|
)
|
|
$
|
3.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 28, 2009
|
|
1,977,554
|
|
|
$
|
9.13
|
|
4.12
|
|
$
|
830
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 28, 2009
|
|
1,808,629
|
|
|
$
|
9.56
|
|
3.43
|
|
$
|
698
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 28, 2009
|
|
1,184,174
|
|
|
$
|
13.08
|
|
2.51
|
|
$
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options exercised during the quarter and three quarters ended
March 28, 2009 was approximately $1,000 and $20,000, respectively as compared to approximately $21,000 and $0.3 million for the quarter and three quarters ended March 29, 2008, respectively. The options granted in the current quarter ended
March 28, 2009 have a vesting term of 2 years.
As of March 28, 2009, there was approximately $0.8 million of total unrecognized
compensation cost (net of estimated forfeitures) related to stock options granted under the plans. That cost is expected to be recognized over a remaining weighted-average period of approximately 2.2 years. Less than $0.1 million of compensation
cost was capitalized in inventory or any other assets for the quarter and three quarters ended March 28, 2009 and March 29, 2008.
5
Non-Vested Stock and Assumptions
The fair value of new grants is determined based on the closing price on the date of grant. Related compensation expense is recognized ratably over the
associated requisite service period, giving effect to estimated forfeitures. If the Companys actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based
compensation expense could be significantly different from what was recorded in the current periods.
The following table summarizes
transactions related to non-vested stock for the quarter and three quarters ended March 28, 2009:
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Grant Date
Fair Value
|
Non-vested stock at June 28, 2008
|
|
496,504
|
|
|
$
|
12.24
|
Granted
|
|
|
|
|
$
|
|
Vested
|
|
(39,976
|
)
|
|
$
|
12.19
|
Forfeited
|
|
(2,976
|
)
|
|
$
|
8.89
|
|
|
|
|
|
|
|
Non-vested stock at September 27, 2008
|
|
453,552
|
|
|
$
|
12.27
|
Granted
|
|
64,573
|
|
|
$
|
4.84
|
Vested
|
|
(134,871
|
)
|
|
$
|
10.94
|
Forfeited
|
|
(2,665
|
)
|
|
$
|
9.37
|
|
|
|
|
|
|
|
Non-vested stock at December 27, 2008
|
|
380,589
|
|
|
$
|
11.50
|
Granted
|
|
|
|
|
$
|
|
Vested
|
|
(7,729
|
)
|
|
$
|
9.13
|
Forfeited
|
|
(16,072
|
)
|
|
$
|
10.58
|
|
|
|
|
|
|
|
Non-vested stock at March 28, 2009
|
|
356,788
|
|
|
$
|
11.59
|
|
|
|
|
|
|
|
Non-vested stock is included in the issued numbers presented on the Consolidated Balance Sheets.
Non-vested stock is not included in the weighted average share calculation for basic earnings per share. However, the dilutive effect of the non-vested stock is included in the weighted average share calculation for diluted earnings per share.
As of March 28, 2009, there was approximately $2.3 million of total unrecognized compensation cost (net of estimated forfeitures)
related to non-vested stock granted under the plans. That cost is expected to be recognized over a remaining weighted-average period of approximately 2.0 years.
Employee Stock Purchase Plan and Assumptions
The Company has an Employee Stock Purchase Plan
(ESPP) with a look-back option that allows employees to purchase shares of common stock at 85% of the market value at the lower of either the date of enrollment or the date of purchase. Payment for the ESPP is a fixed amount, set at the
beginning of the period, made through payroll withholding over the enrollment period of six months. The number of shares the participant can acquire is variable based on the fixed amount withheld and the applicable fair value. SFAS No. 123R
requires an ESPP with a purchase price discount of greater than 5% and a look-back option to be compensatory. The Company accounts for the ESPP in accordance with FASB Technical Bulletin No. 97-1, Accounting under Statement 123 for
Certain Employee Stock Purchase Plans with a Look-Back Option. The fair value of the put and call features of the estimated shares to be purchased are estimated at the beginning of the purchase period using a
Black-Scholes option pricing model. Expected volatilities are calculated based on the historical six-month volatility of the Companys stock. The expected holding period is equal to the six-month enrollment period. The risk-free interest rate
is based on the interest rate of a six-month U.S. Treasury note in effect on the first day of the enrollment period. The fair value of the shares is liability classified until the end of the six-month period at which time the amount is then equity
classified. As of March 28, 2009 and June 28, 2008, there was approximately $95,000 and $42,000, respectively of liability classified share-based compensation expense for the ESPP included in Accrued expenses and other current liabilities
on the Consolidated Balance Sheets.
6
Stock Appreciation Rights and Assumptions
On August 20, 2007, the Board of Directors adopted and approved the 2007 Stock Appreciation Right Plan (the SAR Plan); as amended on
September 19, 2008. Under the SAR Plan, the Compensation Committee of the Board of Directors may award stock appreciation rights to eligible employees. Each stock appreciation right (a SAR) awarded represents the right to receive an
amount of cash equal to the excess of the fair market value of a share of the Companys common stock on the date that a participant exercises such right over the fair market value of a share of the Companys common stock on the date that
such SAR was awarded. Awards of SARs will vest in four successive annual installments of 25% of the SARs subject to such award on the anniversary of the date of the grant of such award. The employee has four years from the date of vesting of an
installment in which to exercise such installment. The Plan will terminate on August 20, 2017.
The fair value of SARs granted is
estimated on the date of grant and remeasured at each reporting period using a Black-Scholes option pricing model. Expected volatilities are calculated based on the historical volatility of the Companys stock. Management monitors award
exercise and employee termination patterns to estimate forfeiture rates. If the Companys actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based
compensation expense could be significantly different from what was recorded in the current periods. The expected holding period of SARs represents the period of time that SARs granted are expected to be outstanding. The risk-free interest rate is
based on the interest rate of a U.S. Treasury note in effect on the date of the remeasurement for such period closest to the expected term of the SARs.
The Company records compensation expense ratably over the service period and adjusts for changes in the fair value of SARs at each reporting period. At March 28, 2009, there was approximately $1.0 million of
unrecognized compensation cost (net of estimated forfeitures) related to SARs, which is expected to be recognized over a weighted average period of approximately 3.2 years.
The table below presents the assumptions used to remeasure the value of the SAR liability at each reporting period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2009
|
|
|
March 29, 2008
|
|
|
June 28, 2008
|
|
Expected holding period (years)
|
|
|
3.5-4.5
|
|
|
|
4.5
|
|
|
|
4.5
|
|
Risk-free interest rate
|
|
|
1.40%-1.66
|
%
|
|
|
2.33
|
%
|
|
|
3.14
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
54.38%-57.33
|
%
|
|
|
40.30
|
%
|
|
|
40.36
|
%
|
Weighted average fair value of SARs granted and outstanding
|
|
$
|
0.60
|
|
|
$
|
3.66
|
|
|
$
|
3.79
|
|
The fair value of the SARs is liability classified because the awards are payable in cash. As of
March 28, 2009 and June 28, 2008, there was approximately $0.3 million and $0.6 million, respectively, of liability classified share-based compensation expense for the SARs included in Accrued expenses and other current liabilities on the
Consolidated Balance Sheets.
7
Changes in the Companys SARs for the quarter and three quarters ended March 28, 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Terms (Years)
|
|
Aggregate
Intrinsic Value
($000)
|
Outstanding at June 28, 2008
|
|
712,000
|
|
|
$
|
7.60
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
1,744,000
|
|
|
$
|
8.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 27, 2008
|
|
2,456,000
|
|
|
$
|
7.93
|
|
6.08
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 27, 2008
|
|
2,456,000
|
|
|
$
|
7.93
|
|
5.63
|
|
$
|
|
Forfeited
|
|
(75,000
|
)
|
|
$
|
7.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 28, 2009
|
|
2,381,000
|
|
|
$
|
7.94
|
|
5.55
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 28, 2009
|
|
2,248,363
|
|
|
$
|
7.93
|
|
5.50
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 28, 2009
|
|
178,000
|
|
|
$
|
7.60
|
|
2.93
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. Revenue Recognition
LeCroy recognizes product and service revenue, net of allowances for anticipated returns, provided that (1) persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the selling price
is fixed or determinable and (4) collection is reasonably assured. Delivery is considered to have occurred when title and risk of loss have transferred to the customer, or when services have been provided. The price is considered fixed or
determinable when it is not subject to refund or adjustments.
The Company maintains an allowance for doubtful accounts relating to
accounts receivable estimated to be non-collectible. 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. In addition, the Company maintains an allowance for anticipated sales returns. The Company analyzes historical return trends as well as in-transit product returns to evaluate the adequacy of the allowance for
anticipated returns.
Test and measurement products revenue
The Company generates Test and measurement product revenue from the sales of oscilloscopes and application solutions, protocol analyzers, probes and
accessories. Provisions for warranty costs are recorded at the time products are shipped.
Application solutions, which provide
oscilloscopes with additional analysis capabilities, are either delivered via compact disc or are already loaded in the oscilloscopes and activated via a key code after the sale is made to the customer. No post-contract support is provided on the
application solutions. All sales of test and measurement products are based upon separately established prices for the items and are recorded as revenue according to the above revenue recognition criteria. Revenues from oscilloscope products are
included in revenues from Test and measurement products in the Consolidated Statements of Operations. Certain software is embedded in the Companys oscilloscopes, but the embedded software component is considered incidental.
