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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended December 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 0-26634





LeCROY CORPORATION

(Exact Name of Registrant as Specified in Its Charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 13-2507777                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                 |  |           
|------------------------------------------------ |  | ----------
|700 CHESTNUT RIDGE ROAD CHESTNUT RIDGE, NEW YORK |  | 10977     
|(Address of Principal Executive Office)          |  | (Zip Code)

(845) 425-2000

(Registrants Telephone Number, Including Area Code)

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 (X) whether
the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer   ̈    Accelerated filer  x    Non-Accelerated filer   ̈

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                                   |  |                                
|---------------------------------- |  | -------------------------------
|CLASS                              |  | OUTSTANDING AT February 1, 2008
|Common stock, par value $.01 share |  | 12,359,008                     









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LeCROY CORPORATION

FORM 10-Q

INDEX



|          |  |                                                                                                                 |  |         
|--------- |  | --------------------------------------------------------------------------------------------------------------- |  | --------
|          |  |                                                                                                                 |  | Page No.
|PART I    |  | FINANCIAL INFORMATION                                                                                           |  | 3       
|          |  |                                                                                                                
|Item 1.   |  | Financial Statements:                                                                                           |  |         
|          |  | Consolidated Balance Sheets (Unaudited) as of December 31, 2007 and June 30, 2007                               |  | 3       
|          |  | Consolidated Statements of Operations (Unaudited) for the Three and Six Months ended December 31, 2007 and 2006 |  | 4       
|          |  | Consolidated Statements of Cash Flows (Unaudited) for the Six Months ended December 31, 2007 and 2006           |  | 5       
|          |  | Notes to Consolidated Financial Statements (Unaudited)                                                          |  | 6       
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 20      
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |  | 30      
|Item 4.   |  | Controls and Procedures                                                                                         |  | 30      
|          |  |                                                                                                                
|PART II   |  | OTHER INFORMATION                                                                                               |  | 31      
|          |  |                                                                                                                
|Item 1.   |  | Legal Proceedings                                                                                               |  | 31      
|Item 1A.  |  | Risk Factors                                                                                                    |  | 31      
|Item 2.   |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     |  | 31      
|Item 4.   |  | Submission of Matters to a Vote of Security Holders                                                             |  | 32      
|Item 6.   |  | Exhibits                                                                                                        |  | 33      
|          |  |                                                                                                                
|Signature |  |                                                                                                                 |  | 34      

LeCroy®, Wavelink,
WaveMaster®, WavePro®, WaveJet®, WaveRunner®, WaveScan , WaveSurfer, WaveExpert, MAUI, CATC and Catalyst are our trademarks, among others not
referenced in this document. All other trademarks, servicemarks or tradenames referred to in this Form 10-Q are the property of their respective owners.



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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LeCROY CORPORATION

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



|                                                                                                                                                                         |  |                  |         |   |              |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ------- | - | ------------ | - | -------
|In thousands, except par value and share data                                                                                                                            |  | December 31,2007 |         |   | June 30,2007
|ASSETS                                                                                                                                                                   |  |                  |         |   |              |   |        
|Current assets:                                                                                                                                                          |  |                  |         |   |              |   |        
|Cash and cash equivalents                                                                                                                                                |  | $                | 12,106  |   |              | $ | 10,448 
|Accounts receivable, net of reserves of $855 and $882 at December 31, 2007 and June 30, 2007, respectively                                                               |  |                  | 33,857  |   |              |   | 31,941 
|Inventories, net                                                                                                                                                         |  |                  | 34,511  |   |              |   | 38,645 
|Other current assets                                                                                                                                                     |  |                  | 10,858  |   |              |   | 9,608  
|                                                                                                                                                                         |  |                  |         |   |              |   |        
|Total current assets                                                                                                                                                     |  |                  | 91,332  |   |              |   | 90,642 
|                                                                                                                                                                         |  |                 
|Property and equipment, net                                                                                                                                              |  |                  | 20,875  |   |              |   | 20,339 
|Goodwill                                                                                                                                                                 |  |                  | 105,771 |   |              |   | 105,885
|Other non-current assets                                                                                                                                                 |  |                  | 14,193  |   |              |   | 14,453 
|                                                                                                                                                                         |  |                  |         |   |              |   |        
|Total assets                                                                                                                                                             |  | $                | 232,171 |   |              | $ | 231,319
|                                                                                                                                                                         |  |                  |         |   |              |   |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                     |  |                  |         |   |              |   |        
|                                                                                                                                                                         |  |                 
|Current liabilities:                                                                                                                                                     |  |                  |         |   |              |   |        
|Accounts payable                                                                                                                                                         |  | $                | 14,119  |   |              | $ | 16,905 
|Accrued expenses and other current liabilities                                                                                                                           |  |                  | 14,393  |   |              |   | 15,408 
|Note payable- related party                                                                                                                                              |  |                  | 3,500   |   |              |   | 3,500  
|Current portion of capital leases                                                                                                                                        |  |                  | 226     |   |              |   | 119    
|                                                                                                                                                                         |  |                  |         |   |              |   |        
|Total current liabilities                                                                                                                                                |  |                  | 32,238  |   |              |   | 35,932 
|                                                                                                                                                                         |  |                 
|Long-term debt                                                                                                                                                           |  |                  | 6,000   |   |              |   | 9,410  
|Convertible notes                                                                                                                                                        |  |                  | 72,000  |   |              |   | 72,000 
|Deferred revenue and other non-current liabilities                                                                                                                       |  |                  | 4,668   |   |              |   | 1,246  
|                                                                                                                                                                         |  |                  |         |   |              |   |        
|Total liabilities                                                                                                                                                        |  |                  | 114,906 |   |              |   | 118,588
|                                                                                                                                                                         |  |                 
|Commitments and contingencies                                                                                                                                            |  |                  |         |   |              |   |        
|                                                                                                                                                                         |  |                 
|Stockholders equity:                                                                                                                                                    |  |                  |         |   |              |   |        
|Preferred stock, $.01 par value (authorized 5,000,000 shares; none issued and outstanding as of December 31, 2007 and June 30, 2007)                                     |  |                  |        |   |              |   |       
|Common stock, $.01 par value (authorized 45,000,000 shares; 12,367,908 shares issued at December 31, 2007 and 12,342,809 shares issued
and outstanding at June 30, 2007) |  |                  | 123     |   |              |   | 123    
|Additional paid-in capital                                                                                                                                               |  |                  | 111,487 |   |              |   | 108,713
|Accumulated other comprehensive income                                                                                                                                   |  |                  | 2,420   |   |              |   | 1,409  
|Retained earnings                                                                                                                                                        |  |                  | 4,260   |   |              |   | 2,486  
|Treasury stock, at cost (124,381 and 0 shares at December 31, 2007 and June 30, 2007, respectively)                                                                      |  |                  | (1,025  | ) |              |   |       
|                                                                                                                                                                         |  |                  |         |   |              |   |        
|Total stockholders equity                                                                                                                                               |  |                  | 117,265 |   |              |   | 112,731
|                                                                                                                                                                         |  |                  |         |   |              |   |        
|Total liabilities and stockholders equity                                                                                                                               |  | $                | 232,171 |   |              | $ | 231,319
|                                                                                                                                                                         |  |                  |         |   |              |   |        

The accompanying notes are an integral part of these consolidated financial statements.



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LeCROY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|----------------------------------------- | ---- | ------------------------------ | ------ | ---- | ---------------------------- | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|In thousands, except per share data       |      | Three Months EndedDecember 31, |        |      | Six Months EndedDecember 31, |  
|                                          | 2007 |                                |        | 2006 |                              |   | 2007   |   |  | 2006 |       
|Revenues:                                 |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Test and measurement products             |      | $                              | 38,848 |      |                              | $ | 36,258 |   |  | $    | 76,428 |   |  | $ | 71,556 |  
|Service and other                         |      |                                | 1,725  |      |                              |   | 1,858  |   |  |      | 2,845  |   |  |   | 3,601  |  
|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Total revenues                            |      |                                | 40,573 |      |                              |   | 38,116 |   |  |      | 79,273 |   |  |   | 75,157 |  
|                                          |      |                                |        |     
|Cost of revenues                          |      |                                | 16,855 |      |                              |   | 18,294 |   |  |      | 33,246 |   |  |   | 33,117 |  
|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Gross profit                              |      |                                | 23,718 |      |                              |   | 19,822 |   |  |      | 46,027 |   |  |   | 42,040 |  
|                                          |      |                                |        |     
|Operating expenses:                       |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Selling, general and administrative       |      |                                | 13,769 |      |                              |   | 14,681 |   |  |      | 26,504 |   |  |   | 27,527 |  
|Research and development                  |      |                                | 7,629  |      |                              |   | 12,845 |   |  |      | 14,906 |   |  |   | 20,497 |  
|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Total operating expenses                  |      |                                | 21,398 |      |                              |   | 27,526 |   |  |      | 41,410 |   |  |   | 48,024 |  
|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Operating income (loss)                   |      |                                | 2,320  |      |                              |   | (7,704 | ) |  |      | 4,617  |   |  |   | (5,984 | )
|                                          |      |                                |        |     
|Other income (expense):                   |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Interest income                           |      |                                | 82     |      |                              |   | 70     |   |  |      | 155    |   |  |   | 109    |  
|Interest expense                          |      |                                | (1,196 | )    |                              |   | (1,230 | ) |  |      | (2,339 | ) |  |   | (2,052 | )
|                                          |      |                                |        |     
|Loss on extinguishment of debt            |      |                                |       |      |                              |   | (446   | ) |  |      |       |   |  |   | (446   | )
|                                          |      |                                |        |     
|Other, net                                |      |                                | (113   | )    |                              |   | (100   | ) |  |      | (338   | ) |  |   | (106   | )
|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Other expense, net                        |      |                                | (1,227 | )    |                              |   | (1,706 | ) |  |      | (2,522 | ) |  |   | (2,495 | )
|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Income (loss) before income taxes         |      |                                | 1,093  |      |                              |   | (9,410 | ) |  |      | 2,095  |   |  |   | (8,479 | )
|(Benefit) provision for income taxes      |      |                                | (112   | )    |                              |   | (1,754 | ) |  |      | 226    |   |  |   | (1,432 | )
|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Net income (loss)                         |      | $                              | 1,205  |      |                              | $ | (7,656 | ) |  | $    | 1,869  |   |  | $ | (7,047 | )
|                                          |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Net income (loss) per common share:       |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Basic                                     |      | $                              | 0.10   |      |                              | $ | (0.67  | ) |  | $    | 0.16   |   |  | $ | (0.59  | )
|Diluted                                   |      | $                              | 0.10   |      |                              | $ | (0.67  | ) |  | $    | 0.16   |   |  | $ | (0.59  | )
|                                          |      |                                |        |     
|Weighted average number of common shares: |      |                                |        |      |                              |   |        |   |  |      |        |   |  |   |        |  
|Basic                                     |      |                                | 11,785 |      |                              |   | 11,492 |   |  |      | 11,757 |   |  |   | 11,858 |  
|Diluted                                   |      |                                | 12,056 |      |                              |   | 11,492 |   |  |      | 11,985 |   |  |   | 11,858 |  

The accompanying notes are an integral part of these consolidated financial statements.



