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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JULY 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-10761
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LTX CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2594045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
LTX PARK AT UNIVERSITY AVENUE, WESTWOOD, MASSACHUSETTS 02090
(Address of principal executive offices) (Zip Code)
(617) 461-1000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.05 Per Share
13 1/2% Convertible Subordinated Debentures Due 2011
7 1/4% Convertible Subordinated Debentures Due 2011
Indicate by check mark 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 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the common stock held by non-affiliates of
the registrant on September 30, 1994 was $110,992,241.
Number of shares outstanding of each of the issuer's classes of common
stock as of September 30, 1994:
Common Stock, Par Value $0.05 Per Share, 26,242,657 shares.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT IN CONNECTION WITH ITS 1994
ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III.
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL
YEAR ENDING JULY 31, 1994 ARE INCORPORATED BY REFERENCE INTO PART II.
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LTX CORPORATION
INDEX
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PART I
Item 1. Business.................................................................. 1
Overview................................................................. 1
Products and Markets..................................................... 1
Sales, Service and Customer Support...................................... 4
Customers................................................................ 5
Engineering and Product Development...................................... 5
Manufacturing and Supply................................................. 5
Competition.............................................................. 5
Backlog.................................................................. 6
Proprietary Rights....................................................... 6
Executive Officers of the Company........................................ 6
Environmental Affairs.................................................... 7
Item 2. Properties................................................................ 7
Item 3. Legal Proceedings......................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders....................... 7
PART II
Item 5. Market Value for the Registrant's Common Stock and Related
Security Holder Matters.................................................. 8
Item 6. Selected Consolidated Financial Data...................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 9
Item 8. Financial Statements and Supplementary Data............................... 14
Report of Independent Public Accountants................................. 14
Consolidated Statement of Operations..................................... 15
Consolidated Balance Sheet............................................... 16
Consolidated Statement of Stockholders' Equity........................... 17
Consolidated Statement of Cash Flows..................................... 18
Notes to Consolidated Financial Statements............................... 19
Quarterly Results of Operations (unaudited).............................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................. 27
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 27
Item 11. Executive Compensation.................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 27
Item 13. Certain Relationships and Related Transactions............................ 27
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PAGE
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 28
Financial Statements..................................................... 28
Schedules................................................................ 28
Listing of Exhibits...................................................... 28
Reports on Form 8-K...................................................... 30
Exhibits................................................................. 30
Signatures......................................................................... 31
Item 14(d). Financial Statement Schedules
Schedule V -- Property and Equipment..................................... 32
Schedule VI -- Accumulated Depreciation and Amortization of Property
and Equipment............................................................ 32
Schedule IX -- Short-Term Borrowings..................................... 33
Schedule X -- Supplementary Income Statement Information................. 33
LTX(R), EZNET(R), HiPer(R) and enVision(TM) are all trademarks of
LTX Corporation.
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PART I
ITEM 1. BUSINESS
OVERVIEW
LTX Corporation (the "Company" or "LTX") designs, manufactures and markets
automatic test equipment for the semiconductor industry that is used to test
digital, linear and mixed signal (a combination of digital and linear)
integrated circuits ("ICs") and discrete semiconductor components. The Company
currently offers products in four broad categories: three lines of semiconductor
test systems and a line of test system networking products. The three lines of
test systems are: digital test systems, which test digital ICs, including
microprocessors and microcontrollers; linear/mixed signal test systems, which
test a wide range of linear and mixed signal ICs; and discrete component test
systems, which test small signal and high-power semiconductor components. The
Company also sells service and applications support for its test systems. The
semiconductors tested by the Company's test systems are widely used in the
computer, communications, automotive and consumer electronics industries. The
Company markets its products worldwide to both manufacturers and users of
digital, linear and mixed signal ICs and discrete semiconductor components.
The semiconductor industry is segmented into broad product categories,
including digital, linear, mixed signal and memory ICs and discrete components.
The testing of each semiconductor product category requires specific procedures
and capabilities, which may vary significantly. All semiconductor manufacturers
use semiconductor test equipment ("STE") in the design and manufacture of ICs.
During design, STE is used for design verification, characterization,
qualification and failure analysis of ICs. During manufacture, STE is used
during wafer probing to select usable ICs and after packaging to classify ICs by
performance characteristics and to assure conformance with quality standards. In
addition, certain large electronic equipment manufacturers employ STE for
incoming inspection and for further classification of ICs.