In an effort to provide end-user customers an alternative to purchasing the Companys higher end products under its standard terms and conditions,
the Company offers customers an opportunity to enter into sales-type or direct financing leases for these products. The Company is accounting for these leases in accordance with SFAS Statement No. 13, Accounting for Leases. Lease
and rental revenues are reported within Test and measurement product revenue and were approximately $0.1 million and $0.3 million for the quarter and three quarters ended March 28, 2009, respectively as compared to approximately $0.3 million
and $0.5 million for the quarter and three quarters ended March 29, 2008, respectively.
Due to the significant software content of
its protocol analyzer products, the Company recognizes revenue on the sale of these products, in accordance with American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition (SOP
97-2), as amended by Statement of Position 98-9, Modifications of SOP 97-2 with Respect to Certain Transactions (SOP 98-9), upon shipment, provided there is persuasive evidence of an arrangement, the
product has been delivered, the price is fixed or determinable and collectibility is probable. Software maintenance support
8
revenue is deferred based on its vendor specific objective evidence of fair value (VSOE) and recognized ratably over the maintenance support
periods. In limited circumstances where VSOE does not exist for software maintenance support, the Company recognizes revenues and accrues costs, if applicable, under the appropriate provisions of SOP 97-2 determined by the facts and circumstances of
each transaction. Provisions for warranty costs are recorded at the time products are recognized as revenue. Revenues from protocol analyzer products are included in Test and measurement products in the Consolidated Statements of Operations.
Service and other revenue
Service and other revenue includes extended warranty contracts, software maintenance agreements, repairs and calibrations performed on instruments after the expiration of their normal warranty period and direct service accessories and
packages. The Company records deferred revenue for extended warranty contracts, software maintenance agreements and calibration services and recognizes such revenue on a straight-line basis over the related service period. When arrangements include
multiple elements, the Company uses relative fair values in accordance with Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, to allocate revenue to the elements and
recognizes revenue when the criteria for revenue recognition have been met for each element.
Deferred license revenue
Revenue from license fees under agreements that have exclusivity clauses and, from the licensees perspective, have ongoing requirements or
expectations that are more than perfunctory, are recognized on a straight-line basis over the terms of the related agreements. An ongoing 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.
4. Business Realignment Initiatives
Fiscal
2009
In the third quarter of fiscal 2009, in an effort to further streamline expenses in response to the current economic environment,
the Company recorded severance of approximately $2.6 million, of which approximately $0.6 million was expensed to Cost of revenues, $1.1 million was expensed to Selling, general and administrative and $0.9 million was expensed to Research and
development. This resulted from headcount reductions of sixty-two employees or approximately 13.6% of the workforce as compared to June 28, 2008. As of March 28, 2009, approximately $0.6 million has been paid in cash and approximately $1.7
million remains in Accrued expenses and other current liabilities and $0.3 million remains in Deferred revenue and other non-current liabilities on the Consolidated Balance Sheet. Severance is estimated to be paid by the end of the third quarter of
fiscal 2012.
In the second quarter of fiscal 2009, in an effort to streamline expenses in response to the current economic environment,
the Company recorded severance of approximately $1.5 million, of which approximately $0.1 million was expensed to Cost of revenues, $0.8 million was expensed to Selling, general and administrative and $0.6 million was expensed to Research and
development. This resulted from headcount reductions of ten employees or 2.2% of the workforce as compared to June 28, 2008. As of March 28, 2009, approximately $0.6 million has been paid in cash and approximately $0.9 million remains in
Accrued expenses and other current liabilities on the Consolidated Balance Sheet. Severance is estimated to be paid by the end of the third quarter of fiscal 2010.
Fiscal 2008
In the third quarter of fiscal 2008, as a result of streamlining operational management processes and staffing
requirements, the Company recorded severance of approximately $0.3 million, which was expensed to Selling, general and administrative. This resulted from headcount reductions of three employees or 0.7% of the workforce as compared to June 30,
2007. As of March 28, 2009, approximately $0.3 million has been paid in cash and substantially no accrual remains in Accrued expenses and other current liabilities on the Consolidated Balance Sheet.
In the first quarter of fiscal 2008, primarily as the result of an effort to improve sales effectiveness and channel management, the Company recorded
severance of approximately $0.6 million, which was expensed to Selling, general and administrative. This resulted from headcount reductions of twelve employees or 2.7% of the workforce as compared to June 30, 2007. As of March 28, 2009,
approximately $0.6 million has been paid in cash and no accrual remains in Accrued expenses and other current liabilities on the Consolidated Balance Sheet.
9
Fiscal 2007
In the third quarter of fiscal 2007, prompted by the acquisition of Catalyst, the Company evaluated certain business processes and staffing requirements. As a result, the Company recorded severance and related expense of approximately $1.6
million, of which approximately $0.3 million was expensed to Cost of revenues, $1.2 million was expensed to Selling, general and administrative and $0.1 million was expensed to Research and development. The implementation of this plan resulted in
headcount reductions of thirty-three employees or 7.2% of the workforce as compared to July 1, 2006. As of March 28, 2009, approximately $1.6 million has been paid in cash and no accrual remains.
5. Derivatives and Fair Value
Derivatives
The Company accounts for derivatives and hedging activities in accordance with SFAS No. 133, Accounting for Derivative
Investments and Hedging Activities, as amended (SFAS 133), which requires that all derivative instruments be recorded on the balance sheet at their respective fair values. The Companys foreign exchange forward contracts are
not accounted for as hedges in accordance with SFAS 133; therefore, any changes in fair value of these contracts are recorded in Other, net in the Consolidated Statements of Operations. The Company does not use derivative financial instruments for
trading or other speculative purposes.
The Company manages its foreign exchange exposure by entering into short-term forward exchange
agreements to purchase foreign currencies at set rates in the future. These foreign currency forward exchange agreements are used to limit exposure to fluctuations in foreign currency exchange rates on assets and liabilities denominated in
currencies other than the Companys functional currencies. The Company records these short-term forward exchange agreements on the balance sheet at fair value in Other current assets and Accrued expenses and other current liabilities. The
changes in the fair value are recognized currently in Other, net in the Consolidated Statement of Operations.
The net gains or losses
resulting from changes in the fair value of these derivatives and on transactions denominated in other than their functional currencies were net gains of approximately $0.3 million and $0.5 million for the quarter and three quarters ended
March 28, 2009, respectively, as compared to net losses of approximately $0.1 million and $0.4 million for the quarter and three quarters ended March 29, 2008, respectively. These amounts are included in Other, net in the Consolidated
Statements of Operations.
The effect of derivative instruments on the Consolidated Statement of Operations for the quarter and three
quarters ended March 28, 2009 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
Location of Gain/(Loss)
Recognized in Income on
Derivatives
|
|
Quarter ended
March 28, 2009
Amount of Gain/(Loss)
Recognized in Income on
Derivatives
|
|
|
Three Quarters ended
March 28,
2009
Amount of Gain/(Loss)
Recognized in Income on
Derivatives
|
Foreign exchange futures
|
|
Other, net
|
|
$
|
(361
|
)
|
|
$
|
191
|
At March 28, 2009, the U.S. dollar equivalent of outstanding forward foreign exchange
contracts, all with maturities of less than six months, totaled approximately $16.5 million in notional amounts, including approximately $7.4 million in contracts to buy Swiss Francs for US Dollars, $4.0 million in contracts to sell Euro for US
Dollars, and $2.4 million in contracts to sell Euros for Swiss Francs, with the remaining contracts covering a variety of other foreign currencies. At June 28, 2008, the notional amounts of the Companys open foreign exchange forward
contracts, all with maturities of less than six months, was approximately $16.3 million.
Fair Value
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159 (SFAS 159), The Fair Value Option
for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115. This statement provides companies with an option to measure, at specified election dates, many financial instruments and certain other
items at fair value that are not currently measured at fair value. The provisions of SFAS 159 were effective beginning in fiscal 2009 and the Company has chosen not to elect the fair value option for any items that are not already required to be
measured at fair value, in accordance with accounting principles generally accepted in the United States.
10
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. The provisions of SFAS 157 were effective beginning in fiscal 2009. However, the FASB deferred
the effective date of SFAS 157, until the beginning of the Companys 2010 fiscal year, as it relates to fair value measurement requirements for non-financial assets and liabilities that are not remeasured at fair value on a recurring basis.
This includes fair value calculated in impairment assessments of long-lived assets. The Company adopted the provisions of SFAS 157 at the beginning of its fiscal 2009 year for financial assets and liabilities and its adoption did not have a material
impact on the consolidated financial position or results of operations. Management does not expect the effect of adopting SFAS 157 for its non-financial assets and liabilities to have a material impact on the Companys consolidated financial
position and results of operations at the date of adoption, although adoption may impact the way that fair value for non-financial assets and liabilities is determined in future periods.
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the
assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
|
|
|
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
|
|
|
|
Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for
identical assets or liabilities in inactive markets.
|
|
|
|
Level 3: Unobservable inputs reflecting managements own assumptions about the inputs used in pricing the asset or liability.
|
As of March 28, 2009, the fair values of the Companys financial assets and liabilities are categorized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Other current assets
:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange futures
|
|
$
|
15
|
|
|
|
$
|
15
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities
:
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange futures
|
|
$
|
15
|
|
|
|
$
|
15
|
|
|
The fair values above were based on observable market transactions of spot currency rates and forward currency
prices.