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LeCROY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                                                                           |      |                              |        |      |  |   |         |  
|---------------------------------------------------------------------------------------------------------- | ---- | ---------------------------- | ------ | ---- |  | - | ------- | -
|In thousands                                                                                               |      | Six months endedDecember 31, |       
|                                                                                                           | 2007 |                              |        | 2006 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                      |      |                              |        |      |  |   |         |  
|Net income (loss)                                                                                          |      | $                            | 1,869  |      |  | $ | (7,047  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:                   |      |                              |        |      |  |   |         |  
|Write-off of acquired in-process research and development                                                  |      |                              |       |      |  |   | 4,000   |  
|Depreciation and amortization                                                                              |      |                              | 3,754  |      |  |   | 4,350   |  
|Share-based compensation                                                                                   |      |                              | 2,626  |      |  |   | 3,152   |  
|Amortization of debt issuance costs                                                                        |      |                              | 358    |      |  |   | 241     |  
|Deferred income taxes                                                                                      |      |                              | (586   | )    |  |   | (430    | )
|Write-off of term loan deferred financing costs                                                            |      |                              |       |      |  |   | 446     |  
|Loss on disposal of property and equipment, net                                                            |      |                              |       |      |  |   | 15      |  
|Change in operating assets and liabilities, net of assets acquired and liabilities assumed in acquisition: |      |                              |        |      |  |   |         |  
|Accounts receivable                                                                                        |      |                              | (1,353 | )    |  |   | 1,520   |  
|Inventories                                                                                                |      |                              | 2,854  |      |  |   | (531    | )
|Other current and non-current assets                                                                       |      |                              | (204   | )    |  |   | (291    | )
|Accounts payable, accrued expenses and other liabilities                                                   |      |                              | (2,815 | )    |  |   | (3,959  | )
|                                                                                                           |      |                              |        |      |  |   |         |  
|Net cash provided by operating activities                                                                  |      |                              | 6,503  |      |  |   | 1,466   |  
|                                                                                                           |      |                              |        |      |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                      |      |                              |        |      |  |   |         |  
|Purchase of property and equipment                                                                         |      |                              | (1,076 | )    |  |   | (3,183  | )
|Business acquisition costs, net of acquired cash                                                           |      |                              |       |      |  |   | (31,215 | )
|                                                                                                           |      |                              |        |      |  |   |         |  
|Net cash used in investing activities                                                                      |      |                              | (1,076 | )    |  |   | (34,398 | )
|                                                                                                           |      |                              |        |      |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                      |      |                              |        |      |  |   |         |  
|Repayment of term loan                                                                                     |      |                              |       |      |  |   | (34,076 | )
|Borrowings under credit agreement                                                                          |      |                              |       |      |  |   | 31,750  |  
|Proceeds from issuance of convertible notes                                                                |      |                              |       |      |  |   | 72,000  |  
|Repayment of borrowings under capital leases                                                               |      |                              | (172   | )    |  |   | (123    | )
|Repayment of borrowings under credit agreement                                                             |      |                              | (3,410 | )    |  |   | (25,250 | )
|Payment of debt issuance costs                                                                             |      |                              |       |      |  |   | (3,201  | )
|Proceeds from employee stock purchase and option plans                                                     |      |                              | 564    |      |  |   | 78      |  
|Purchase of treasury shares                                                                                |      |                              | (1,008 | )    |  |   | (10,508 | )
|                                                                                                           |      |                              |        |      |  |   |         |  
|Net cash (used in) provided by financing activities                                                        |      |                              | (4,026 | )    |  |   | 30,670  |  
|                                                                                                           |      |                              |        |      |  |   |         |  
|Effect of exchange rate changes on cash and cash equivalents                                               |      |                              | 257    |      |  |   | (356    | )
|                                                                                                           |      |                              |        |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                       |      |                              | 1,658  |      |  |   | (2,618  | )
|Cash and cash equivalents at beginning of the period                                                       |      |                              | 10,448 |      |  |   | 16,972  |  
|                                                                                                           |      |                              |        |      |  |   |         |  
|Cash and cash equivalents at end of the period                                                             |      | $                            | 12,106 |      |  | $ | 14,354  |  
|                                                                                                           |      |                              |        |      |  |   |         |  
|Supplemental Cash Flow Disclosure                                                                          |      |                              |        |      |  |   |         |  
|Cash paid during the period for:                                                                           |      |                              |        |      |  |   |         |  
|Interest                                                                                                   |      | $                            | 1,951  |      |  | $ | 966     |  
|Income taxes                                                                                               |      |                              | 319    |      |  |   | 468     |  
|Non-cash investing and financing transactions:                                                             |      |                              |        |      |  |   |         |  
|Issuance of note payable to related party for business acquisition                                         |      |                              |       |      |  |   | 3,500   |  
|Issuance of LeCroy stock options for business acquisition                                                  |      |                              |       |      |  |   | 450     |  
|Transaction costs for business acquisition, unpaid at December 31, 2006                                    |      |                              |       |      |  |   | 337     |  
|Transfer of inventory into property and equipment                                                          |      |                              | 1,411  |      |  |   | 468     |  
|Treasury stock purchased but unpaid at December 31, 2007                                                   |      |                              | 17     |      |  |   |        |  
|Vendor supplied capital lease agreement                                                                    |      |                              | 718    |      |  |   |        |  

The accompanying notes are an integral part of these consolidated financial statements.



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LeCROY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying interim
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 Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007. The accompanying Consolidated Balance Sheet as of June 30, 2007 has been
derived from those audited Consolidated Financial Statements. Inter-company transactions and balances have been eliminated in consolidation.

The Companys 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 and deferred tax assets, share-based
compensation expense and estimation of warranty liabilities. These estimates and assumptions are based on managements 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. 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.

The Companys fiscal periods end on the Saturday closest to the
end of the period, which resulted in reporting periods ended on December 29, 2007, December 30, 2006, and June 30, 2007. For clarity of presentation, period-end references are stated as December 31 and June 30.

On October 29, 2004, the Company completed the acquisition of 100% of the outstanding common stock of Computer Access Technology Corporation
(CATC). CATC is a provider of advanced verification systems for existing and emerging digital communications standards.

On
September 29, 2006, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) among the Company, 2006 Franklin Congress Corporation, a California corporation and a wholly owned subsidiary of the Company
(Sub), Catalyst, and Nader Salehomoum, as Equityholder Representative, pursuant to which Sub merged with and into Catalyst (the Catalyst Merger), with Catalyst continuing as the surviving corporation and as a 100% owned
subsidiary of the Company. Catalyst is a manufacturer of data bus analysis and emulation tools for advanced serial data communications and strengthens the Companys position in protocol solutions.

2. Share-Based Compensation

Total share-based
compensation expense recorded in the Consolidated Statement of Operations for both the three months ended December 31, 2007 and 2006 is $1.4 million and $2.6 million and $3.2 million for the six months ended December 31, 2007 and 2006,
respectively.

Stock Options

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 Companys 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. 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.



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The table below presents the assumptions used to calculate the fair value of options granted during the
three and six months ended December 31, 2007 and 2006, including the Catalyst assumed options in prior year periods:



|                                               |  |                                     |  |                                   |  |                                     |  |                                  
|---------------------------------------------- |  | ----------------------------------- |  | --------------------------------- |  | ----------------------------------- |  | ---------------------------------
|                                               |  | Three Months EndedDecember 31, 2007 |  | Six Months EndedDecember 31, 2007 |  | Three Months EndedDecember 31, 2006 |  | Six Months EndedDecember 31, 2006
|Expected holding period (years)                |  | 5.0                                 |  | 5.0                               |  | 3.5                                 |  | 3.6                              
|Risk-free interest rate                        |  | 3.23% - 4.40%                       |  | 3.23% - 4.57%                     |  | 4.58% - 4.90%                       |  | 4.58% - 4.90%                    
|Dividend yield                                 |  | 0.0%                                |  | 0.0%                              |  | 0.0%                                |  | 0.0%                             
|Expected volatility                            |  | 45.29% - 45.99%                     |  | 45.29% - 48.64%                   |  | 32.0% - 52.9%                       |  | 32.0% - 54.2%                    
|Weighted average fair value of options granted |  | $3.87                               |  | $3.71                             |  | $10.98                              |  | $11.41                           

Stock option transactions for the three month and six months ended December 31, 2007 under
all plans are as follows:



|                                                 |  |                 |   |  |                              |       |                                                  |      |                          |   |      
|------------------------------------------------ |  | --------------- | - |  | ---------------------------- | ----- | ------------------------------------------------ | ---- | ------------------------ | - | -----
|                                                 |  | Number ofShares |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualTerms (Years) |      | AggregateIntrinsic Value
|                                                 |  |                 |   |  |                              |       |                                                  |      | ($000)                  
|Outstanding at June 30, 2007                     |  | 2,012,655       |   |  | $                            | 14.49 |                                                  |      |                          |   |      
|Granted                                          |  | 31,500          |   |  | $                            | 7.64  |                                                  |      |                          |   |      
|Exercised                                        |  | (35,874         | ) |  | $                            | 0.76  |                                                  |      |                          |   |      
|Expired                                          |  | (172,498        | ) |  | $                            | 18.73 |                                                  |      |                          |   |      
|Forfeited                                        |  | (33,213         | ) |  | $                            | 15.94 |                                                  |      |                          |   |      
|                                                 |  |                 |   |  |                              |       |                                                  |      |                          |   |      
|Outstanding at September 30, 2007                |  | 1,802,570       |   |  | $                            | 14.21 |                                                  | 3.97 |                          | $ | 753  
|Granted                                          |  | 20,700          |   |  | $                            | 8.66  |                                                  |      |                          |   |      
|Exercised                                        |  | (3,748          | ) |  | $                            | 7.23  |                                                  |      |                          |   |      
|Expired                                          |  | (94,853         | ) |  | $                            | 13.88 |                                                  |      |                          |   |      
|Forfeited                                        |  | (43,770         | ) |  | $                            | 6.97  |                                                  |      |                          |   |      
|                                                 |  |                 |   |  |                              |       |                                                  |      |                          |   |      
|Outstanding at December 31, 2007                 |  | 1,680,899       |   |  | $                            | 14.36 |                                                  | 3.76 |                          | $ | 1,020
|                                                 |  |                 |   |  |                              |       |                                                  |      |                          |   |      
|Vested and expected to vest at December 31, 2007 |  | 1,642,930       |   |  | $                            | 14.66 |                                                  | 3.58 |                          | $ | 1,001
|                                                 |  |                 |   |  |                              |       |                                                  |      |                          |   |      
|Exercisable at December 31, 2007                 |  | 1,493,630       |   |  | $                            | 14.88 |                                                  | 3.37 |                          | $ | 612  
|                                                 |  |                 |   |  |                              |       |                                                  |      |                          |   |      

The weighted-average grant-date fair value of the stock options granted during the three months
ended December 31, 2007 and 2006 was $3.87 and $10.98 per option, respectively. The weighted-average grant-date fair value of the stock options granted during the six months ended December 31, 2007 and 2006 was $3.71 and $11.41 per option,
respectively. The total intrinsic value of stock options exercised during the three and six months ended December 31, 2007 was $8,000 and $0.2 million, respectively as compared to $0.1 million and $0.2 million for the three and six months ended
December 31, 2006.

As of December 31, 2007, there was approximately $1.6 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 1.96 years. No compensation cost related to stock options was capitalized in inventory or any
other assets for the three and six months ended December 31, 2007 or 2006.

Non-Vested Stock

The following table summarizes transactions related to non-vested stock for the three and six months ended December 31, 2007:



|                                       |  |                 |   |  |                                      |      
|-------------------------------------- |  | --------------- | - |  | ------------------------------------ | -----
|                                       |  | Number ofShares |   |  | Weighted AverageGrant DateFair Value
|Non-vested stock at June 30, 2007      |  | 647,141         |   |  | $                                    | 14.61
|                                       |  |                
|Granted                                |  | 34,241          |   |  | $                                    | 7.48 
|Vested                                 |  | (49,163         | ) |  | $                                    | 12.88
|Forfeited                              |  | (31,222         | ) |  | $                                    | 12.29
|                                       |  |                 |   |  |                                      |      
|Non-vested stock at September 30, 2007 |  | 600,997         |   |  | $                                    | 14.46
|Granted                                |  | 75,233          |   |  | $                                    | 8.98 
|Vested                                 |  | (85,590         | ) |  | $                                    | 10.72
|Forfeited                              |  | (20,149         | ) |  | $                                    | 12.46
|                                       |  |                 |   |  |                                      |      
|Non-vested stock at December 31, 2007  |  | 570,491         |   |  | $                                    | 14.37
|                                       |  |                 |   |  |                                      |      



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##### Table of Contents

Non-vested restricted stock is included in the issued and outstanding amounts disclosed on the
Consolidated Balance Sheets. Non-vested restricted stock is not included in the weighted average share calculation for basic earnings per share. However, the dilutive effect of the non-vested restricted stock is included in the weighted average
share calculation for diluted earnings per share, disclosed on the Consolidated Statements of Operations.

As of December 31, 2007,
there was approximately $4.5 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 2.20
years.