Advances in semiconductor technology have permitted the design and
manufacture of increasingly complex semiconductor devices. These devices provide
improved performance, lower cost and greater reliability than earlier
generations of devices. As a result, the use of semiconductors has proliferated
across many industries, particularly in applications for the computer,
communications, automotive and consumer electronics industries. In turn, the
increasing complexity and variety of ICs has created a demand for STE that is
faster, more versatile, more accurate, more productive and easier to program and
maintain.
PRODUCTS AND MARKETS
The Company offers products in four broad product categories:
- digital test systems, which include the Deltamaster and Micromaster test
systems and enVision test development software, with the Company's new
Delta 100 and Delta 50 test systems scheduled for delivery in fiscal
1995;
- linear/mixed signal test systems, which include the Synchro and Ninety;
- discrete component test systems, marketed as the iPTest product line; and
- test system networking products, marketed under the name EZNET.
All of the Company's test systems are comprised of a set of computer-controlled
instruments which send signals to a device under test and measure the responses
of that device to classify the device by performance characteristics and to
ensure conformance with quality standards.
DIGITAL PRODUCTS
The Company markets its digital test systems under the Trillium name. These
digital products are used to test digital ICs, in particular microprocessors and
microcontrollers. These digital devices are used to operate and control nearly
all electronic products. Microprocessors are found in personal computers,
engineering workstations and industrial control systems and are among the most
expensive semiconductor devices. Microcontrollers are used in automobiles, home
appliances, cellular phones and televisions. Products that
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incorporate microprocessors or microcontrollers typically include other digital
ICs that are tested to the same standards as the related microprocessor or
microcontroller.
Deltamaster and Micromaster
The Deltamaster, introduced in 1990, is a high-performance system with the
capability of testing up to 256 pins at data rates of up to 80 MHz or up to 128
pins at data rates of up to 160 MHz. The Micromaster, introduced in 1987, is a
lower-priced system that can test up to 256 pins at data rates of up to 40 MHz.
The Micromaster is device interface and software compatible with the
Deltamaster. Both test systems achieve timing accuracy of 250 pico seconds,
feature resource-per-pin architecture and are compatible for use with the
Company's HiPer pin card.
In resource-per-pin architecture, there is a complete set of the test
system's key features (timing generators, waveform formatting and pattern
memory) for each pin of the test system. The Company believes that this
architecture provides faster, simpler characterization and engineering debugging
of new ICs, better system timing accuracy and simplified interfacing to
computer-aided design systems.
Pin cards located in the test head interface the capabilities of the test
system to the device under test. In many test systems, pin card performance is
the limiting factor of overall system performance. The Company's HiPer pin card
has been designed to provide a high degree of signal fidelity, fast rise time
and constant impedance.
Prices for the Deltamaster and Micromaster lines of testers currently range
from approximately $400,000 to approximately $2,000,000, depending on the system
configuration and timing accuracy specifications. The Company intends to
continue manufacturing, marketing and servicing both of these systems, although
it expects that its Delta 100 and Delta 50 new generation of test systems,
described below, will begin to replace the Deltamaster and Micromaster when
deliveries begin in fiscal 1995.
enVision
In fiscal 1993, LTX completed the development of its new object-oriented
enVision programming software for use on all LTX digital systems. In earlier
generation software languages, programming commands made direct reference to the
hardware of the test system, which required the user to have a detailed
knowledge of the system's hardware. In contrast, this detailed knowledge is not
required when using enVision, thereby allowing the programmer to focus attention
on refining the test program for the specific IC under test. Thus, the Company
has designed enVision to be more device oriented than tester oriented.
enVision permits a user to test multiple devices at the same time. For
example, when used with a Deltamaster, enVision permits simultaneous testing of
four microprocessors with 64 pins each. This capability of enVision
significantly improves the throughput of the Company's digital test systems.
enVision has been designed to run with the Deltamaster and Micromaster test
systems and is an integral feature of the Delta 100 and Delta 50 test systems.
The current price for enVision is approximately $15,000 per workstation.