6. Comprehensive Income (Loss)
The following table presents the components of comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
ended
|
|
Three Quarters
ended
|
|
|
March 28,
2009
|
|
|
March 29,
2008
|
|
March 28,
2009
|
|
|
March 29,
2008
|
Net income (loss)
|
|
$
|
2,008
|
|
|
$
|
653
|
|
$
|
(103,253
|
)
|
|
$
|
2,522
|
Foreign currency translation (loss) gain
|
|
|
(1,278
|
)
|
|
|
1,561
|
|
|
(2,694
|
)
|
|
|
2,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
730
|
|
|
$
|
2,214
|
|
$
|
(105,947
|
)
|
|
$
|
5,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Accounts Receivable, net
The allowance for doubtful accounts and sales returns was approximately $0.8 million and $0.7 million as of March 28, 2009 and June 28, 2008 respectively.
8. Inventories, net
Inventories are stated at the
lower of cost (first-in, first-out method) or market, with the exception of demonstration units. Demonstration units are stated at lower of cost (specific identification method) or market. Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
March 28,
2009
|
|
June 28,
2008
|
Raw materials
|
|
$
|
10,200
|
|
$
|
9,581
|
Work in process
|
|
|
6,781
|
|
|
6,008
|
Finished goods
|
|
|
19,123
|
|
|
17,297
|
|
|
|
|
|
|
|
|
|
$
|
36,104
|
|
$
|
32,886
|
|
|
|
|
|
|
|
11
The value of demonstration units included in finished goods was approximately $12.3 million and $10.3
million at March 28, 2009 and June 28, 2008, respectively. The Companys demonstration units are held for sale and are sold regularly in the ordinary course of business through its normal sales distribution channels and existing
customer base
.
The allowance for excess and obsolete inventory included above, amounted to approximately $3.3 million and $4.5 million at March 28, 2009 and June 28, 2008, respectively.
In the second quarter of fiscal 2009, the Company recorded an approximate $2.7 million inventory write-down as a result of its realignment initiatives
and change in product strategy, which was expensed to Cost of revenues in the Consolidated Statement of Operations.
9. Other Current Assets
Other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
March 28,
2009
|
|
June 28,
2008
|
Deferred tax assets, net
|
|
$
|
6,239
|
|
$
|
5,506
|
Prepaid taxes
|
|
|
99
|
|
|
249
|
Prepaid deposits
|
|
|
833
|
|
|
224
|
Other receivables
|
|
|
711
|
|
|
1,695
|
Value-added tax receivable
|
|
|
668
|
|
|
664
|
Other
|
|
|
2,200
|
|
|
1,876
|
|
|
|
|
|
|
|
|
|
$
|
10,750
|
|
$
|
10,214
|
|
|
|
|
|
|
|
10. Goodwill and Other Non-current Assets
Goodwill and other non-current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
March 28,
2009
|
|
June 28,
2008
|
Goodwill
|
|
$
|
|
|
$
|
105,771
|
|
|
|
|
|
|
|
Intangibles, net
|
|
$
|
525
|
|
$
|
972
|
Deferred tax assets, net
|
|
|
8,924
|
|
|
9,186
|
Deferred financing costs on convertible note
|
|
|
1,130
|
|
|
1,920
|
Other
|
|
|
644
|
|
|
856
|
|
|
|
|
|
|
|
|
|
$
|
11,223
|
|
$
|
12,934
|
|
|
|
|
|
|
|
Goodwill
Under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142), goodwill is tested for impairment annually, or more frequently, if events or changes in circumstances indicate that the
carrying amount of the asset might be impaired. The goodwill impairment test is a two-step process which requires the Company to make judgmental assumptions regarding fair value. Testing is required between annual tests if events occur or
circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value. Such an event may occur if, for an extended period of time, the market value of the Companys common stock plus a
control premium were less than the carrying value of the Company. The determination as to whether a write-down of goodwill is necessary and the amount of the impairment charge involves significant judgment around the assumptions used to determine
the impairment charge.
As a result of the current economic environment and sustained decline in the Companys stock price since
September 27, 2008, which affected the Companys market capitalization, the Company updated the first step of its goodwill impairment
12
test as of December 27, 2008 and determined that its carrying value exceeded its fair value, indicating that goodwill was impaired. As the Company
consists of only one reporting unit, and is publicly traded, management estimated the fair value of its reporting unit utilizing the Companys market capitalization, multiplying the number of actual shares outstanding by an average market price
for a reasonable period of time considered to be reflective of fair value and applied a premium to give effect to managements best estimate of a control premium, as if the Company were to be acquired by a single stockholder. The control
premium seeks to give effect to the increased consideration a potential acquirer would be willing to pay in order to gain sufficient ownership to set policies, direct operations and make decisions related to the Company. The control premium was
based on analysis that considered appropriate industry, market, economic and other pertinent factors, including, indications of such premiums from data on recent acquisition transactions. The Company performed the second step of the goodwill
impairment test which calculated the implied fair value of the goodwill by allocating the fair value of the Company determined in the first step to all assets and liabilities other than goodwill, including both recognized and unrecognized intangible
assets, and compared it to the carrying amount of goodwill in order to determine the amount of the goodwill impairment.
In the second
quarter of fiscal 2009, the Company recorded approximately $105.8 million of goodwill impairment, resulting in a carrying value of Goodwill as of March 28, 2009 of zero.
Other Non-Current Assets
The following table reflects the gross carrying amount and accumulated
amortization of the Companys amortizable intangible assets included in Other non-current assets on the Consolidated Balance Sheets as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
Weighted
Average Lives
|
|
March 28,
2009
|
|
|
June 28,
2008
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
Technology, manufacturing and distribution rights
|
|
2.9 years
|
|
$
|
8,296
|
|
|
$
|
8,296
|
|
Accumulated amortization
|
|
|
|
|
(8,136
|
)
|
|
|
(7,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
|
$
|
160
|
|
|
$
|
567
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and other intangible assets
|
|
5.9 years
|
|
$
|
1,592
|
|
|
$
|
1,592
|
|
Accumulated amortization
|
|
|
|
|
(1,227
|
)
|
|
|
(1,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
365
|
|
|
$
|
405
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
|
$
|
525
|
|
|
$
|
972
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets, all with finite lives, was approximately $0.1 million
and $0.4 million for the quarter and three quarters ended March 28, 2009, respectively, compared to approximately $0.1 million and $1.2 million for the quarter and three quarters ended March 29, 2008, respectively. The cost of an
amortizable intangible asset is amortized on a straight-line basis over the estimated economic life of the asset.
11. Accrued Expenses and Other
Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
March 28,
2009
|
|
June 28,
2008
|
Compensation and benefits, including severance
|
|
$
|
7,524
|
|
$
|
7,573
|
Income taxes
|
|
|
447
|
|
|
114
|
Warranty
|
|
|
996
|
|
|
1,313
|
Deferred revenue, current portion
|
|
|
1,335
|
|
|
1,421
|
Accrued interest on debt
|
|
|
993
|
|
|
598
|
Retained liabilities from discontinued operations
|
|
|
160
|
|
|
160
|
Convertible notes (a)
|
|
|
350
|
|
|
5,500
|
Capital leases
|
|
|
248
|
|
|
234
|
Professional fees
|
|
|
534
|
|
|
680
|
Other current liabilities
|
|
|
1,551
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
$
|
14,138
|
|
$
|
19,201
|
|
|
|
|
|
|
|
13
(a)
|
This represents an estimate of the amount of convertible notes that the Company intends to repurchase during the next twelve months based on several factors such as market
conditions, available cash and financing and any other potential risks and opportunities the Company may encounter at the respective period end dates.
|
12. Warranties
The Company provides a warranty on its products, generally extending between one and
three years after delivery and accounted for in accordance with SFAS No. 5, Accounting for Contingencies. Estimated future warranty obligations related to products are provided by charges to Cost of revenues in the period that the
related revenue is recognized. These estimates are derived from historical data of product reliability and, for certain new products, published (by a third party) expected failure rates. The expected failure rate is arrived at in terms of units,
which are then converted into labor hours to which an average fully burdened cost per hour is applied to derive the amount of accrued warranty required. The Company studies trends of warranty claims and performance of specific products and adjusts
its warranty obligation through charges or credits to Cost of revenues.
The following table is a reconciliation of the changes in the
Companys aggregate product warranty liability during the quarter and three quarters ended March 28, 2009 and March 29, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
|
Three Quarters ended
|
|
|
|
March 28,
2009
|
|
|
March 29,
2008
|
|
|
March 28,
2009
|
|
|
March 29,
2008
|
|
Balance at beginning of period
|
|
$
|
1,229
|
|
|
$
|
1,223
|
|
|
$
|
1,313
|
|
|
$
|
1,190
|
|
Accruals for warranties entered into during the period
|
|
|
(52
|
)
|
|
|
288
|
|
|
|
284
|
|
|
|
718
|
|
Warranty costs incurred during the period
|
|
|
(181
|
)
|
|
|
(170
|
)
|
|
|
(601
|
)
|
|
|
(567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
996
|
|
|
$
|
1,341
|
|
|
$
|
996
|
|
|
$
|
1,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As is customary in the test and measurement industry, and as provided for by local law in the U.S.
and other jurisdictions, the Companys standard terms of sale provide remedies to customers, such as defense, settlement, or payment of a judgment for intellectual property claims related to the use of the Companys products. Such
indemnification provisions are accounted for in accordance with SFAS No. 5. To date, there have been no claims under such indemnification provisions.