Employee Stock Purchase Plan

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 Companys 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 December 31, 2007 and June 30, 2007, there was approximately $41,000 of liability classified share-based compensation expense for the ESPP included in
Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

Stock Appreciation Rights

On August 20, 2007, the Board of Directors adopted and approved the 2007 Stock Appreciation Plan (the SAR Plan). Under the SAR Plan, the
Compensation Committee of the Board of Directors may award stock appreciation rights to eligible employees. Each stock appreciation right (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 Companys common stock on the date that a participant exercises such right over the fair market value of a share of the Company 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 will have four years from the date of vesting of an installment in which to exercise such
installment. The SAR Plan will terminate on August 20, 2017.

On August 20, 2007, the Company granted 712,000 SARs. The exercise
price of the SARs was set at $7.60 per share, which equaled the closing price of the Companys common stock on the grant date. The fair value at grant date was $3.61, using the Black-Scholes option pricing model. Expected volatilities are
calculated based on the historical volatility of the Companys stock. Management monitors award exercise and employee termination patterns to estimate forfeiture rates. 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 5-year U.S. Treasury note in effect on the date of the grant or other such period that most closely equals 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. Based on the fair value of $4.72 per SAR on December 31, 2007, there was approximately $2.8 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 3.65 years. The fair value of the SARs is liability classified because the awards are payable in cash. As of December 31, 2007, there was approximately $0.3 million of liability classified share-based
compensation expense for the SARs included in Accrued expenses and other current liabilities on the Consolidated Balance Sheet.



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##### Table of Contents

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 Companys oscilloscopes, but the embedded software component is considered incidental.

In fiscal 2006, in an effort to provide end-user customers an alternative to purchasing the Companys higher end products under its standard terms
and conditions, the Company began offering 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 immaterial for the three and six months ended December 31, 2007 and 2006.

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 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 and repairs and calibrations performed on instruments after the expiration of their normal warranty period. The Company records deferred revenue for extended warranty contracts, software maintenance agreements and calibration
services and then 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 licensees 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.



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##### Table of Contents

4. Restructuring

In the first quarter of fiscal 2008, 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 December 31, 2007, approximately $0.2 million has been paid in cash and approximately $0.4 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 first quarter of fiscal 2009.

In the fourth quarter of fiscal 2007, the
Company changed its sales distribution strategy in Japan which resulted in the closure of certain office facilities, which included lease termination costs and headcount reductions of four employees or 0.9% of the workforce as compared to
June 30, 2006. As a result, the Company recorded severance and related expenses of approximately $0.1 million and facility closure costs of approximately $0.2 million. As of December 31, 2007, approximately $0.3 million has been paid in
cash and no accrual remains on the Consolidated Balance Sheet.

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. The implementation of this plan resulted in headcount reductions of
thirty-three employees or 7.2% of the workforce as compared to June 30, 2006. As of December 31, 2007, approximately $1.2 million has been paid in cash and approximately $0.4 million remains in Accrued expenses and other current
liabilities. Severance and other related amounts under this plan are estimated to be paid by the end of the second quarter of fiscal 2009.

5.
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 accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument is dependent upon whether the derivative has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship. The Companys foreign exchange forward
contracts and past interest rate swap agreements are not accounted for as hedges in accordance with SFAS 133; therefore, any changes in fair value of these contracts are recorded in Other expense, net in the Consolidated Statements of Operations.

The Company does not use derivative financial instruments for trading or other speculative purposes and does not enter into fair value
hedges.

Interest Rate Swap

As required by the terms of the Companys Prior Credit Agreement (See Note 13Long-term Debt and Capital Leases), on January 27, 2005 the Company entered into a Master Agreement for an interest rate swap with M&T Bank,
the purpose of which was to protect against rising interest rates during the term of the Credit Agreement. On October 16, 2006 in conjunction with the repayment of the term loan, the Company terminated its interest rate swap with M&T Bank.
The net interest income earned on the swap was approximately $0.3 million during the three and six months ended December 31, 2006 and was recognized in Interest expense in the Consolidated Statements of Operations.

As of December 31, 2007, the Company has the following derivative instruments:

Forward foreign exchange contracts

The Company enters 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 Companys functional currency. Subsidiaries may also use forward exchange agreements to offset the foreign currency risk for receivables and payables not
denominated in, or indexed to, their functional currencies. The Company records these short-term forward exchange agreements on the balance sheet at fair value and changes in the fair value are recognized currently in Other (expense) income, net in
the Consolidated Statement of Operations.

The net losses or gains resulting from changes in the fair value of these derivatives and on
transactions denominated in other than their functional currencies were net losses of approximately $0.1 million for the three months ended December 31, 2007 and 2006, as compared to net losses of $0.3 million and $0.2 million for the six
months ended December 31, 2007 and 2006, respectively. These amounts are included in Other, net in the Consolidated Statements of Operations. At December 31, 2007 and June 30, 2007, the notional amounts of the Companys open
foreign exchange forward contracts, all with maturities of less than six months, were approximately $16.3 million and $12.9 million, respectively.



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##### Table of Contents

6. Comprehensive Income (Loss)

The following table presents the components of comprehensive income (loss) (in thousands):



|                                         |  |                               |       |      |                             |        |      |  |      |       |  |   |        |  
|---------------------------------------- |  | ----------------------------- | ----- | ---- | --------------------------- | ------ | ---- |  | ---- | ----- |  | - | ------ | -
|                                         |  | Three monthsendedDecember 31, |       |      | Six monthsendedDecember 31, |       
|                                         |  | 2007                          |       | 2006 |                             |        | 2007 |  | 2006 |      
|Net income (loss)                        |  | $                             | 1,205 |      | $                           | (7,656 | )    |  | $    | 1,869 |  | $ | (7,047 | )
|Foreign currency translation gain (loss) |  |                               | 388   |      |                             | 201    |      |  |      | 1,011 |  |   | (27    | )
|                                         |  |                               |       |      |                             |        |      |  |      |       |  |   |        |  
|Comprehensive income (loss)              |  | $                             | 1,593 |      | $                           | (7,455 | )    |  | $    | 2,880 |  | $ | (7,074 | )
|                                         |  |                               |       |      |                             |        |      |  |      |       |  |   |        |  

7. Accounts Receivable, net

The allowance for doubtful accounts and sales returns was approximately $0.9 million as of December 31, 2007 and June 30, 2007.

8. Inventories, net

Inventories, with the exception of demonstration units in finished goods, are
stated at the lower of cost (first-in, first-out method) or market. Demonstration units are stated at lower of cost (specific identification method) or market. Inventories consist of the following (in thousands):



|                |  |                  |        |              |   |       
|--------------- |  | ---------------- | ------ | ------------ | - | ------
|                |  | December 31,2007 |        | June 30,2007
|Raw materials   |  | $                | 8,613  |              | $ | 9,312 
|Work in process |  |                  | 5,941  |              |   | 7,354 
|Finished goods  |  |                  | 19,957 |              |   | 21,979
|                |  |                  |        |              |   |       
|                |  | $                | 34,511 |              | $ | 38,645
|                |  |                  |        |              |   |       

The value of demonstration units included in finished goods was $12.2 million and $13.6 million at
December 31, 2007 and June 30, 2007, respectively. The Companys 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 (raw materials and work in progress), included above, amounted to $2.2 million and $2.7 million at December 31, 2007 and June 30, 2007, respectively.

9. Other Current Assets

Other current assets consist
of the following (in thousands):



|                           |  |                  |        |              |   |      
|-------------------------- |  | ---------------- | ------ | ------------ | - | -----
|                           |  | December 31,2007 |        | June 30,2007
|Deferred tax assets, net   |  | $                | 5,575  |              | $ | 4,863
|Prepaid taxes              |  |                  | 322    |              |   | 381  
|Other receivables          |  |                  | 1,574  |              |   | 1,371
|Value-added tax receivable |  |                  | 990    |              |   | 808  
|Other                      |  |                  | 2,397  |              |   | 2,185
|                           |  |                  |        |              |   |      
|                           |  | $                | 10,858 |              | $ | 9,608
|                           |  |                  |        |              |   |      

10. Goodwill and Other Non-current Assets

Goodwill and other non-current assets consist of the following (in thousands):



|                                             |  |                  |         |              |   |        
|-------------------------------------------- |  | ---------------- | ------- | ------------ | - | -------
|                                             |  | December 31,2007 |         | June 30,2007
|Goodwill                                     |  | $                | 105,771 |              | $ | 105,885
|                                             |  |                  |         |              |   |        
|Intangibles, net                             |  | $                | 2,076   |              | $ | 3,032  
|Deferred tax assets, net                     |  |                  | 8,820   |              |   | 7,809  
|Deferred financing costs on convertible note |  |                  | 2,362   |              |   | 2,642  
|Other                                        |  |                  | 935     |              |   | 970    
|                                             |  |                  |         |              |   |        
|                                             |  | $                | 14,193  |              | $ | 14,453 
|                                             |  |                  |         |              |   |        



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##### Table of Contents

Under SFAS No. 142 Goodwill and Other Intangible Assets, (SFAS 142) goodwill
is not amortized but reviewed for impairment annually or more frequently if certain indicators arise. The Company completed the annual impairment test required under SFAS 142 during the fourth quarter of fiscal 2007 and determined that there was no
impairment to the recorded goodwill balances. No impairment indicators arose during the first six months of fiscal 2008.

The decrease in
Goodwill is attributable to the Companys adoption of FASB Interpretation No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes, which clarifies the accounting and disclosure for uncertain income tax positions.
As a result of the adoption, the Company reduced some of its accruals for uncertain tax positions related to the acquisition of CATC, resulting in a decrease to goodwill of approximately $0.1 million (See Note 17  Income Taxes for more
information).

The following table reflects the gross carrying amount and accumulated amortization of the Companys amortizable
intangible assets, included in other non-current assets on the Consolidated Balance Sheets as of the dates indicated:



|                                                  |  |                               |  |                  |        |   |              |   |        |  
|------------------------------------------------- |  | ----------------------------- |  | ---------------- | ------ | - | ------------ | - | ------ | -
|                                                  |  | OriginalWeightedAverage Lives |  | December 31,2007 |        |   | June 30,2007 |  
|Amortizable intangible assets:                    |  |                               |  |                  |        |   |              |   |        |  
|Technology, manufacturing and distribution rights |  | 2.9 years                     |  | $                | 8,296  |   |              | $ | 8,296  |  
|Accumulated amortization                          |  |                               |  |                  | (7,429 | ) |              |   | (6,599 | )
|                                                  |  |                               |  |                  |        |   |              |   |        |  
|Net carrying amount                               |  |                               |  | $                | 867    |   |              | $ | 1,697  |  
|                                                  |  |                               |  |                  |        |   |              |   |        |  
|Patents and other intangible assets               |  | 5.9 years                     |  | $                | 1,592  |   |              | $ | 1,592  |  
|Accumulated amortization                          |  |                               |  |                  | (1,083 | ) |              |   | (957   | )
|                                                  |  |                               |  |                  |        |   |              |   |        |  
|Net carrying amount                               |  |                               |  | $                | 509    |   |              | $ | 635    |  
|                                                  |  |                               |  |                  |        |   |              |   |        |  
|Total net carrying amount                         |  |                               |  | $                | 1,376  |   |              | $ | 2,332  |  
|                                                  |  |                               |  |                  |        |   |              |   |        |  

Amortization expense for intangible assets, with finite lives, was $0.5 million and $1.0 million
for the three and six months ended December 31, 2007, respectively, as compared to $1.2 million and $1.8 million for the three and six months ended December 31, 2006, respectively. The cost of an amortizable intangible asset is amortized
on a straight-line basis over the estimated economic life of the asset.

As of December 31, 2007 and June 30, 2007, there was
$0.7 million for the Catalyst tradename, an asset with an indefinite life, included in Intangibles, net on the Consolidated balance sheet.

11. Accrued
Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):



|                                                  |  |                  |        |              |   |       
|------------------------------------------------- |  | ---------------- | ------ | ------------ | - | ------
|                                                  |  | December 31,2007 |        | June 30,2007
|Compensation and benefits, including severance    |  | $                | 7,492  |              | $ | 6,494 
|Income taxes                                      |  |                  | 502    |              |   | 1,996 
|Warranty                                          |  |                  | 1,223  |              |   | 1,190 
|Deferred revenue, current portion                 |  |                  | 1,217  |              |   | 1,195 
|Accrued interest on debt                          |  |                  | 961    |              |   | 1,033 
|Retained liabilities from discontinued operations |  |                  | 160    |              |   | 160   
|Other current liabilities                         |  |                  | 2,838  |              |   | 3,340 
|                                                  |  |                  |        |              |   |       
|                                                  |  | $                | 14,393 |              | $ | 15,408
|                                                  |  |                  |        |              |   |       



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##### Table of Contents

12. Warranties

The Company provides a warranty on its products, typically extending 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. 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. On a quarterly basis, 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 Companys aggregate product warranty liability during the three and six months ended December 31, 2007 and 2006 (in thousands):



|                                                       |  |                                |       |   |                              |   |       |      |  |   |       |   |  |   |       |  
|------------------------------------------------------ |  | ------------------------------ | ----- | - | ---------------------------- | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                       |  | Three months endedDecember 31, |       |   | Six months endedDecember 31, |  
|                                                       |  | 2007                           |       |   | 2006                         |   |       | 2007 |  |   | 2006  |  
|Balance at beginning of period                         |  | $                              | 1,185 |   |                              | $ | 986   |      |  | $ | 1,190 |   |  | $ | 1,005 |  
|Accruals for warranties entered into during the period |  |                                | 258   |   |                              |   | 165   |      |  |   | 430   |   |  |   | 307   |  
|Warranty costs incurred during the period              |  |                                | (220  | ) |                              |   | (194  | )    |  |   | (397  | ) |  |   | (355  | )
|Warranty liability assumed in the Catalyst Merger      |  |                                |      |   |                              |   | 150   |      |  |   |      |   |  |   | 150   |  
|                                                       |  |                                |       |   |                              |   |       |      |  |   |       |   |  |   |       |  
|Balance at end of period                               |  | $                              | 1,223 |   |                              | $ | 1,107 |      |  | $ | 1,223 |   |  | $ | 1,107 |  
|                                                       |  |                                |       |   |                              |   |       |      |  |   |       |   |  |   |       |  

As is customary in the test and measurement industry, and as provided for by local law in the U.S.
and other jurisdictions, the Companys 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 Companys 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. Long-term Debt and Capital Leases

Credit Agreement

On March 30, 2007, the Company entered into a $40.0 million senior, secured, four-year credit agreement with the lenders listed therein and
Manufacturers and Traders Trust Company (M&T Bank), as administrative agent for such lenders (the New Credit Agreement), which replaced LeCroys existing credit facility that was entered into on October 29, 2004
and subsequently amended (the Prior Credit Agreement). The terms of the New Credit Agreement (since amended) provided LeCroy with a $40.0 million revolving credit facility (Revolver), which includes a $5.0 million swingline
loan subfacility and a $5.0 million letter of credit subfacility. The performance by LeCroy of its obligations under the New Credit Agreement is secured by all of the assets of LeCroy and its domestic subsidiaries, and is guaranteed by LeCroys
domestic subsidiaries. As of December 31, 2007, the Company has $6.0 million outstanding borrowings against the Revolver and nothing against the letter of credit subfacility or the swingline loan subfacility.

Effective as of April 26, 2007, LeCroy, in accordance with New Credit Agreement, entered into a First Modification and Lender Joinder Agreement
(Joinder Agreement). This Joinder Agreement increased the Companys credit limit to $50.0 million and added North Fork Bank to the New Credit Agreement.

The proceeds of the borrowings under the New Credit Agreement have been used to pay the outstanding balance under LeCroys Prior Credit Agreement and for general corporate purposes, including the financing of
working capital requirements and capital expenditures.

Borrowings under the New Credit Agreement bear interest at variable rates equal to,
at LeCroys election, (1) the higher of (a) the prime rate or (b) the federal funds rate plus 0.5% plus an applicable margin based on LeCroys leverage ratio or (2) LIBOR plus an applicable margin based on LeCroys
leverage ratio. In addition, LeCroy must pay commitment fees during the term of the New Credit Agreement at rates dependent on LeCroys leverage ratio.

The New Credit Agreement contains, among other things, conditions precedent, covenants, representations and warranties and events of default customary for facilities of this size, type and purpose. Negative covenants
include certain restrictions or limitations on, among other things, the incurrence of indebtedness; liens; consolidations and mergers; investments, loans, advances, guarantees and acquisitions; sales of assets (subject to customary exceptions for
sales of inventory in the ordinary course and sales of equipment in connection with the replacement thereof in the ordinary course); sale and lease-back transactions; hedging agreements; and restricted payments, including repurchase of all or a
portion of the convertible notes, dividends and stock repurchases.



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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 December 31, 2007, the Company was in compliance with its financial covenants
under the New Credit Agreement.

The New Credit Agreement will expire on July 15, 2011, unless, in the absence of any default,
extended by LeCroy to April 1, 2012, contingent on the waiver or extension of the first redemption date of the Companys convertible notes.

The Company incurred approximately $0.6 million of financing costs in connection with entering into the New Credit Agreement, which were deferred and are being amortized, on a straight line basis, over the term of the
New Credit Agreement. At December 31, 2007, approximately $0.1 million of deferred financing costs were included in Other current assets and approximately $0.3 million were included in Other non-current assets on the Consolidated Balance
Sheets.

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, beginning April 15, 2007. The Notes are direct, unsecured, senior subordinated
obligations of the Company and rank: (i) subordinate in right of payment to all of the Companys existing and future secured indebtedness; (ii) equal in right of payment with all of the Companys existing and future senior
unsecured indebtedness, and (iii) senior in right of payment to all of the Companys existing and future subordinated indebtedness, except that the Notes rank equally with the $3.5 million note issued in connection with the Catalyst
acquisition, which is subordinated to the Companys credit facility. 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.

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. 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 Companys election, cash or shares of the Companys common stock in respect of the remainder. Prior to September 15, 2026, holders may convert their notes into cash and shares of the Companys 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 Companys common stock, if any, at
the applicable conversion price, at the Companys 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 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 Companys election,
cash or common stock or combination of each with a value equal to such excess. As of December 31, 2007, the market value of the convertible notes was $67.7 million.

The Company evaluated the accounting for the conversion feature in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Companys
Own Stock,, and related issues, at the date of issuance of the Notes and determined that the conversion feature should be classified as equity, and, therefore, it does not need to be accounted for separately from the Notes. The Company updates
its analysis of the accounting for the conversion feature as circumstances warrant. If the conversion feature is required to be bifurcated in the future, changes in the fair value of the conversion feature would be charged or credited to interest
expense in each period.

If the Company undergoes a change in control (as defined in the indenture), holders of the Notes will
have the right, subject to certain conditions, to require the Company to repurchase for cash, all or a portion of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid
interest, if any.



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In connection with the sale of its Notes, the Company also entered into a Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the Company filed a shelf registration statement, which has been declared effective by the Securities and Exchange Commission, covering resales by holders of the Notes and any common stock issuable upon
conversion of such Notes (subject to certain conditions specified in the Registration Rights Agreement). The Company has agreed to use its commercially reasonable efforts to keep the registration statement effective until the earliest of the
following has occurred: (i) all securities covered by the registration statement have been sold pursuant to the registration statement or Rule 144 under the Securities Act; (ii) the holders of the Notes and the shares of the Companys
common stock issuable upon conversion of the Notes that are not our affiliates are able to sell all such securities immediately pursuant to Rule 144(k) under the Securities Act; (iii) the date when all of the Notes and shares of common stock
issuable upon conversion have ceased to be outstanding; and (iv) October 12, 2008.

The Company will pay predetermined additional
interest on notes that are registerable securities if the shelf registration statement is unavailable for periods in excess of those permitted under the indenture. The Company believes the likelihood of occurrence of such event is remote and, as
such, the Company has not recorded a liability at December 31, 2007. In the event that it becomes probable that the Company would have to pay additional interest under the registration rights agreement, the Company estimates the maximum
potential amount as of December 31, 2007 to be approximately $0.3 million per year.

The Company received net proceeds from the sale
of the Notes of approximately $69.0 million. Immediately thereafter, the net proceeds from the sale were used to repay the outstanding term debt balance of approximately $31.9 million under the Companys Prior Credit Agreement, repurchase
of 850,000 shares of the Companys common stock at a cost of approximately $9.9 million and repay approximately $22.8 million of revolving debt under the Companys Prior Credit Agreement that was drawn down to fund the
acquisition of Catalyst.

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. At December 31, 2007, the total $2.4 million
unamortized fees related to the Notes was included in Other non-current assets on the Consolidated Balance Sheet.

The Company maintains
certain short-term foreign credit facilities, principally with two Japanese banks totaling 150.0 million yen (approximately $1.3 million as of December 31, 2007). No amounts were outstanding under these facilities as of December 31,
2007 and June 30, 2007. The Companys Swiss subsidiary, also has an overdraft facility totaling 1.0 million Swiss francs (approximately $0.9 million as of December 31, 2007). As of December 31, 2007 and June 30, 2007,
approximately 0.4 million Swiss francs were held against supplier obligations leaving an available balance of 0.6 million Swiss francs under this credit facility. These obligations to Swiss suppliers, such as rent and utilities, are
payable under the credit facility only in the event that the subsidiary is unable to meet its financial obligations to those suppliers.

During fiscal 2005, the Company entered into vendor supplied capital lease agreements for technology rights of $1.3 million. These leases bear interest at 4.5% to 4.88% with three-year terms. At December 31, 2007 and June 30,
2007, the Companys outstanding balances under these agreements were zero and $0.1 million, respectively. During fiscal 2008, the Company entered into another vendor supplied capital lease agreement for technology rights of $0.7 million. The
lease bears interest at 7.75% with a three-year term. At December 31, 2007, the Companys outstanding balance under this agreement was $0.7 million, $0.2 million was included in Current portion of long-term debt and capital leases and $0.5
million was included in Deferred revenue and other non-current liabilities on the Consolidated Balance Sheet.

14. Commitments and Contingencies

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 pending that the Company expects to have a material adverse affect on its business, results of operations, financial condition or cash flows.

15. Treasury Stock

In May 2006, the Companys
Board of Directors approved the adoption of a share repurchase plan authorizing the Company to purchase up to 2.0 million shares of its common stock. To date, the Company has purchased approximately 1.2 million shares under the plan. In
the first quarter of fiscal 2008, 46,000 shares were repurchased at an average price of $7.28 per share. In the second quarter of fiscal 2008, 78,381 shares were repurchased at an average price of $8.82 per share.



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16. Earnings per Common Share

The following is a presentation of the numerators and the denominators of the basic and diluted net income per common share computations for the three and six months ended December 31, 2007 and 2006:



|                                     |  |                                |        |      |                              |        |      |  |      |        |  |   |        |  
|------------------------------------ |  | ------------------------------ | ------ | ---- | ---------------------------- | ------ | ---- |  | ---- | ------ |  | - | ------ | -
|                                     |  | Three months endedDecember 31, |        |      | Six months endedDecember 31, |       
|                                     |  | 2007                           |        | 2006 |                              |        | 2007 |  | 2006 |       
|Numerator:                           |  |                                |        |      |                              |        |      |  |      |        |  |   |        |  
|Net income (loss)                    |  | $                              | 1,205  |      | $                            | (7,656 | )    |  | $    | 1,869  |  | $ | (7,047 | )
|                                     |  |                                |        |      |                              |        |      |  |      |        |  |   |        |  
|Denominator:                         |  |                                |        |      |                              |        |      |  |      |        |  |   |        |  
|Weighted average shares outstanding: |  |                                |        |      |                              |        |      |  |      |        |  |   |        |  
|Basic                                |  |                                | 11,785 |      |                              | 11,492 |      |  |      | 11,757 |  |   | 11,858 |  
|Employee stock options and other     |  |                                | 271    |      |                              |       |      |  |      | 228    |  |   |       |  
|                                     |  |                                |        |      |                              |        |      |  |      |        |  |   |        |  
|Diluted                              |  |                                | 12,056 |      |                              | 11,492 |      |  |      | 11,985 |  |   | 11,858 |  
|                                     |  |                                |        |      |                              |        |      |  |      |        |  |   |        |  

The computations of diluted net income per common share for the three and six months ended
December 31, 2007 do not include approximately 1.7 million and 1.8 million, respectively, of stock options and non-vested stock, as the effect of their inclusion would have been anti-dilutive to earnings per share. The computations of
diluted net loss per common share for the three and six months ended December 31, 2006 do not include approximately 1.9 million and 1.8 million, respectively, of stock options and non-vested stock, as the effect of their inclusion
would have been anti-dilutive to earnings per share. The convertible notes had no impact on diluted EPS for the three and six months ended December 31, 2007 and 2006 because the average share price 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 (benefit) tax rate for the three and six months ended December 31, 2007 was (10.2)% and 10.8%, respectively, compared to an
effective income (benefit) tax rate of (18.6)% and (16.9)% for the three and six months ended December 31, 2006, respectively. The effective income (benefit) tax rate for the three and six months ended December 31, 2007 includes the effect
of a reduction of tax expense of $0.5 million resulting from both the final true-up of the prior years 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, slightly offset by a $15,000 increase to tax expense for interest related to income tax exposures, both of which are treated as discrete items. The effective income (benefit) tax rate for the three and six months ended December 31,
2006 includes the effects of the in-process research and development (IPR&D) charge of $4.0 million related to the Catalyst acquisition, a discrete item, which is not deductible for tax purposes.