13. Debt and Capital Leases
Credit Agreement
The Company has a $50.0 million senior, secured, four-year credit agreement which includes a $5.0 million swingline loan subfacility and a $5.0 million
letter of credit subfacility. The Credit Agreement will expire on July 15, 2011, unless, in the absence of any default it is extended by LeCroy to April 1, 2012, contingent on the waiver or extension of the first redemption date of the
Companys convertible notes. As of March 28, 2009, the Company has $15.5 million outstanding against the credit facility and zero outstanding against the letter of credit subfacility and the swingline loan subfacility.
Borrowings under the credit facility bear interest at variable rates equal to, at LeCroys election, (1) the higher of (a) the prime rate
or (b) the federal funds rate plus 0.5% plus an applicable margin based on LeCroys leverage ratio or (2) LIBOR plus an applicable margin based on LeCroys leverage ratio. In addition, LeCroy must pay commitment fees during the
term of the Credit Agreement at rates dependent on LeCroys leverage ratio.
The Company is required to comply with certain financial
covenants, measured quarterly, including a minimum interest coverage ratio, minimum total net worth, maximum leverage ratio, minimum fixed charge coverage ratio and limitations on capital expenditures. As of March 28, 2009, the Company was in
compliance with its financial covenants.
Convertible Debt
On October 12, 2006, the Company sold and issued $72.0 million in convertible senior subordinated notes to qualified institutional buyers
pursuant to Rule 144A of the Securities Act of 1933, as amended (the Notes). The Notes bear interest at a rate of 4.00% per annum, payable in cash semi-annually in arrears on each April 15 and October 15. The Notes
are direct, unsecured, senior subordinated obligations of the Company and rank: (i) subordinate in right of payment to all of the Companys existing and future secured indebtedness; (ii) equal in right of payment with all of the
Companys existing and future senior unsecured indebtedness, and (iii) senior in right of payment to all of the Companys existing and future subordinated indebtedness. In connection with the issuance and sale of the Notes, the
Company entered into an indenture dated as of October 12, 2006, with U.S. Bank National Association as trustee. The terms of the Notes are governed by the indenture.
14
The Notes mature on October 15, 2026 unless earlier redeemed, repurchased or converted. Holders of
the Notes will have the right to require the Company to repurchase for cash, all or a portion of their Notes on each of October 15, 2011, October 15, 2016 and October 15, 2021, at a repurchase price equal to 100% of the principal
amount of the Notes to be repurchased plus accrued and unpaid interest, if any, up to but not including, the repurchase date. The Company may, from time to time, at its option repurchase the Notes in the open market. In addition, the Company may
redeem the Notes for cash, either in whole or in part, anytime after October 20, 2011 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest, if any, up to but not including the
redemption date. The Notes are convertible into Company common stock by the holders at an initial conversion rate equal to 68.7285 shares per $1,000 principal amount of the Notes (equal to an initial conversion price of approximately $14.55 per
share), subject to adjustment as described in the indenture. Upon conversion, the Company will deliver for each $1,000 principal amount of Notes, an amount consisting of cash equal to the lesser of $1,000 and the conversion value (as defined in the
indenture) and, to the extent that the conversion value exceeds $1,000, at the Companys election, cash or shares of Company common stock in respect of the remainder. Prior to September 15, 2026, holders may convert their notes into cash
and shares of the Companys common stock, if any, at the applicable conversion rate, at their option, only under limited circumstances described in the indenture. On or after September 15, 2026, holders may convert their notes into cash
and shares of the Companys common stock, if any, at the applicable conversion price, at the Companys option, at any time prior to the close of business on the business day immediately preceding the maturity date. Upon conversion of each
$1,000 principal amount of the notes, the holder will receive an amount in cash equal to the lesser of (i) $1,000 or (ii) the conversion value, as described in the indenture; if the conversion value exceeds $1,000 on the conversion date,
the Company will also deliver, at the Companys election, cash or common stock or combination of each with a value equal to such excess.
The Company incurred approximately $3.0 million of transaction fees in connection with issuing the Notes, which have been deferred and are being amortized over the term of the Notes using the effective interest method. The term of the Notes
for amortization purposes is considered to be five years in accordance with SAB Topic 3-C, Redeemable Preferred Stock, as that is the first period in which the redemption feature of the Notes can be executed by either the Noteholders or
LeCroy and therefore is considered the mandatory redemption date.
In the first three quarters of fiscal 2009, the Company repurchased
approximately $17.2 million of the outstanding convertible notes, leaving a balance of approximately $50.4 million of which approximately $0.4 million is included in Accrued expenses and other liabilities and $50.0 million is included in Convertible
notes on the Consolidated Balance Sheet as of March 28, 2009. As of March 28, 2009, the market value of the convertible notes was approximately $20.3 million. The difference between the amount paid to repurchase the debt and the net
carrying amount and the write-off of unamortized fees resulted in gains of approximately $8.6 million and $8.8 million for the quarter and three quarters ended March 28, 2009, respectively, which are reflected as a gain on extinguishment of
debt in the Consolidated Statement of Operations. As of March 28, 2009, approximately $1.1 million of unamortized fees related to the Notes was included in Other non-current assets on the Consolidated Balance Sheet.
Other
During fiscal 2008, the
Company acquired a software license under a capital lease agreement for approximately $0.7 million. The lease bears interest at 7.75% with a three-year term. As of March 28, 2009, the Companys outstanding balance under this agreement was
approximately $0.4 million, approximately $0.2 million was included in Accrued expenses and other current liabilities and approximately $0.1 million was included in Deferred revenue and other non-current liabilities on the Consolidated Balance
Sheet.
The Companys Swiss subsidiary has an overdraft facility totaling 1.0 million Swiss francs for which approximately
0.4 million Swiss francs are being held against supplier obligations, leaving an available balance of 0.6 million Swiss francs under this facility at March 28, 2009. The outstanding balance under this facility remains unchanged from
June 28, 2008. The Company had a 50.0 million yen Japanese facility that was cancelled in the third quarter of fiscal 2009.
14. Commitments
and Contingencies
The Companys contractual obligations and commitments include obligations associated with our employee severance
agreements, supplier agreements, operating and capital leases and convertible note obligations, as set forth in the Contractual Obligations and Other Commitments table in the Managements Discussion and Analysis of Financial Condition and
Results of Operations (MD&A). The Company expensed approximately $0.6 million and $2.0 million related to operating leases for the quarter and three quarters ended March 28, 2009, respectively, and approximately $0.7 million and
$2.0 million for the quarter and three quarters ended March 29, 2008, respectively.
From time to time, the Company is involved in
lawsuits, claims, investigations and proceedings, including patent and environmental matters, which arise in the ordinary course of business. There are no matters currently pending that the Company expects to have a material adverse affect on its
business, results of operations, financial condition or cash flows.
15
15. Treasury Stock
In May 2006, the Companys Board of Directors approved the adoption of a share repurchase plan authorizing the Company to purchase up to 2.0 million shares, not to exceed $25.0 million, of its common stock
for treasury. To date, the Company has purchased approximately 1.4 million shares under the plan for a total consideration of approximately $15.5 million. In the first quarter of fiscal 2009, 28,164 shares were repurchased at a weighted average
price of approximately $7.96 per share. In the second quarter of fiscal 2009, 72,958 shares were repurchased at a weighted average price of approximately $6.21 per share. In the third quarter of fiscal 2009, 4,570 shares were repurchased at a
weighted average price of approximately $1.76 per share.
16. Net Income (Loss) Per Common Share (EPS)
The following is a presentation of the numerators and the denominators of the basic and diluted net income (loss) per common share computations for the
quarter and three quarters ended March 28, 2009 and March 29, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
Three Quarters ended
|
|
|
March 28,
2009
|
|
March 29,
2008
|
|
March 28,
2009
|
|
|
March 29,
2008
|
Numerators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,008
|
|
$
|
653
|
|
$
|
(103,253
|
)
|
|
$
|
2,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,037
|
|
|
11,763
|
|
|
11,960
|
|
|
|
11,759
|
Employee stock options and other
|
|
|
61
|
|
|
269
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
12,098
|
|
|
12,032
|
|
|
11,960
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computations of diluted EPS for the quarters ended March 28, 2009 and March 29, 2008
do not include approximately 2.2 million and 1.6 million, respectively, of stock options and non-vested stock, as the effect of their inclusion would have been anti-dilutive to EPS. The computations of diluted EPS for the three quarters
ended March 28, 2009 and March 29, 2008 do not include approximately 1.3 million and 1.7 million, respectively, of stock options and non-vested stock, as the effect of their inclusion would have been anti-dilutive to EPS.
Additionally, the convertible notes had no impact on diluted EPS for the quarters and three quarters ended March 28, 2009 and March 29, 2008 because the average share price during the periods was below $14.55 per share (the initial
conversion price), and accordingly, the Notes, if converted, would have required only cash at settlement.