The Company calculates income tax expense based upon an annual estimated effective tax rate that includes estimates and assumptions that may change
during the year. The differences between the annual estimated effective tax rate and the U.S. federal statutory rate of 35% principally result from the Companys 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), 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 impact of adopting FIN 48 and FSP-FIN 48-1 on the Companys
consolidated financial statements is summarized below:



|                                                   |  |                        |  |                  |   |  |                      
|-------------------------------------------------- |  | ---------------------- |  | ---------------- | - |  | ---------------------
|                                                   |  | Balance atJune 30,2007 |  | FIN 48Adjustment |   |  | Balance atJuly 1,2007
|Goodwill                                           |  | 105,885                |  | (114             | ) |  | 105,771              
|Other non-current assets                           |  | 14,453                 |  | 1,057            |   |  | 15,510               
|Accrued expenses and other current liabilities     |  | 15,408                 |  | (1,968           | ) |  | 13,440               
|Deferred revenue and other non-current liabilities |  | 1,246                  |  | 2,853            |   |  | 4,099                
|Retained earnings                                  |  | 2,486                  |  | 58               |   |  | 2,544                



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The Company operates in multiple taxing jurisdictions, both within the United States and
outside of the United States, and is potentially subject to audits from various tax authorities. At July 1, 2007 and December 31, 2007, the total amount of unrecognized tax benefits related to federal, state and foreign taxes and accrued interest
was approximately $10.1 million and $10.4 million, respectively (of which approximately $7.5 million and $7.8 million, respectively, would impact the effective tax rate if recognized). Approximately $2.6 million of the total unrecognized tax
benefits are related to the CATC acquisition, and would reduce goodwill if recognized at July 1, 2007 and December 31, 2007. As of December 31, 2007, the Company has $10.4 million of unrecognized tax benefits, of which, $2.9 million are reflected as
a non-current liability and $7.5 million are reflected as a reduction of gross deferred tax assets.

The Company anticipates that
approximately $0.1 million of net unrecognized tax benefits will be recognized during the next twelve months due to the expiration of the statute of limitations and impact the Companys 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
July 1 and December 31, 2007, the total amount of accrued interest and penalties, before federal and, if applicable, state effect, was approximately $57,000 and $72,000, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. For federal and foreign income tax
purposes, fiscal 2004 through 2007 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 2003 through 2007 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 Companys 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:



|                   |  |                                |        |                              |   |          |  |      |        |  |   |       
|------------------ |  | ------------------------------ | ------ | ---------------------------- | - | -------- |  | ---- | ------ |  | - | ------
|                   |  | Three Months EndedDecember 31, |        | Six Months EndedDecember 31,
|                   |  | 2007                           |        | 2006                         |   | 2007 (a) |  | 2006
|North America      |  | $                              | 13,035 |                              | $ | 13,003   |  | $    | 25,315 |  | $ | 23,950
|Europe/Middle East |  |                                | 16,353 |                              |   | 14,607   |  |      | 29,188 |  |   | 26,883
|Japan              |  |                                | 3,292  |                              |   | 3,452    |  |      | 7,271  |  |   | 8,049 
|Asia/Pacific       |  |                                | 7,893  |                              |   | 7,054    |  |      | 17,499 |  |   | 16,275
|                   |  |                                |        |                              |   |          |  |      |        |  |   |       
|Total revenues     |  | $                              | 40,573 |                              | $ | 38,116   |  | $    | 79,273 |  | $ | 75,157
|                   |  |                                |        |                              |   |          |  |      |        |  |   |       



|(a) | The six months ended December 31, 2007 reflects reclassifications of revenue between geographic areas.
|--- | ------------------------------------------------------------------------------------------------------

Total assets by geographic area are as follows:



|                   |  |                  |         |              |   |        
|------------------ |  | ---------------- | ------- | ------------ | - | -------
|                   |  | December 31,2007 |         | June 30,2007
|North America      |  | $                | 211,463 |              | $ | 211,264
|Europe/Middle East |  |                  | 15,065  |              |   | 13,263 
|Japan              |  |                  | 1,248   |              |   | 2,813  
|Asia/Pacific       |  |                  | 4,395   |              |   | 3,979  
|                   |  |                  |         |              |   |        
|Total assets       |  | $                | 232,171 |              | $ | 231,319
|                   |  |                  |         |              |   |        



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Total long-lived assets (1) by geographic area are as follows:



|                        |  |                  |         |              |   |        
|----------------------- |  | ---------------- | ------- | ------------ | - | -------
|                        |  | December 31,2007 |         | June 30,2007
|North America           |  | $                | 130,593 |              | $ | 131,889
|Europe/Middle East      |  |                  | 544     |              |   | 515    
|Japan                   |  |                  | 128     |              |   | 95     
|Asia/Pacific            |  |                  | 753     |              |   | 369    
|                        |  |                  |         |              |   |        
|Total long-lived assets |  | $                | 132,018 |              | $ | 132,868
|                        |  |                  |         |              |   |        



|(1) | Long-lived assets presented in the table above exclude non-current deferred tax assets.
|--- | ---------------------------------------------------------------------------------------

19. New Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155 (SFAS
155), Accounting for Certain Hybrid Instruments, an amendment of FASB Statements No. 133 and 140. SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to
separate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. It also clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133;
establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring separation; clarifies that
concentrations of credit risk in the form of subordination are not embedded derivatives; and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. The
adoption of SFAS 155 did not have a material effect on the Companys consolidated financial condition or results of operations.

In
June 2006, the Emerging Issues Task Force (EITF) issued EITF Abstract 06-2 (EITF 06-2), Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43. EITF 06-2 provides
guidance that an employees right to a compensated absence under a sabbatical or other similar benefit arrangement should be accrued over the requisite service period. EITF 06-2 is effective for fiscal years beginning after December 15,
2006. EITF 06-2 allows for adoption through retrospective application to all prior periods or through a cumulative-effect adjustment to retained earnings. The Company adopted EITF 06-2 beginning July 1, 2007 using the cumulative-effect
adjustment approach. The effect of this adoption resulted in a decrease to beginning retained earnings of $0.2 million, a decrease to deferred tax assets of $0.1 million and an increase to Accrued expenses and other current liabilities and Deferred
revenue and other non-current liabilities of $0.2 million and $0.1 million, respectively.

In July 2006, the Financial Accounting Standards
Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109, which prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 was effective for fiscal years beginning after December 15, 2006, and was adopted by the Company effective July 1, 2007. See Note
17  Income Taxes for the impact of the adoption of FIN 48 on the Companys consolidated financial statements.

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. SFAS
157 requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy as defined in the standard. Additionally, companies are required to provide enhanced disclosure regarding financial instruments in
one of the categories, including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Management is currently evaluating the effect that adoption of this statement will have on the Companys consolidated financial position and results of operations.

In December 2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements
(FSP EITF 00-19-2). FSP EITF 00-19-2 specifies that registration payment arrangements should play no part in determining the initial classification and subsequent accounting for the securities to which they relate. FSP EITF 00-19-2
requires the contingent obligation in a registration payment arrangement to be separately analyzed under SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimations of the Amount of a
Loss. If payment in a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded. FSP EITF 00-19-2 is effective for fiscal years beginning after December 15, 2006. The adoption of this FSP
did not have a material effect on the Companys consolidated financial position or results of operations.



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In February 2007, the 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 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the
provisions of SFAS 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with
available-for-sale and trading securities. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the provision of SFAS 157. Management is currently evaluating the effect that adoption of SFAS 159 will have on the Companys consolidated financial position and results of
operations.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation
No. 48 (FSP-FIN 48-1). FSP-FIN 48-1 further clarifies if it is appropriate for an entity to recognize a previously unrecognized tax benefit when the only change since the initial determination is the completion of an
examination or audit by a taxing authority. FSP-FIN 48-1 provides the determination of whether the position is effectively settled should be taken on a case by case basis; however, positions may be grouped by tax year and considered effectively
settled. The adoption of this position on July 1, 2007 did not have a significant impact on the Companys consolidated financial statements (See Note 17  Income Taxes for additional information).

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 is effective for interim or annual reporting periods in fiscal years beginning after December 15, 2007. Management is currently evaluating the impact of adopting EITF 07-03 on its financial statements
and results of operations; however, the Company does not expect it will have a material effect on the Companys 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. SFAS 141R also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. 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. Early adoption is not permitted. Management is currently evaluating the effect that adoption
of SFAS 141R will have on the Companys consolidated financial position and results of operations.

20. Catalyst Acquisition

The Catalyst Merger was recorded under the purchase method of accounting in accordance with SFAS 141. On October 2, 2006, the effective date of the
Catalyst Merger, all shares of common stock of Catalyst issued and outstanding immediately prior to the Catalyst Merger were exchanged for approximately $26.7 million in cash immediately. In addition, pursuant to the terms of the Merger Agreement,
10% of the stated consideration of $33.5 million, or $3.35 million, was placed in escrow for the twelve-month period following the closing of the Catalyst Merger to secure certain indemnification obligations under the terms of the Merger Agreement.
On October 2, 2007, approximately $3.1 million was released from the escrow to the Catalyst stockholders, pursuant to the terms of the Merger Agreement. It is anticipated that the remaining balance will be paid either to LeCroy or to the former
Catalyst stockholders by the third quarter of fiscal 2008.



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We were founded in 1964 to develop, manufacture and sell high performance signal analysis tools to scientists engaged in high-energy
physics research. In 1985 we introduced our first oscilloscope using our core competency of designing signal acquisition and digitizing technology.

We are a leading, worldwide provider of oscilloscopes and protocol analyzers as well as a provider of related test and measurement equipment and currently operate as one business segment in the Test and Measurement market. Our oscilloscopes
are tools used by designers and engineers to measure and analyze complex electronic signals in order to develop high-performance systems, to validate electronic designs and to improve time to market. We currently offer six families of oscilloscopes,
which address different solutions to the markets we serve: WaveExpert, a powerful family of sampling oscilloscopes and modules; WaveMaster, one of our high performance product families; WavePro, which is targeted at the mid- to high-performance
sector; WaveRunner, designed for the mid-performance sector; WaveSurfer, designed for value-oriented users in the low-performance bandwith sector of the market; and WaveJet, our entry-level oscilloscope products. Our protocol analyzers are tools
used by designers and engineers to generate and monitor traffic over high speed serial data interfaces, including USB2.0, Bluetooth, PCI Express, Serial ATA, Serial Attached SCSI (SAS), Wireless USB, and others.

We sell our products into a broad range of end markets, including the Computer/Semiconductor/Consumer Electronics, Data Storage, Automotive/Industrial,
and Military/Aerospace markets. We believe that our products offer the strongest value proposition in these markets by providing advanced analysis capabilities coupled with innovative and proprietary technology features. We believe designers in all
of these markets are developing products which rely on increasingly complex electronic signals to provide the features and performance their customers require.

We employ a direct sales model utilizing a highly skilled global sales force where it makes economic sense to do so. We supplement our direct sales force with a combination of manufacturers representatives and
distributors in certain geographic areas. We divide the world into four areas  North America, Europe/Middle East, Japan and Asia/Pacific. In North America we sell our products directly in the United States and are in the early stages of
developing a strong manufacturers representative channel. In Europe/Middle East, we sell our products directly in Switzerland, Germany, Italy, France, the United Kingdom and Sweden. In Japan, we sell our products through distributors. In
Asia/Pacific, we sell our products directly in South Korea, Singapore and five regions in China.

We generate revenue in a single segment
within the Test and Measurement market, primarily from the sale of our oscilloscopes, protocol analyzers, probes, accessories and applications solutions. To a lesser extent, we also generate revenue from the sales of our extended warranty,
maintenance contracts and repairs and calibrations on our instruments after their warranties expire.

Generally, we transact revenues and
pay our operating expenses in the local currencies of the countries in which we have a direct distribution presence or other operations, with limited exceptions, most notably in China where our sales and operating expenses are denominated in U.S.
dollars. In Europe/Middle East, we transact business in Euros, Swiss francs, British pounds, Swedish krona and U.S. dollars. In Japan, we transact business in Japanese yen. In South Korea, we transact business in Korean won and in Singapore, we
transact business in both U.S. dollars and Singapore dollars. For a discussion of our foreign currency exchange rate exposure, see Item 3 entitled Quantitative and Qualitative Disclosure About Market Risk below.

Historically, we have, at times, experienced lower levels of demand during our first fiscal quarter than in other fiscal quarters which, we believe, have
been principally due to the lower level of general market activity during the summer months, particularly in Europe.

Cost of revenues
represents manufacturing and service costs, which primarily comprise materials, labor and factory overhead. Gross profits represent revenues less cost of revenues. Additional factors integral to gross profit earned are product mix, as the list
prices of our products range from $2,900 to $128,000, and the effects of foreign currencies, as approximately two-thirds of our revenues are derived overseas, much of which is denominated in local currencies while product manufacturing costs are
primarily U.S. dollar denominated.

Selling, general and administrative expenses consist of salaries and related overhead costs for sales,
marketing and administrative personnel as well as legal, accounting and other professional services.



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Research and development expenses consist primarily of salaries and related overhead costs associated
with employees engaged in research, design and development activities, as well as the cost of masks, wafers and other materials and related test services and equipment used in the development process.

Our results of operations and financial position are affected by a variety of factors. As discussed below, 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.

In addition, in response to fluctuations in the technology markets we target, we continually assess and adopt programs aimed at positioning us for
long-term success. These programs may include streamlining operations, discontinuing older and less profitable product lines, changing our future product strategy, and reducing operating expenses from time to time. As an example, in fiscal 2007 and
2006 we implemented restructuring and business realignment plans intended to reduce costs and more efficiently allocate product development resources. For a more detailed discussion of our restructuring efforts see the Section entitled
Restructuring below.

We face significant competition in our target markets. We believe that in order to continue to compete
successfully, we need to timely anticipate, recognize and respond to changing market demands by providing products that serve our customers needs as they arise at prices acceptable to the market. We believe that we compete favorably with our
competition in each of these areas. Consequently, we are constantly reviewing our product development strategy and invest time, resources and capital in development projects we deem most likely to succeed.

In furtherance of our drive to meet our customers changing demands, we also look outside our organization for opportunities to expand our markets.
Accordingly, on October 29, 2004 and October 2, 2006, we completed the acquisitions of Computer Access Technology Corporation (CATC) and Catalyst Enterprises, Inc. (Catalyst), respectively, to complement our
expanding portfolio of serial data test solutions. This division, Protocol Solutions Group (PSG), now represents about 20% of our total business. In March 2006, we completed purchase and settlement agreements with Iwatsu Electric
Corporation that included the rights to a new low-end product line, ViewGo, re-engineered and launched as the WaveJet Family of products, as well as unrelated intellectual property designs and a 10-year non-compete agreement.

Also during fiscal 2006, we transformed our entire low and mid-range product lines by introducing a new line of WaveRunners and WaveSurfers and adding
the new WaveJet product line noted above. Additionally, we expanded our high-end product line by introducing the SDA 18000. We believe that our diversified product mix strategically positions us to expand our presence in the oscilloscope market.

Restructuring

In the first quarter of
fiscal 2008, 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 December 31, 2007, approximately $0.2 million has been paid in cash and approximately $0.4 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 first quarter of fiscal 2009.

In the fourth quarter of fiscal 2007, the Company changed its sales distribution strategy in
Japan which resulted in the closure of certain office facilities, which included lease termination costs and headcount reductions of four employees or 0.9% of the workforce as compared to June 30, 2006. As a result, the Company recorded
severance and related expenses of approximately $0.1 million and facility closure costs of approximately $0.2 million. As of December 31, 2007, approximately $0.3 million has been paid in cash and no accrual remains on the Consolidated Balance
Sheet.

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. The implementation of this plan resulted in headcount reductions of thirty-three employees or 7.2% of the workforce as compared to
June 30, 2006. As of December 31, 2007, approximately $1.2 million has been paid in cash, approximately $0.4 million remains in Accrued expenses and other current liabilities. Severance and other related amounts under this plan are
estimated to be paid by the end of the second quarter of fiscal 2009.



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Critical Accounting Policies

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 managements judgment and
available information and, consequently, actual results could differ from these estimates.

This management discussion and analysis of
financial condition and results of operations should be read in conjunction with the audited Consolidated Financial Statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007, which includes a
description of our accounting policies. Our critical accounting policies involve significant judgment by LeCroys management, as described in the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007, and
include revenue recognition, reserves on accounts receivable, allowance for excess and obsolete inventory, valuation of deferred tax assets, valuation of long-lived and intangible assets, valuation of goodwill, estimation of warranty liabilities and
share-based compensation expense.

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, Definition of Settlement in FASB Interpretation 48 on July 1, 2007. 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 (See Note 17 - Income Taxes for additional information).

There have been no other changes to our critical accounting policies since June 30, 2007.

Consolidated Results of
Operations

The following table indicates the percentage of total revenues represented by each item in the Companys Consolidated
Statements of Operations for the three and six months ended December 31, 2007 and 2006.



|                                     |      |                                |   |      |                              |    |      |       |   |      |       |   
|------------------------------------ | ---- | ------------------------------ | - | ---- | ---------------------------- | -- | ---- | ----- | - | ---- | ----- | --
|(Unaudited)                          |      | Three months endedDecember 31, |   |      | Six months endedDecember 31, |   
|                                     | 2007 |                                |   | 2006 |                              |    | 2007 |       |   | 2006 |      
|Revenues:                            |      |                                |   |      |                              |    |      |       |   |      |       |   
|Test and measurement products        |      | 95.7                           | % |      | 95.1                         | %  |      | 96.4  | % |      | 95.2  | % 
|Service and other                    |      | 4.3                            |   |      | 4.9                          |    |      | 3.6   |   |      | 4.8   |   
|                                     |      |                                |   |      |                              |    |      |       |   |      |       |   
|Total revenues                       |      | 100.0                          |   |      | 100.0                        |    |      | 100.0 |   |      | 100.0 |   
|Cost of revenues                     |      | 41.5                           |   |      | 48.0                         |    |      | 41.9  |   |      | 44.1  |   
|                                     |      |                                |   |      |                              |    |      |       |   |      |       |   
|Gross profit                         |      | 58.5                           |   |      | 52.0                         |    |      | 58.1  |   |      | 55.9  |   
|                                     |      |                                |   |     
|Operating expenses:                  |      |                                |   |      |                              |    |      |       |   |      |       |   
|Selling, general and administrative  |      | 34.0                           |   |      | 38.5                         |    |      | 33.4  |   |      | 36.6  |   
|Research and development             |      | 18.8                           |   |      | 33.7                         |    |      | 18.8  |   |      | 27.3  |   
|                                     |      |                                |   |      |                              |    |      |       |   |      |       |   
|Total operating expenses             |      | 52.8                           |   |      | 72.2                         |    |      | 52.2  |   |      | 63.9  |   
|                                     |      |                                |   |     
|Operating income (loss)              |      | 5.7                            |   |      | (20.2                        | )  |      | 5.9   |   |      | (8.0  | ) 
|                                     |      |                                |   |     
|Interest income                      |      | 0.2                            |   |      | 0.1                          |    |      | 0.2   |   |      | 0.1   |   
|Interest expense                     |      | (2.9                           | ) |      | (3.2                         | )  |      | (3.0  | ) |      | (2.7  | ) 
|Loss on extinguishment of debt       |      |                               |   |      | (1.2                         | )  |      |      |   |      | (0.6  | ) 
|Other, net                           |      | (0.3                           | ) |      | (0.3                         | )  |      | (0.4  | ) |      | (0.1  | ) 
|                                     |      |                                |   |      |                              |    |      |       |   |      |       |   
|Other (expense), net                 |      | (3.0                           | ) |      | (4.6                         | )  |      | (3.2  | ) |      | (3.3  | ) 
|                                     |      |                                |   |     
|Income (loss) before income taxes    |      | 2.7                            |   |      | (24.8                        | )  |      | 2.7   |   |      | (11.3 | ) 
|(Benefit) provision for income taxes |      | (0.3                           | ) |      | (4.6                         | )  |      | 0.3   |   |      | (1.9  | ) 
|                                     |      |                                |   |      |                              |    |      |       |   |      |       |   
|Net income (loss)                    |      | 3.0                            | % |      | (20.2                        | )% |      | 2.4   | % |      | (9.4  | )%
|                                     |      |                                |   |      |                              |    |      |       |   |      |       |   



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Comparison of the Three-Month Periods Ended December 31, 2007 and 2006

Total revenues were $40.6 million for the quarter ended December 31, 2007, compared to $38.1 million for the comparable prior year period,
representing an increase of 6.4%, or approximately $2.5 million, primarily as a result of increased sales of Test and measurement products. Foreign currency fluctuations increased total revenues by $1.4 million in the second quarter of fiscal 2008
as compared to the same period last year. The increase in Test and measurement products was driven by increased volume and market traction for oscilloscope products as a result of a stronger and more effective distribution channel. Additionally,
growth in protocol analysis products was driven by stronger adoption of six Gb SAS standards by the data storage industry. These increases were partially offset by softness in orders from our Japanese distributor.

Service and other revenues primarily consist of service revenues and maintenance fees. Service and other revenues were $1.7 million for the quarter ended
December 31, 2007, representing a decrease of 7.2% or approximately $0.2 million, compared to $1.9 million for the comparable prior year period. The reduction was the result of an overall decrease in service revenue, primarily from the
realignment of our Japan operations.

Revenues by geographic location expressed in dollars and as a percentage of total revenues were:



|                   |  |                                           |        |   |      |   |        |  
|------------------ |  | ----------------------------------------- | ------ | - | ---- | - | ------ | -
|                   |  | Three months endedDecember 31,(unaudited) |       
|                   |  | 2007                                      |        |   | 2006 |  
|                   |  | (In thousands)                            |       
|North America      |  | $                                         | 13,035 |   |      | $ | 13,003 |  
|Europe/Middle East |  |                                           | 16,353 |   |      |   | 14,607 |  
|Japan              |  |                                           | 3,292  |   |      |   | 3,452  |  
|Asia/Pacific       |  |                                           | 7,893  |   |      |   | 7,054  |  
|                   |  |                                           |        |   |      |   |        |  
|Total revenues     |  | $                                         | 40,573 |   |      | $ | 38,116 |  
|                   |  |                                           |        |   |      |   |        |  
|                   | 
|                   |  | Three months endedDecember 31,(unaudited) |       
|                   |  | 2007                                      |        |   | 2006 |  
|North America      |  |                                           | 32.1   | % |      |   | 34.1   | %
|Europe/Middle East |  |                                           | 40.3   |   |      |   | 38.3   |  
|Japan              |  |                                           | 8.1    |   |      |   | 9.0    |  
|Asia/Pacific       |  |                                           | 19.5   |   |      |   | 18.6   |  
|                   |  |                                           |        |   |      |   |        |  
|Total revenues     |  |                                           | 100.0  | % |      |   | 100.0  | %
|                   |  |                                           |        |   |      |   |        |  

For the three months ended December 31, 2007, geographic revenue was higher in all regions
except Japan. The gains resulted from improved sales productivity supported by strong distribution channels in Europe/Middle East and Asia/Pacific. Foreign currency fluctuations increased Europe/Middle East revenues by $1.3 million in the second
quarter of fiscal 2008 as compared to the same period last year. These gains were offset by decreases in Japan, primarily resulting from local economic conditions as well as the realignment of our Japan operations.