17. Income Taxes
The effective income tax rate for the quarter and three quarters ended March 28, 2009 was 24.8% and (0.2)%, respectively, compared to an effective
income tax rate of 9.0% and 10.4% for the quarter and three quarters ended March 29, 2008, respectively. The effective income tax rate for the three quarters ended March 28, 2009 includes: the effect of non-deductible goodwill impairment
charges of approximately $103.8 million; the write-off of a deferred tax asset related to equity-based compensation of approximately $0.4 million; partially offset by a reduction of tax expense of approximately $0.2 million related to a retroactive
reinstatement of the federal research and development tax credit as a result of the Emergency Economic Stabilization Act of 2008 (The Act), passed into law on October 3, 2008; and a reduction of tax expense of approximately $0.3
million related to the recognition of unrecognized tax benefits due to the expiration of the statute of limitations. The effective income tax rate for the three quarters ended March 29, 2008 includes: the effect of a reduction of tax expense of
approximately $0.5 million resulting from both the final true-up of the prior years tax accrual upon filing the actual tax returns and an election for certain R&D credits made by the Company in the second quarter of fiscal 2008; a
reduction of tax expense of approximately $0.4 million from the recognition of unrecognized tax benefits due to the expiration of the statute of limitations; slightly offset by an approximately $31,000 increase to tax expense for interest related to
income tax exposures.
The Company calculates income tax expense based upon an annual effective tax rate forecast, including estimates and
assumptions that could change during the year. The differences between the effective tax rate and the U.S. federal statutory rate of 35% principally result from the Companys geographical distribution of taxable income, and differences between
the book and tax treatment of certain items.
Effective July 1, 2007, the Company adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, as amended by FASB Staff Position No. 48-1 (FSP-FIN 48-1),
16
Definition of Settlement in FASB Interpretation 48. FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present,
and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is more likely than
not that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit greater than 50% likely of being realized upon settlement with a taxing authority having full
knowledge of all relevant information. A tax benefit from an uncertain position was previously recognized if it was probable of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as non-current unless the
liability is expected to be settled in cash within twelve months of the reporting date.
The Company operates in multiple taxing
jurisdictions, both within the United States and outside of the United States, and faces audits from various tax authorities regarding the deductibility of certain expenses, intercompany transactions, as well as other matters. At March 28,
2009, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes and accrued interest was approximately $10.5 million, approximately $2.5 million are reflected as a non-current liability and approximately
$8.0 million are reflected as a reduction of gross deferred tax assets, all of which would impact the effective tax rate, if recognized.
The Company believes it is reasonably possible that approximately $0.4 million of net unrecognized tax benefits will be recognized during the next twelve months and impact the Companys effective tax rate.
The Company recognizes interest and, if applicable, penalties which could be assessed related to unrecognized tax benefits in income tax expense. As of
March 28, 2009, the total amount of accrued interest and penalties, before federal and, if applicable, state effect, was approximately $0.1 million.
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. For federal income tax purposes, fiscal 2006 through 2008 tax years remain open for examination by
the tax authorities under the normal three year statute of limitations. For state tax purposes, (principally California and New York) fiscal 2005 through 2008 tax years remain open for examination by the tax authorities under a four year statute of
limitations.
18. Segment and Geographic Revenue
The Company operates in a single-reportable segment in the test and measurement market, in which it develops, manufactures, sells and licenses high-performance oscilloscopes, serial data analyzers and global
communication protocol test solutions. These products are used by design engineers and researchers to measure and analyze complex electronic signals in order to develop high performance systems, to validate electronic designs and to improve time to
market. Revenue from the sale of the Companys products, which are similar in nature, are reflected as Test and measurement product revenue in the Consolidated Statements of Operations.
Revenues are attributed to countries based on customer ship-to addresses. Revenues by geographic area are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Three Quarters Ended
|
|
|
March 28,
2009
|
|
March 29,
2008
|
|
March 28,
2009
|
|
March 29,
2008
|
North America
|
|
$
|
7,365
|
|
$
|
13,786
|
|
$
|
30,335
|
|
$
|
39,101
|
Europe/Middle East
|
|
|
11,933
|
|
|
14,897
|
|
|
44,201
|
|
|
44,085
|
Japan
|
|
|
599
|
|
|
2,707
|
|
|
7,217
|
|
|
9,978
|
Asia/Pacific
|
|
|
7,026
|
|
|
9,164
|
|
|
25,001
|
|
|
26,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
26,923
|
|
$
|
40,554
|
|
$
|
106,754
|
|
$
|
119,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets by geographic area are as follows:
|
|
|
|
|
|
|
|
|
March 28,
2009
|
|
June 28,
2008
|
North America
|
|
$
|
94,489
|
|
$
|
207,572
|
Europe/Middle East
|
|
|
12,197
|
|
|
13,430
|
Japan
|
|
|
1,976
|
|
|
1,135
|
Asia/Pacific
|
|
|
3,341
|
|
|
4,849
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
112,003
|
|
$
|
226,986
|
|
|
|
|
|
|
|
17
Total Property, plant and equipment, net by geographic area are as follows:
|
|
|
|
|
|
|
|
|
March 29,
2009
|
|
June 28,
2008
|
North America
|
|
$
|
20,405
|
|
$
|
20,218
|
Europe/Middle East
|
|
|
659
|
|
|
892
|
Japan
|
|
|
229
|
|
|
232
|
Asia/Pacific
|
|
|
146
|
|
|
341
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
21,439
|
|
$
|
21,683
|
|
|
|
|
|
|
|
19. New Accounting Pronouncements
In June 2007, the Emerging Issues Task Force (EITF) issued EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or
Services to Be Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 addresses the diversity that exists with respect to the accounting for the non-refundable portion of a payment made by a research and
development entity for future research and development activities. The EITF concluded that an entity must defer and capitalize non-refundable advance payments made for research and development activities until the related goods are delivered or the
related services are performed. EITF 07-3 was effective for interim or annual reporting periods in fiscal years beginning after December 15, 2007 and its adoption did not have an impact on the Companys consolidated financial position or
results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (SFAS 141R), Business
Combinations. This statement establishes the principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date fair value. Further, it requires that acquisition-related costs be expensed as incurred, restructuring costs be expensed in periods subsequent to the acquisition date and changes in
accounting for deferred income tax asset valuation allowances and acquired income tax uncertainties after the measurement period be included in income tax expense. SFAS 141R also establishes disclosure requirements to enable users of the financial
statements to evaluate the nature and financial effects of the business combination. Early adoption is not permitted. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008, with the exception of adjustments made to valuation allowances on deferred taxes and acquired tax contingencies. The Company would apply the provisions of SFAS 141R to future
adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the beginning of the Companys 2010 fiscal year. At March 28, 2009, approximately $2.5 million of
unrecognized tax benefits are related to a prior acquisition and would impact the effective tax rate, if recognized.
In March 2008, the
FASB issued SFAS No. 161 (SFAS 161), Disclosures about Derivative Instruments and Hedging Activities. This statement requires companies with derivative instruments to disclose information that should enable
financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, and how derivative instruments and related hedged items affect a companys financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. Management has adopted the enhanced disclosures required by SFAS 161.
In
April 2008, the FASB finalized Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). This position amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142 (SFAS 142), Goodwill and Other Intangible Assets. FSP 142-3 applies to intangible assets that are acquired individually or
with a group of other assets and both intangible assets acquired in business combinations and asset acquisitions. This position is effective for fiscal years beginning after December 15, 2008 and management believes its adoption will not have
an impact on the Companys consolidated financial position or results of operations.
In May 2008, the FASB issued FASB Staff Position
Accounting Principles Board Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1). This FSP requires cash
settled convertible debt to be separated into debt and equity components at issuance and a value to be assigned to each. The value assigned to the debt component will be the estimated fair value, as of the issuance
18
date, of a similar bond without the conversion feature. The difference between the bond cash proceeds and this estimated fair value will be recorded as a
debt discount with an offset to equity and will be amortized to interest expense over the life of the bond. The FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008 and for interim periods within
those years and requires retrospective application. Management is currently evaluating the effect that adoption of FSP APB 14-1 will have on the Companys consolidated financial position and results of operations, which is expected to be
material.
20. Subsequent Events
On
May 4, 2009, the Company entered into a Third modification Agreement to modify certain financial and negative covenants, including an increase in the ability to repurchase convertible notes from $22 million in face value to $50 million in face
value, as well as the applicable interest margin rates of its New Credit Agreement.
19
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with
the audited Consolidated Financial Statements, Notes and MD&A included in our Annual Report filed on Form 10-K for the fiscal year ended June 28, 2008. Our discussion and analysis is an integral part of understanding our financial results.
Also refer to Basis of Presentation and Use of Estimates in the Notes to the Consolidated Financial Statements.
Our Critical Accounting
Policies and Estimates
The preparation of our Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting
Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the Consolidated Financial Statements
and accompanying notes. These estimates and assumptions are based on managements judgment and available information and, consequently, actual results could differ from these estimates.
The accounting policies that we believe are the most critical to understanding and evaluating our reported financial results include: revenue
recognition; reserves on accounts receivable; allowance for excess and obsolete inventory; uncertain tax positions; valuation of deferred tax assets; valuation of long-lived and intangible assets; valuation of goodwill; estimation of warranty
liabilities and share-based compensation expense.