Gross profit for the quarter ended December 31, 2007 was $23.7 million, or 58.5% gross margin, compared to $19.8 million, or 52.0% gross margin, for
the comparable prior year period. The lower gross margin in fiscal 2007 was primarily attributable to Catalyst Merger-related non-cash charges of $1.5 million for the write-up of inventory sold as well as $0.7 million for the amortization of
acquired Catalyst intangible assets. In addition, the fiscal 2008 gross margins benefited from higher sales volume.



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Selling, general and administrative (SG&A) expense was $13.8 million for the quarter
ended December 31, 2007 compared to $14.7 million for the quarter ended December 31, 2006, representing a decrease of 6.2% or $0.9 million. The decrease was mainly due to a reduction in general spending levels, resulting from the prior
years cost-cutting and business realignment efforts. As a percentage of total revenues, SG&A expense decreased from 38.5% in the second quarter of fiscal 2007 to 34.0% in the second quarter of fiscal 2008 as a result of a higher sales base
as well as benefits derived from prior years cost-cutting and realignment efforts.

Research and development (R&D) expense
was $7.6 million for the quarter ended December 31, 2007, compared to $12.8 million for the comparable prior year period, a decrease of 40.6% or $5.2 million. The decrease resulted primarily from the $4.0 million charge for acquired in-process
research and development related to the Catalyst acquisition, recorded in the second quarter of fiscal 2007, along with $0.3 million of restructuring charges also recorded in the prior year quarter. Also contributing to the decrease in R&D
expense were business realignment efforts and a reduction in expenses incurred for prototype materials and supplies. As a percentage of total revenues, R&D expense decreased from 33.7% in the second quarter of fiscal 2007 to 18.8% in the second
quarter of fiscal 2008 as a result of a higher sales base coupled with benefits derived from realignment and cost cutting efforts and the absence of fiscal 2007 Catalyst acquired in-process research and development costs and restructuring charges.

Other (expense) income, net, which consists primarily of net interest income and expense and foreign exchange gains and losses, was an
expense of $(1.2) million in the second quarter of fiscal 2008 compared to $(1.7) million for the second quarter of fiscal 2007. Net interest expense was approximately $(1.1) million for the quarter ended December 31, 2007 as compared to $(1.2)
million for the comparable prior period. In addition, there was a foreign exchange loss of $(0.1) million in the second quarter of fiscal 2008 and 2007. The other (expense) income, net decrease reflects the $(0.4) million of loss on extinguishment
of debt in the second quarter of fiscal 2007 related to the write-off of deferred finance charges associated with the term loan that was fully repaid in the prior year period.

The effective income (benefit) tax rate for the three months ended December 31, 2007 was (10.2)%, compared to an effective income (benefit) tax rate
of (18.6)% for the three months ended December 31, 2006. The effective income (benefit) tax rate for the three months ended December 31, 2007 includes both the effect of a reduction of tax expense of $0.5 million resulting from the final
true-up of the prior years 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, slightly offset by a $15,000 increase to tax expense for interest
related to income tax exposures, both of which are treated as discrete items. The effective income (benefit) tax rate for the three months ended December 31, 2006 includes the effects of the in-process research and development
(IPR&D) charge of $4.0 million related to the Catalyst acquisition, a discrete item, which is not deductible for tax purposes. The Company calculates income tax expense based upon an annual estimated effective tax rate that includes
estimates and assumptions that may change during the year. The differences between the annual estimated effective tax rate and the U.S. federal statutory rate of 35% principally result from the Companys geographical distribution of taxable
income, and differences between the book and tax treatment of certain items.

Comparison of the Six-Month Periods Ended December 31, 2007 and 2006

Total revenues were $79.3 million for the six months ended December 31, 2007, compared to $75.2 million for the comparable prior
year period, representing an increase of 5.5%, or approximately $4.1 million, primarily as a result of increased sales of Test and measurement products. Foreign currency fluctuations increased total revenues by $2.0 million in the first six months
of fiscal 2008 as compared to the same period last year. The increase in Test and measurement products was driven mainly by increased oscilloscope product shipments as a result of an improved distribution channel, growth in the protocol analysis
products through the adoption of six Gb SAS standards, and the incremental impact from the Catalyst acquisition in fiscal 2007 which was approximately 3.8% of revenues; these increases were substantially offset by decreased demand and softness in
orders from Japan.

Service and other revenues primarily consist of service revenues and maintenance fees. Service and other revenues were
$2.8 million for the six months ended December 31, 2007, representing a decrease of 21.0% or approximately $0.8 million, compared to $3.6 million for the comparable prior year period. The reduction was the result of an overall decrease in
service revenue, primarily from the realignment of our Japan operations.



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Revenues by geographic location expressed in dollars and as a percentage of total revenues were:



|                   |  |                                         |        |   |      |   |        |  
|------------------ |  | --------------------------------------- | ------ | - | ---- | - | ------ | -
|                   |  | Six months endedDecember 31,(unaudited) |       
|                   |  | 2007                                    |        |   | 2006 |  
|                   |  | (In thousands)                          |       
|North America      |  | $                                       | 25,315 |   |      | $ | 23,950 |  
|Europe/Middle East |  |                                         | 29,188 |   |      |   | 26,883 |  
|Japan              |  |                                         | 7,271  |   |      |   | 8,049  |  
|Asia/Pacific       |  |                                         | 17,499 |   |      |   | 16,275 |  
|                   |  |                                         |        |   |      |   |        |  
|Total revenues     |  | $                                       | 79,273 |   |      | $ | 75,157 |  
|                   |  |                                         |        |   |      |   |        |  
|                   | 
|                   |  | Six months endedDecember 31,(unaudited) |       
|                   |  | 2007                                    |        |   | 2006 |  
|North America      |  |                                         | 31.9   | % |      |   | 31.8   | %
|Europe/Middle East |  |                                         | 36.8   |   |      |   | 35.8   |  
|Japan              |  |                                         | 9.2    |   |      |   | 10.7   |  
|Asia/Pacific       |  |                                         | 22.1   |   |      |   | 21.7   |  
|                   |  |                                         |        |   |      |   |        |  
|Total revenues     |  |                                         | 100.0  | % |      |   | 100.0  | %
|                   |  |                                         |        |   |      |   |        |  

For the six months ended December 31, 2007, geographic revenue was higher in all regions
except Japan. The gains in Europe/Middle East and Asia/Pacific were driven by strong distribution channels and improved sales productivity. Improved performance in North America resulted from our distribution channel restructuring. Foreign currency
fluctuations increased Europe/Middle East revenues by $1.9 million in the first six months of fiscal 2008 as compared to the same period last year. These gains were offset by decreases in Japan, primarily from the realignment of our Japan operations
and local economic conditions.

Gross profit for the six month ended December 31, 2007 was $46.0 million, or 58.1% gross margin,
compared to $42.0 million, or 55.9% gross margin, for the comparable prior year period. The lower gross margin in fiscal 2007 was primarily attributable to Catalyst Merger-related non-cash charges of $1.5 million for the write-up of inventory sold
as well as $0.7 million for the amortization of acquired Catalyst intangible assets. In addition, the fiscal 2008 gross margins benefited from higher sales volume, especially in oscilloscope products.

Selling, general and administrative (SG&A) expense was $26.5 million for the six months ended December 31, 2007 compared to $27.5
million for the six months ended December 31, 2006, representing a decrease of 3.7% or $1.0 million. The decrease was attributable to a reduction in general spending levels, resulting from the prior years cost-cutting and business
realignment efforts, slightly offset by SG&A expense from Catalyst and restructuring charges. As a percentage of total revenues, SG&A expense decreased from 36.6% in the six months ended December 31, 2006 to 33.4% in the six months
ended December 31, 2007 as a result of a higher sales base as well as benefits derived from prior years cost-cutting and realignment efforts.

Research and development (R&D) expense was $14.9 million for the six months ended December 31, 2007, compared to $20.5 million for the comparable prior year period, a decrease of 27.3% or $5.6 million. As a percentage
of total revenues, R&D expense decreased from 27.3% in the six months ended December 31, 2006 to 18.8% in the six months ended December 31, 2007. The decrease resulted primarily from the $4.0 million charge for acquired in-process
research and development costs related to the Catalyst acquisition, recorded in the second quarter of fiscal 2007, along with $0.3 million of restructuring charges also recorded in the prior year quarter. Also contributing to the decrease in R&D
expense were business realignment efforts and a reduction in expenses incurred for prototype materials and supplies.

Other (expense)
income, net, which consists primarily of net interest income and expense and foreign exchange gains and losses, was an expense of $(2.5) million for the six months ended December 31, 2007 and 2006. Net interest expense was approximately $(2.2)
million for the six months ended December 31, 2007 as compared to $(2.0) million for the comparable prior year period due to the higher average debt balance outstanding as a result of the issuance of the convertible notes during the second
quarter of fiscal 2007. In addition, there was a foreign exchange loss of $(0.3) million for the six months ended December 31, 2007 compared to a foreign exchange loss of $(0.1) million for the comparable prior year period. The other (expense)
income, net reflects the $(0.4) million of loss on extinguishment of debt in the second quarter of fiscal 2007 related to the write-off of deferred finance charges associated with the term loan that was fully repaid in the prior year period.

The effective income tax rate for the six months ended December 31, 2007 was 10.8%, compared to an effective income (benefit) tax
rate of (16.9)% for the six months ended December 31, 2006. The effective income tax rate for the six months ended December 31, 2007 includes the effect of a reduction of tax expense of $0.5 million resulting from the final



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true-up of the prior years 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, slightly offset by a $15,000 increase to tax expense for interest related to income tax exposures, both of which are treated as discrete items. The effective income tax rate for the
six months ended December 31, 2006 includes the effects of the in-process research and development (IPR&D) charge of $4.0 million related to the Catalyst acquisition, a discrete item, which is not deductible for tax purposes.
The Company calculates income tax expense based upon an annual estimated effective tax rate that includes estimates and assumptions that may change during the year. The differences between the annual estimated effective tax rate and the U.S. federal
statutory rate of 35% principally result from the Companys geographical distribution of taxable income, and differences between the book and tax treatment of certain items.

Income Taxes

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), 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 a 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 impact of adopting FIN 48 and FSP-FIN 48-1 on the
Companys consolidated financial statements is summarized below:



|                                                   |  |                        |  |                  |   |  |                      
|-------------------------------------------------- |  | ---------------------- |  | ---------------- | - |  | ---------------------
|                                                   |  | Balance atJune 30,2007 |  | FIN 48Adjustment |   |  | Balance atJuly 1,2007
|Goodwill                                           |  | 105,885                |  | (114             | ) |  | 105,771              
|Other non-current assets                           |  | 14,453                 |  | 1,057            |   |  | 15,510               
|Accrued expenses and other current liabilities     |  | 15,408                 |  | (1,968           | ) |  | 13,440               
|Deferred revenue and other non-current liabilities |  | 1,246                  |  | 2,853            |   |  | 4,099                
|Retained earnings                                  |  | 2,486                  |  | 58               |   |  | 2,544                

We operate in multiple taxing jurisdictions, both within the United
States and outside of the United States, and we are potentially subject to audits from various tax authorities. At July 1, 2007 and December 31, 2007, the total amount of unrecognized tax benefits related to federal, state and foreign taxes and
accrued interest was approximately $10.1 million and $10.4 million, respectively (of which approximately $7.5 million and $7.8 million, respectively, would impact the effective tax rate if recognized). Approximately $2.6 million of the total
unrecognized tax benefits are related to the CATC acquisition, and would reduce goodwill if recognized at July 1, 2007 and December 31, 2007. As of December 31, 2007, we have $10.4 million of unrecognized tax benefits, of which, $2.9 million are
reflected as a non-current liability and $7.5 million are reflected as a reduction of gross deferred tax assets.