Impairment of Goodwill
As a result of the current economic environment and sustained decline in our stock price since September 27, 2008, which affected our market
capitalization, we updated the first step of our goodwill impairment test as of December 27, 2008 and determined that the carrying value exceeded the fair value, indicating that goodwill was impaired. We then performed the second step of the
goodwill impairment test which calculated the implied fair value of the goodwill by allocating the fair value of the Company to all assets and liabilities other than goodwill, including both recognized and unrecognized intangible assets, and
compared it to the carrying amount of goodwill in order to determine the amount of the goodwill impairment. The determination as to whether a write-down of goodwill is necessary and the amount of the impairment charge involves significant judgment
around the assumptions used to determine the impairment charge.
In the second quarter, we recorded an approximate $105.8 million goodwill
impairment charge, resulting in a carrying value of goodwill as of March 28, 2009 of zero. We will not be required to make any current or future cash expenditures as a result of this impairment.
Business Realignment Initiatives
As a result of the
economic downturn, the Company developed an extensive cost-reduction program that consisted of reductions in programs, work force, compensation and certain employee benefits. Execution of this plan began in the second quarter of fiscal 2009 as the
Company began to reduce staff and eliminate certain product developments programs, resulting in the streamlining of related product lines. Our cost-reduction program continued into the third quarter of fiscal 2009 with further reductions in staff,
compensation and discretionary expenses. We expect these reductions will generate savings of approximately $6.0 million per quarter.
In
the third quarter of fiscal 2009, we recorded severance of approximately $2.6 million, of which approximately $0.6 million was expensed to Cost of revenues, $1.1 million was expensed to Selling, general and administrative and $0.9 million was
expensed to Research and development. This resulted from headcount reductions of sixty-two employees or approximately 13.6% of the workforce as compared to June 28, 2008. As of March 28, 2009, approximately $0.6 million has been paid in
cash and approximately $1.7 million remains in Accrued expenses and other current liabilities and $0.3 million remains in Deferred revenue and other non-current liabilities on the Consolidated Balance Sheet. Severance is estimated to be paid by the
end of the third quarter of fiscal 2012.
In the second quarter of fiscal 2009, we recorded severance of approximately $1.5 million, of
which approximately $0.1 million was expensed to Cost of revenues, $0.8 million was expensed to Selling, general and administrative and $0.6 million was expensed to Research and development. This resulted from headcount reductions of ten employees
or 2.2% of the workforce as compared to June 28, 2008. As of March 28, 2009, approximately $0.6 million has been paid in cash and approximately $0.9 million remains in Accrued expenses and other current liabilities on the Consolidated
Balance Sheet. Severance is estimated to be paid by the end of the third quarter of fiscal 2010. Additionally, we recorded an approximate $2.7 million inventory write-down as a result of these realignment initiatives and change in product strategy,
which was expensed to Cost of revenues in the Consolidated Statement of Operations.
20
Our Business Risks
Our results of operations and financial position are affected by a variety of factors. We believe the most significant recurring factors are the economic strength of the technology markets into which we sell our
products, our ability to identify market demands and develop competitive products to meet those demands, the announcements and actions of our competitors and our ability to enter into new markets and broaden our presence in existing markets. Our
sales are largely dependent on the health and growth of technology companies whose operations tend to be cyclical. Consequently, demand for our products tends to coincide with the increase or decrease in capital spending in the technology industry.
Recent Accounting Pronouncements
The following recent
accounting pronouncements are not yet adopted:
|
|
|
Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (SFAS 141R).
|
|
|
|
Financial Accounting Standards Board Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3).
|
|
|
|
Financial Accounting Standards Board Staff Position Accounting Principles Board Opinion No. 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB 14-1).
|
|
|
|
Statement of Financial Accounting Standards No. 157, Fair Value Measurements, (SFAS 157), as it relates to non-financial assets and
liabilities.
|
See Note 19 New Accounting Pronouncements and Note 5 - Derivatives and Fair Value for additional
information on recent pronouncements adopted and not yet adopted.
21
Consolidated Results of Operations
The following table indicates the percentage of total revenues represented by each item in the Companys Consolidated Statements of Operations for the quarters and three quarters ended March 28, 2009 and
March 29, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
|
Three Quarters ended
|
|
(Unaudited)
|
|
March 28,
2009
|
|
|
March 29,
2008
|
|
|
March 28,
2009
|
|
|
March 29,
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Test and measurement products
|
|
91.8
|
%
|
|
93.1
|
%
|
|
93.8
|
%
|
|
93.8
|
%
|
Service and other
|
|
8.2
|
|
|
6.9
|
|
|
6.2
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
Cost of revenues
|
|
46.9
|
|
|
44.4
|
|
|
46.0
|
|
|
43.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
53.1
|
|
|
55.6
|
|
|
54.0
|
|
|
57.0
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
42.2
|
|
|
31.3
|
|
|
34.4
|
|
|
32.0
|
|
Research and development
|
|
30.4
|
|
|
20.6
|
|
|
23.2
|
|
|
19.9
|
|
Reimbursement from escrow account
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
(0.2
|
)
|
Impairment of goodwill
|
|
|
|
|
|
|
|
99.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
72.6
|
|
|
51.3
|
|
|
156.7
|
|
|
51.7
|
|
|
|
|
|
|
Operating (loss) income
|
|
(19.5
|
)
|
|
4.3
|
|
|
(102.7
|
)
|
|
5.3
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on extinguishment of convertible debt, net of issue cost write-off
|
|
31.8
|
|
|
|
|
|
8.3
|
|
|
|
|
Interest income
|
|
0.1
|
|
|
0.2
|
|
|
0.1
|
|
|
0.2
|
|
Interest expense
|
|
(3.4
|
)
|
|
(2.5
|
)
|
|
(2.6
|
)
|
|
(2.8
|
)
|
Other, net
|
|
0.9
|
|
|
(0.2
|
)
|
|
0.5
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
29.4
|
|
|
(2.5
|
)
|
|
6.3
|
|
|
(3.0
|
)
|
|
|
|
|
|
Income (loss) before income taxes
|
|
9.9
|
|
|
1.8
|
|
|
(96.4
|
)
|
|
2.3
|
|
Provision for income taxes
|
|
2.5
|
|
|
0.2
|
|
|
0.2
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
7.4
|
%
|
|
1.6
|
%
|
|
(96.6
|
)%
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of the Quarter Ended March 28, 2009 and March 29, 2008
Total revenues were approximately $26.9 million for the quarter ended March 28, 2009, compared
to approximately $40.6 million for the comparable prior year period, representing a decrease of 33.6%, or approximately $13.6 million, primarily as a result of a measurable decline in sales of Test and measurement products driven by the world-wide
economic downturn, coupled with the negative impact of foreign currency fluctuations of approximately $1.7 million. Revenues decreased predominantly among our mid-range oscilloscopes and protocol products, as our customers reduced staffing levels
and their need for capital equipment and postponed spending. Our high-end oscilloscope business produced stronger than expected sales as a result of solid demand for the WaveMaster 8Zi series, a new product offering in the current quarter.
Additionally, the WaveAce
TM
, our first offering in the low-cost scope market, continued to gain market traction.
Service and other revenues consist primarily of service revenue and maintenance fees. Service and other revenues were approximately $2.2 million for the
quarter ended March 28, 2009, representing a decrease of approximately 21.3% or $0.6 million, compared to approximately $2.8 million for the comparable prior year period. The decrease was primarily the result of declines in upgrade purchases
driven by the economic downturn, along with negative foreign currency impact.
22
Revenues by geographic location expressed in dollars (in thousands) and as a percentage of total were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
March 28, 2009
|
|
percentage
|
|
|
Quarter Ended
March 29, 2008
|
|
percentage
|
|
North America
|
|
$
|
7,365
|
|
27.4
|
%
|
|
$
|
13,786
|
|
34.0
|
%
|
Europe/Middle East
|
|
|
11,933
|
|
44.3
|
|
|
|
14,897
|
|
36.7
|
|
Japan
|
|
|
599
|
|
2.2
|
|
|
|
2,707
|
|
6.7
|
|
Asia/Pacific
|
|
|
7,026
|
|
26.1
|
|
|
|
9,164
|
|
22.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
26,923
|
|
100.0
|
%
|
|
$
|
40,554
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 28, 2009, geographic revenues were lower in all regions in terms
of dollars. We experienced a greater decline in revenues in North America and Japan as compared to Europe/Middle East and Asia/Pacific, as the economic outlook worsened.
Gross profit for the quarter ended March 28, 2009 was approximately $14.3 million, or 53.1% gross margin, compared to approximately $22.6 million, or 55.6% gross margin, for the comparable prior year period. The
lower gross profit dollars as well as gross margin percentage in fiscal 2009 was primarily attributable to the decreased demand for our Test and measurement products and greater discounting practices necessary to drive sales in an economic downturn,
along with an approximate $0.6 million of business realignment charges.
Selling, general and administrative (SG&A) expense
was approximately $11.4 million for the quarter ended March 28, 2009 as compared to approximately $12.7 million for the quarter ended March 29, 2008, representing a decrease of approximately 10.5% or $1.3 million. The decrease was mainly
due to our extensive cost-reduction program that began in the second quarter, which included reductions in workforce, compensation and other employee benefits, coupled with a reduction in share-based compensation expense of approximately $0.3
million, as a result of the decrease in the fair value of the SARs. These cost reductions more than offset the current quarter business realignment charge of approximately $1.1 million, as compared to approximately $0.3 million for business
realignment taken in the prior year comparable quarter. As a percentage of total revenues, SG&A expense increased to approximately 42.2% in the current quarter, as compared to 31.3% in the prior year quarter due to the lower sales base.