We anticipate that
approximately $0.1 million of net unrecognized tax benefits will be recognized during the next twelve months due to the expiration of the statute of limitations 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
July 1, 2007 and December 31, 2007, the total amount of accrued interest and penalties, before federal and, if applicable, state effect, was approximately $57,000 and $72,000, respectively.

We file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. For federal and foreign income tax purposes,
our fiscal 2004 through 2007 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) our fiscal 2003 through 2007 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 December 31, 2007 were $12.1 million compared to $10.4 million at June 30, 2007.

Net cash provided by operating activities was $6.5 million in the six months ended December 31, 2007 compared to $1.5 million in the same period
last year. The net cash provided by operating activities was attributable to net income of $1.9 million, depreciation, amortization, and non-cash share-based compensation expense, offset in part by working capital requirements of $1.5 million for
the six months ended December 31, 2007.



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Net cash used in investing activities was $1.1 million in the six months ended December 31, 2007
compared to $34.4 million in the same period in fiscal 2007. Net cash used in fiscal 2008 relates to the purchase of property and equipment, while net cash used in fiscal 2007 was primarily due to $31.2 million net cash paid in connection with the
Catalyst acquisition.

Net cash used in financing activities was $4.0 million in the six months ended December 31, 2007 compared to
net cash provided by financing activities of $30.7 million in the same period in fiscal 2007. Net cash used in financing activities in fiscal 2008 primarily resulted from $3.4 million repayment of borrowings under the credit agreement and $1.0
million for repurchases of treasury stock. Net cash provided by financing activities in fiscal 2007 was primarily attributable to proceeds from the issuance of convertible notes of $72.0 million and borrowings under the credit agreement of $31.8
million, partially offset by the repayment of the term loan for $34.1 million, repayments under the credit agreement of $25.3 million, purchase of treasury shares for $10.5 million and payment of debt issuance costs related to the convertible note
of $3.2 million.

We believe that our cash and cash equivalents on hand, cash flow generated by our continuing operations and availability
under our revolving credit line 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 and provide funds for potential acquisition opportunities.



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Contractual Obligations and Other Commitments

Our contractual obligations and commitments include obligations associated with our employee severance agreements, supplier agreements, operating and
capital leases, revolving credit, note payable and convertible note obligations as set forth in the table below:



|                                        |       |                                                |                 |  |           |       |           |   |                  |  |   |        |  |   |   
|--------------------------------------- | ----- | ---------------------------------------------- | --------------- |  | --------- | ----- | --------- | - | ---------------- |  | - | ------ |  | - | --
|(In thousands)                          |       | Payments due by Period as of December 31, 2007
|                                        | Total |                                                | Less than1 Year |  | 1-3 Years |       | 3-5 Years |   | More than5 Years
|Severance                               |       | $                                              | 803             |  |           | 803   |           |   |                 |  |   |       |  |   |  
|Supplier agreements                     |       |                                                | 235             |  |           | 235   |           |   |                 |  |   |       |  |   |  
|Operating lease obligations             |       |                                                | 4,185           |  |           | 2,142 |           |   | 1,835            |  |   | 195    |  |   | 13
|Vendor supplied capital lease agreement |       |                                                | 665             |  |           | 226   |           |   | 439              |  |   |       |  |   |  
|Revolving credit obligation             |       |                                                | 6,000           |  |           |      |           |   |                 |  |   | 6,000  |  |   |  
|Note payable                            |       |                                                | 3,500           |  |           | 3,500 |           |   |                 |  |   |       |  |   |  
|Convertible notes (1)                   |       |                                                | 72,000          |  |           |      |           |   |                 |  |   | 72,000 |  |   |  
|                                        |       |                                                |                 |  |           |       |           |   |                  |  |   |        |  |   |   
|Total (2)                               |       | $                                              | 87,388          |  | $         | 6,906 |           | $ | 2,274            |  | $ | 78,195 |  | $ | 13
|                                        |       |                                                |                 |  |           |       |           |   |                  |  |   |        |  |   |   



|(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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Contractual Obligations and Other Commitments disclosed in our Form 10-K for the year ended June 30, 2007 did not include any reserves for income taxes under FIN 48.
Because we are unable to reasonably predict the ultimate amount or timing of settlement of our reserves for income taxes, the Contractual Obligations and Other Commitments table has not been updated to include our reserves for income taxes. As of
December 31, 2007, our reserves for income taxes totaled $2.9 million which is reflected as a non-current liability and included in Deferred revenue and other non-current liabilities on our consolidated balance sheets. (See Note 17 
Income Taxes for additional information).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155 (SFAS 155), Accounting for Certain Hybrid Instruments, an amendment of FASB Statements No. 133 and 140. SFAS 155 allows financial
instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to separate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. It also clarifies which
interest-only strips and principal-only strips are not subject to the requirements of SFAS133; establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid
financial instruments that contain an embedded derivative requiring separation; clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and amends SFAS No. 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after
the beginning of an entitys first fiscal year that begins after September 15, 2006. The adoption of SFAS 155 did not have a material effect on our consolidated financial condition or results of operations.

In June 2006, the Emerging Issues Task Force (EITF) issued EITF Abstract 06-2 (EITF 06-2), Accounting for Sabbatical Leave
and Other Similar Benefits Pursuant to FASB Statement No. 43. EITF 06-2 provides guidance that an employees right to a compensated absence under a sabbatical or other similar benefit arrangement should be accrued over the requisite
service period. EITF 06-2 is effective for fiscal years beginning after December 15, 2006. EITF 06-2 allows for adoption through retrospective application to all prior periods or through a cumulative-effect adjustment to retained earnings. The
Company adopted EITF 06-2 beginning July 1, 2007 using the cumulative-effect adjustment approach. The effect of this adoption resulted in a decrease to beginning retained earnings of $0.2 million, a decrease to deferred tax assets of $0.1
million and an increase to Accrued expenses and other current liabilities and Deferred revenue and other non-current liabilities of $0.2 million and $0.1 million, respectively.

In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes  An
Interpretation of FASB Statement No. 109, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48
was effective for fiscal years beginning after December 15, 2006, and was adopted by the Company effective July 1, 2007. See Note 17  Income Taxes for the impact of the adoption of FIN 48 on the Companys consolidated financial
statements.

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. SFAS 157 requires companies to disclose the fair value of their financial instruments according to a fair value
hierarchy as defined in the standard. Additionally, companies are required to provide enhanced disclosure regarding financial instruments in one of the categories, including a reconciliation of the beginning and ending balances separately for each
major category of assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management is currently evaluating the effect
that adoption of this statement will have on the Companys consolidated financial position and results of operations.

In December
2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP EITF 00-19-2). FSP EITF 00-19-2 specifies that registration payment arrangements should play no part in determining
the initial classification and subsequent accounting for the securities to which they relate. FSP EITF 00-19-2 requires the contingent obligation in a registration payment arrangement to be separately analyzed under SFAS No. 5, Accounting
for Contingencies, and FASB Interpretation No. 14, Reasonable Estimations of the Amount of a Loss. If payment in a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded.
FSP EITF 00-19-2 is effective for fiscal years beginning after December 15, 2006. The adoption of this FSP did not have a material effect on our consolidated financial position or results of operations.

In February 2007, the 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 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS 159 apply only to entities that elect
the fair value option. However, the amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. SFAS 159 is effective as of the
beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the
provision of SFAS 157. Management is currently evaluating the effect that adoption of SFAS 159 will have on the Companys consolidated financial position and results of operations.



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In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48 (FSP-FIN 48-1). FSP-FIN 48-1 further clarifies if it is appropriate for an entity to recognize a previously unrecognized tax benefit when the only change since the initial determination is the completion
of an examination or audit by a taxing authority. FSP-FIN 48-1 provides the determination of whether the position is effectively settled should be taken on a case by case basis; however, positions may be grouped by tax year and considered
effectively settled. The adoption of this position on July 1, 2007 did not have a significant impact on the Companys consolidated financial statements (See Note 17  Income Taxes for additional information).

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 is effective for interim or annual reporting periods in fiscal years beginning after December 15, 2007. Management is currently evaluating the impact of adopting EITF 07-03 on its financial statements
and results of operations; however, we do not expect it will have a material effect on our 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. SFAS 141R also establishes
disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. 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. Early adoption is not permitted. Management is currently evaluating the effect that adoption of SFAS 141R will have on the Companys consolidated
financial position and results of operations.

Forward-Looking Information

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements generally are identified by the words believe, project, expect, anticipate, estimate, intend, strategy, plan, may,
should, will, would, will be, will continue, will likely result, and similar expressions. Forward-looking statements are based on current expectations and assumptions that are
subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ
materially from such forward-looking statements is included in our 2007 Annual Report on Form 10-K under the heading Risks Related to Our Business. We undertake no obligation to update or revise publicly any forward-looking statements,
whether as a result of new information, future events, or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in
market risk since the filing of the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2007.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information relating
to the Company and the Companys consolidated subsidiaries required to be disclosed in the Companys reports filed or submitted under the Exchange Act.

Changes in Internal Controls Over Financial Reporting

There have been no changes in the Companys internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, its internal control over
financial reporting.



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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 patent and environmental matters, which arise in the ordinary course of business. There are no matters pending that the Company expects to have a material adverse affect on business, results of operations, financial
condition or cash flows.

ITEM 1A. RISK FACTORS

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 30, 2007.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Repurchases of Equity Securities

On May 25, 2006, LeCroys Board of Directors approved the adoption of a share repurchase plan authorizing the Company to
purchase up to 2 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 Companys 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
LeCroys purchases of its common stock on a monthly basis during the second quarter of fiscal 2008. Share repurchases are recorded on a trade date basis.



|                                      |  |                               |  |                            |      |                                                                             |        |                                                                            |        
|------------------------------------- |  | ----------------------------- |  | -------------------------- | ---- | --------------------------------------------------------------------------- | ------ | -------------------------------------------------------------------------- | -------
|Period                                |  | TotalNumber ofSharesPurchased |  | AveragePrice Paidper Share |      | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor
Program |        | Maximum Numberof Shares that MayYet Be PurchasedUnder the Plans orPrograms
|October 1, 2007 to October 31, 2007   |  | 30,000                        |  | $                          | 8.23 |                                                                             | 30,000 |                                                                            | 885,717
|November 1, 2007 to November 30, 2007 |  | 32,131                        |  | $                          | 9.23 |                                                                             | 32,131 |                                                                            | 853,586
|December 1, 2007 to December 31, 2007 |  | 16,250                        |  | $                          | 9.10 |                                                                             | 16,250 |                                                                            | 837,336
|Total                                 |  | 78,381                        |  | $                          | 8.82 |                                                                             | 78,381 |                                                                            | 837,336
|                                      |  |                               |  |                            |      |                                                                             |        |                                                                            |        



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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our 2007 annual meeting of stockholders was
held on October 31, 2007. At the meeting, our stockholders approved one proposal presented pursuant to the vote totals indicated below:





|                                                           |  |                      |  |                 
|---------------------------------------------------------- |  | -------------------- |  | ----------------
|                                                           |  | Vote (No. of Shares)
|Director Nominee                                           |  | For                  |  | Against/Withheld
|Election of Robert E. Anderson, as a Class III Director    |  | 9,740,082            |  | 1,150,083       
|Election of Walter O. LeCroy, Jr., as a Class III Director |  | 9,309,257            |  | 1,580,908       
|Election of Thomas H. Reslewic, as a Class III Director    |  | 9,728,434            |  | 1,161,731       

As of October 31, 2007, Charles A. Dickinson, Norman R. Robertson, William G. Scheerer, and
Allyn C. Woodward, Jr. were members of the Board of Directors whose terms of office continued after the annual meeting of stockholders.



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ITEM 6. EXHIBITS

The following exhibits are filed herewith or incorporated by reference to exhibits previously filed with
the SEC.



|              |  |                                                                                                                                                                             
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                 
|3.4           |  | Second Amendment to the By-Laws of Registrant, adopted on December 10, 2007, filed as Exhibit 3.01 to Form 8-K filed on December 11, 2007, incorporated herein by reference.
|              | 
|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.                                                                                            



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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: February 7, 2008 |  | LeCROY CORPORATION                                                 
|                       | 
|                       |  | /s/ Sean B. OConnor                                               
|                       |  | Sean B. OConnor                                                   
|                       |  | Vice President and Chief Financial Officer, Secretary and Treasurer



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