Research and development (R&D) expense was approximately $8.2 million for the quarter ended March 28, 2009, compared
to approximately $8.4 million for the comparable prior year period, a decrease of approximately 2.2% or $0.2 million. The decrease resulted primarily from the extensive cost-reduction program that began in the second quarter to reduce programs,
workforce, compensation and other employee benefits, partially offset by an approximate $0.9 million charge related to business realignment initiatives, along with costs associated with new product development. As a percentage of total revenues,
R&D expense increased from 20.6% in the third quarter of fiscal 2008 to 30.4% in the third quarter of fiscal 2009 as a result of a lower sales base.
Other income (expense), net, which consists primarily of: gains on extinguishment of convertible debt, net of issue cost write-off, interest income and expense and foreign exchange gains and losses was approximately
$7.9 million of income in the third quarter of fiscal 2009 compared to an expense of approximately $1.0 million for the third quarter of fiscal 2008. Gains on the extinguishment of convertible debt, net of issue cost write-off were approximately
$8.6 million in the current quarter, resulting from our repurchase of approximately $14.5 million of our convertible notes in the third quarter of fiscal 2009. Net interest expense was approximately $0.9 million for the quarter ended March 28,
2009 as compared to approximately $1.0 million for the comparable prior period. In addition, there was a foreign exchange gain of approximately $0.3 million in the third quarter of fiscal 2009 as compared to a foreign exchange loss of approximately
$0.1 million in the comparable prior year quarter, resulting from the changes in our foreign exchange forward contracts and on transactions denominated in other than one of our functional currencies.
Comparison of the Three Quarters Ended March 28, 2009 and March 29, 2008
Total revenues were approximately $106.8 million for the three quarters ended March 28, 2009, compared to approximately $119.8 million for the comparable prior year period, representing a decrease of
approximately $13.1 million, or 10.9%, primarily as a result of a measurable decline in sales of Test and measurement products driven by the world-wide economic downturn, coupled with the negative impact of foreign currency fluctuations of
approximately $2.5 million. Our sales were impacted by our customers reducing staffing levels and their need for capital equipment and postponing spending.
Service and other revenues consist primarily of service revenue and maintenance fees. Service and other revenues were approximately $6.7 million for the three quarters ended March 28, 2009, representing a
decrease of approximately 10.1% or a $0.7 million, compared to $7.4 million for the comparable prior year period. The reduction was primarily the result of a decrease in upgrade purchases furthered by the economic downturn, along with negative
foreign currency impact.
23
Revenues by geographic location expressed in dollars (in thousands) and as a percentage of total were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Quarters
Ended March 28,
2009
|
|
percentage
|
|
|
Three Quarters
Ended March 29,
2008
|
|
percentage
|
|
North America
|
|
$
|
30,335
|
|
28.4
|
%
|
|
$
|
39,101
|
|
32.6
|
%
|
Europe/Middle East
|
|
|
44,201
|
|
41.4
|
|
|
|
44,085
|
|
36.8
|
|
Japan
|
|
|
7,217
|
|
6.8
|
|
|
|
9,978
|
|
8.3
|
|
Asia/Pacific
|
|
|
25,001
|
|
23.4
|
|
|
|
26,663
|
|
22.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
106,754
|
|
100.0
|
%
|
|
$
|
119,827
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three quarters ended March 28, 2009, geographic revenues were slightly higher in
Europe/Middle East in terms of dollars and percentages of total revenue. The gains in Europe/Middle East were driven by improved sales productivity supported by strong distribution channels, despite the world-wide economic downturn, which negatively
impacted the later part of the period and negative foreign currency impact. However, the gains were more than offset by decreases in North America due to the economic environment which caused customers to postpone their spending along with slower
than anticipated adoption of next-generation standards for our protocol products. Decreases in Japan and Asia/Pacific also resulted from the economic environment and negative foreign currency impact.
Gross profit for the three quarters ended March 28, 2009 was approximately $57.6 million, or 54.0% gross margin, compared to approximately $68.3
million, or 57.0% gross margin, for the comparable prior year period. The lower gross margin in fiscal 2009 in terms of dollars and percentages was primarily attributable to the decreased demand for our Test and measurement products and greater
discounting practices necessary to drive sales in an economic downturn, coupled with an approximate $2.7 million charge for the write-down of inventory and approximately $0.7 million of severance costs, as a result of realignment initiatives and
change in product strategy. The prior year comparable period was also negatively impacted by approximately $0.8 million for an inventory write-down, approximately $0.5 million related to the amortization of an acquired Catalyst intangible asset
which was fully amortized in fiscal 2008, along with approximately $0.1 million of business realignment charges.
Selling, general and
administrative (SG&A) expense was approximately $36.8 million for the three quarters ended March 28, 2009 compared to approximately $38.3 million for the three quarters ended March 29, 2008, representing a decrease of
approximately $1.6 million or 4.1%. The decrease was mainly attributable to a reduction in share-based compensation expense of approximately $1.7 million, as a result of the reduction in fair value of the SARs and our extensive cost-reduction
program that began in the second quarter, which included reductions in workforce, compensation and other employee benefits. These cost reductions more than offset approximately $1.9 million of business realignment charges taken in the current fiscal
year. As a percentage of total revenues, SG&A expense increased approximately 2.4% to 34.4% in the current fiscal year, as compared to $32.0% in the prior year due to a lower sales base.
Research and development (R&D) expense was approximately $24.8 million for the three quarters ended March 28, 2009, compared to
approximately $23.9 million for the comparable prior year period, an increase of approximately 3.9% or $0.9 million. The increase primarily resulted from an approximate $1.5 million charge related to business realignment initiatives, along with
costs associated with new product development, partially offset by savings derived from our extensive cost-reduction program that began in the second quarter of fiscal 2009. As a percentage of total revenues, R&D expense increased from 19.9% for
the three quarters ended March 29, 2008 to 23.2% for the three quarters ended March 28, 2009 as a result of a lower sales base coupled with the business realignment and new product development charges.
Other income (expense), net, which consists primarily of: gains on extinguishment of convertible debt, net of issue cost write-off, interest income and
expense and foreign exchange gains and losses was approximately $6.7 million of income for the three quarters ended in fiscal 2009 compared to an expense of approximately $3.6 million for the three quarters ended in fiscal 2008. The three quarters
ended March 28, 2009 includes an approximate $8.8 million gain on extinguishment of convertible debt, net of issue cost write-off, resulting from our repurchase of approximately $17.2 million of our convertible notes in fiscal 2009. Net
interest expense was approximately $2.7 million for the three quarters ended March 28, 2009 as compared to approximately $3.1 million for the comparable prior period. In addition, there was a foreign exchange gain of approximately $0.5 million
for the three quarters ended March 28, 2009, as compared to a foreign exchange loss of approximately $0.4 million in the comparable prior year period, resulting from the changes in our foreign exchange forward contracts and on transactions
denominated in other than one of our functional currencies.
24
Income Taxes
The effective income tax rate for the quarter and three quarters ended March 28, 2009 was 24.8% and (0.2)%, respectively, compared to an effective income tax rate of 9.0% and 10.4% for the quarter and three quarters ended
March 29, 2008, respectively. The effective income tax rate for the three quarters ended March 28, 2009 includes: the effect of non-deductible goodwill impairment charges of approximately $103.8 million; the write-off of a deferred tax
asset related to equity-based compensation of approximately $0.4 million; partially offset by a reduction of tax expense of approximately $0.2 million related to a retroactive reinstatement of the federal research and development tax credit as a
result of the Emergency Economic Stabilization Act of 2008 (The Act), passed into law on October 3, 2008; and a reduction of tax expense of approximately $0.3 million related to the recognition of unrecognized tax benefits due to
the expiration of the statute of limitations. The effective income tax rate for the three quarters ended March 29, 2008 includes: the effect of a reduction of tax expense of approximately $0.5 million resulting from both the final true-up of
the prior years tax accrual upon filing the actual tax returns and an election for certain R&D credits made by the Company in the second quarter of fiscal 2008; a reduction of tax expense of approximately $0.4 million from the recognition
of unrecognized tax benefits due to the expiration of the statute of limitations; slightly offset by an approximately $31,000 increase to tax expense for interest related to income tax exposures.
We calculate income tax expense based upon an annual effective tax rate forecast, including estimates and assumptions that could change during the year.
The differences between the effective tax rate and the U.S. federal statutory rate of 35% principally result from our geographical distribution of taxable income, and differences between the book and tax treatment of certain items.
Effective July 1, 2007, we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes, as amended by FASB Staff Position No. 48-1 (FSP-FIN 48-1), Definition of Settlement in FASB Interpretation 48. FIN 48 prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial statements uncertain tax positions that we have taken or expect to take on a tax return. FIN 48 states that a tax benefit from an uncertain tax position may be recognized only if it is
more likely than not that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit greater than 50% likely of being realized upon settlement with a taxing
authority having full knowledge of all relevant information. A tax benefit from an uncertain position was previously recognized if it was probable of being sustained. Under FIN 48, the liability for unrecognized tax benefits is classified as
non-current unless the liability is expected to be settled in cash within twelve months of the reporting date.
We operate in multiple
taxing jurisdictions, both within the United States and outside of the United States, and face audits from various tax authorities regarding the deductibility of certain expenses, intercompany transactions, as well as other matters. At
March 28, 2009, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes and accrued interest was approximately $10.5 million, approximately $2.5 million are reflected as a non-current liability
and approximately $8.0 million are reflected as a reduction of gross deferred tax assets, all of which would impact the effective tax rate, if recognized.
We believe it is reasonably possible that approximately $0.4 million of net unrecognized tax benefits will be recognized during the next twelve months and impact our effective tax rate.
We recognize interest and, if applicable, penalties which could be assessed related to unrecognized tax benefits in income tax expense. As of
March 28, 2009, the total amount of accrued interest and penalties, before federal and, if applicable, state effect, was approximately $0.1 million.
We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. For federal income tax purposes, fiscal 2006 through 2008 tax years remain open for examination by the tax
authorities under the normal three year statute of limitations. For state tax purposes, (principally California and New York) fiscal 2005 through 2008 tax years remain open for examination by the tax authorities under a four year statute of
limitations.
Liquidity and Capital Resources
Cash and cash equivalents at March 28, 2009 were approximately $6.8 million compared to approximately $10.2 million at June 28, 2008.
Net cash used in operating activities was approximately $6.4 million for the three quarters ended March 28, 2009 compared to net cash provided by operating activities of approximately $17.2 million in the same
period last year. The net cash used in operating activities was attributable to: a net loss of approximately $103.3 million; a gain on the extinguishment
25
of convertible debt, net of issue cost write-off, of approximately $8.8 million; and working capital requirements of approximately $6.8 million, partially
offset by a non-cash goodwill impairment charge of approximately $105.8 million; non-cash depreciation and amortization of approximately $4.9 million; and share-based compensation of approximately $1.8 million. Working capital requirements for
fiscal 2009 were impacted by an increase in inventory levels, as a result of our new product launches and lower accounts payable, driven by lower volume and cost-cutting measures. The net cash provided by operating activities for the three quarters
ended March 29, 2008 was attributable to: net income of approximately $2.5 million; working capital contributions of approximately $6.2 million; and non-cash depreciation and amortization of approximately $5.4 million; and share-based
compensation of approximately $3.7 million.
Net cash used in investing activities was attributable to the purchase of property, plant and
equipment of approximately $3.0 million in the three quarters ended March 28, 2009 compared to approximately $2.3 million in the same period in fiscal 2008. This increase was due to the incremental spending related to our new product launches.
Net cash provided by financing activities was approximately $6.7 million in the three quarters ended March 28, 2009 compared to net
cash used in financing activities of approximately $14.8 million in the same period in fiscal 2008. Net cash provided by financing activities in fiscal 2009 was primarily the result of: net borrowings under the credit line of $15.5 million;
partially offset by the repurchase of convertible notes of approximately $8.4 million (cash payments for principal); and the purchase of treasury shares for approximately $0.7 million. Net cash used in financing activities in fiscal 2008 primarily
resulted from: the repayment of borrowings under the credit line of approximately $9.4 million; the repayment of a note payable to related party for business acquisition of approximately $3.5 million; and the repurchases of treasury stock for
approximately $2.1 million.
We expect to generate cash from operations as we reduce our inventory, as well as realize the benefits
associated with our business realignment initiatives in the next few quarters. Therefore, we believe that our cash and cash equivalents on hand, cash flow expected to be generated by operations and availability under our revolving credit lines will
be sufficient to fund our operations, working capital, debt repayment (excluding the repurchase of all or a portion of the convertible notes), share repurchases and capital expenditure requirements for the foreseeable future.
Contractual Obligations and Other Commitments
Our
contractual obligations and commitments include obligations associated with our employee severance agreements, supplier agreements, operating and capital leases and convertible note obligations as set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Payments due by Period as of March 28, 2009
|
|
Total
|
|
Less than
1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than
5 Years
|
Severance
|
|
$
|
2,885
|
|
|
2,576
|
|
|
309
|
|
|
|
|
|
|
Supplier agreements
|
|
|
940
|
|
|
940
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
5,096
|
|
|
2,126
|
|
|
2,114
|
|
|
856
|
|
|
|
Vendor supplied capital lease agreement
|
|
|
379
|
|
|
248
|
|
|
131
|
|
|
|
|
|
|
Convertible notes (1)
|
|
|
50,350
|
|
|
|
|
|
50,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (2)
|
|
$
|
59,650
|
|
$
|
5,890
|
|
$
|
52,904
|
|
$
|
856
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Convertible notes mature on October 15, 2026. Holders of the Convertible notes have the right to require the Company to purchase all or a portion of the Convertible notes
on October 15, 2011, which is reflected above. Although not contractually due until October 15, 2011, the Company has included approximately $0.4 million in Accrued expenses and other current liabilities on the Consolidated Balance Sheet,
as this represents an estimate of the amount of convertible notes the Company intends to repurchase in the next twelve months.
|
(2)
|
The table above does not include our reserves for uncertain tax positions under FIN 48 because we are unable to reasonably predict the ultimate amount or timing of settlement. See
Note 17 Income Taxes for additional information.
|
Forward-Looking Information
We discuss expectations regarding our future performance in our annual and quarterly reports, press releases, and other written and oral statements. These
forward-looking statements are based on currently available information, business plans and projections about future events and trends. They are inherently uncertain, and investors must recognize that events could turn out to be
significantly different from our expectations. When used in this Form 10-Q, the words anticipate, believe, estimate, will, plan, intend and expect and similar
expressions identify forward-looking statements. Except as required by federal securities law, we undertake no obligation to update any forward-looking statement, whether as a result of
26
new information, future events or otherwise. When evaluating our business, the Risk Factors included in Item 1A. of our Annual Report filed on Form 10-K
for the fiscal year ended June 28, 2008 should be considered in conjunction with all other information included in our filings.
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There have been no material changes in market risk since the filing of the Companys Annual Report on Form 10-K for the fiscal year ended June 28, 2008.
27
ITEM 4.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and
Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with
the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and
15d-15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure
that information required to be disclosed by us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting
There have been no changes in the Companys internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 28, 2009 that have materially affected, or are reasonably likely to materially affect, its internal control over
financial reporting.
28
LeCROY CORPORATION
PART II. OTHER INFORMATION
ITEM 1.
|
LEGAL PROCEEDINGS
|
From time to time, the Company
is involved in lawsuits, claims, investigations and proceedings, including, but not limited to, patent, commercial and environmental matters, which arise in the ordinary course of business. There are no such matters currently pending that the
Company expects to have a material adverse affect on business, results of operations, financial condition or cash flows.
There have been no material changes
with respect to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended June 28, 2008, other than the elimination of the risk factor set forth below, as we fully impaired the goodwill.
We are required to test our goodwill for impairment at least annually and that could result in a material impairment charge that would negatively
impact our results of operations.
Under current accounting standards, goodwill and certain other intangible assets with
indefinite lives are no longer amortized, but instead, are assessed for impairment when impairment indicators are present. Accounting principles generally accepted in the United States (GAAP) require a company to perform an impairment
test on goodwill annually. Testing is required between annual tests if events occur or circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value. Such an event may occur if, for an
extended period of time, the market value of the Companys common stock plus a control premium were less than the carrying value of the Company.
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Issuer Repurchases of Equity Securities
On May 25, 2006, LeCroys Board of Directors approved the adoption of a
share repurchase plan authorizing the Company to purchase up to two million shares, not to exceed $25 million, of its common stock. Purchases under this buyback program may be made from time to time on the open market and in privately
negotiated transactions. The timing of these purchases is dependent upon several factors, including market conditions, the market price of the Companys common stock, the effect of the share dilution on earnings, available cash and any other
potential risks the Company may encounter. The share repurchase plan may be discontinued at any time at the discretion of the Company.
The
following table sets forth information regarding LeCroys purchases of its common stock on a monthly basis during the third quarter of fiscal 2009. Share repurchases are recorded on a trade date basis.
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total
Number of
Shares
Purchased
|
|
Average
Price Paid
per Share
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Program
|
|
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
|
February 1, 2009 to February 28, 2009
|
|
4,570
|
|
$
|
1.76
|
|
4,570
|
|
558,502
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
4,570
|
|
$
|
1.76
|
|
4,570
|
|
558,502
|
|
|
|
|
|
|
|
|
|
|
ITEM 5.
|
OTHER INFORMATION
|
On May 4, 2009, the Company
entered into a Third modification Agreement to modify certain financial and negative covenants, including an increase in the ability to repurchase convertible notes from $22 million in face value to $50 million in face value, as well as the
applicable interest margin rates of its New Credit Agreement, as included in Item 6, Exhibit 10.45.
29
The following exhibits are filed herewith.
|
|
|
Exhibit
Number
|
|
Description
|
10.45
|
|
Third Modification Agreement, dated May 4, 2009, among Registrant, the Lenders listed therein and Manufacturers and Traders Trust Company, as Administrative Agent, filed as Exhibit 10.45 to Form
10-Q filed on May 7, 2009.
|
|
|
31.1
|
|
Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
31.2
|
|
Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
32.1
|
|
Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
|
|
|
32.2
|
|
Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
|
30
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.
|
|
|
|
|
Date: May 7, 2009
|
|
|
|
LeCROY CORPORATION
|
|
|
|
|
|
|
|
/s/ Sean B. OConnor
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Sean B. OConnor
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Vice President and Chief Financial Officer, Secretary and Treasurer
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Lecroy (NASDAQ:LCRY)
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Lecroy (NASDAQ:LCRY)
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From Oct 2023 to Oct 2024