Delta 100 and Delta 50
The Company plans to deliver in fiscal 1995 two new digital test systems,
the Delta 100 and the Delta 50. The Delta 100 is specifically designed for
testing high performance CISC (complex instruction set computing) and RISC
(reduced instruction set computing) microprocessors and the ICs that make up the
chip sets that are used with them. The Delta 100 has resource-per-pin
architecture and can test up to 512 pins at data rates of up to 100 MHz. Timing
accuracy of 150 pico seconds is a significant improvement over the Deltamaster
and Micromaster test systems.
The Delta 50 is designed for the production test needs of microcontroller
and digital IC manufacturers who do not require the sophisticated performance
characteristics of the Delta 100. The Delta 50 has resource-per-pin architecture
and is capable of testing 512 pins at data rates of up to 50 MHz or 256 pins at
data rates of up to 100 MHz.
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In fiscal 1993, the Company entered into a development, manufacturing and
marketing agreement with Ando Electric Co., Ltd. ("Ando"), a Japanese STE
manufacturer and majority owned subsidiary of Nippon Electric Corporation, Ltd.,
relating to the Delta 50. The Company has developed the Delta 50 in conjunction
with Ando and has granted Ando exclusive rights to manufacture the Delta 50 in
Japan. The Company has retained exclusive rights to manufacture the Delta 50
outside of Japan. With certain exceptions in each case, Ando has the exclusive
right to sell the Delta 50 in Japan and the Company has exclusive marketing
rights for the rest of the world. In July 1994, the Company amended its
development agreement with Ando to allow for further development and
enhancements to the Delta 50 (see Note 5).
Both the Delta 100 and Delta 50 operate with the Company's enVision
software, which will enable the Company to offer these compatible high and low
end products in the same market. The Company expects the compatibility of these
systems to facilitate migration to the Delta 100 test system by Delta 50 users.
Prices for the Delta 100 will range from approximately $1,200,000 to
approximately $4,900,000, depending on the system configuration. Prices for the
Delta 50 range from approximately $500,000 to approximately $2,500,000, also
depending on the system configuration.
LINEAR/MIXED SIGNAL PRODUCTS
LTX offers two product lines for testing linear/mixed signal ICs, Synchro
and Ninety, introduced in 1990 and 1986, respectively. Linear ICs are used in
almost every electronic application. The very nature of physical occurrences,
such as sound, images, temperature, pressure, speed, acceleration, position and
rotation, consists of continuously varying information. Linear ICs are used to
amplify, filter and shape this information. Mixed signal ICs are capable of
converting the signals from linear ICs into a digital format that can be
processed by a computer. Mixed signal devices can also convert processed digital
information into a linear form to control physical phenomena or to improve sound
and images.
Linear and mixed signal ICs are widely used in automobiles, computers,
telephones and such home entertainment products as video cassette recorders,
cameras, compact disc players and video games. The complexity and density of
these ICs have increased rapidly over the past several years, particularly as
the demand for portable, battery operated products has required IC manufacturers
to integrate more functions on each chip and reduce size and power consumption.
These technological advances have resulted in increased demand for higher
performance linear/mixed signal test systems.
Synchro
The Synchro is the latest generation of the Company's linear/mixed signal
test systems. Synchro test systems are designed for high throughput testing of
linear devices and for testing of mixed signal devices that require high digital
pattern rates and high digital pin counts. The Synchro features independent
microprocessors that concurrently control both linear and digital resources at
each pin of the IC under test. This design permits the generation of test
signals and measurements on many device pins at the same time, producing faster
test times on high pin count ICs.
LTX offers a wide array of options with the Synchro to address the various
linear/mixed signal test requirements of its customers. In fiscal 1994, the
Company began delivering a new Synchro test system, the Synchro 160, to meet the
test requirements of newer disk drive and communications devices. The Synchro
160 can test up to 160 pins at data rates of up to 200 MHZ and is compatible
with other existing systems in the Synchro line. All Synchro test systems can
incorporate the HiPer pin card used on the Company's digital test systems. The
Company offers equipment, some of which is manufactured by third parties, and
software with its Synchro systems that expand the use of these systems into
other manufacturing applications, such as laser trimming and testing of
electronic sub-assemblies. Current prices of the Synchro range from
approximately $350,000 for a low pin count linear system to approximately
$2,000,000 for a high pin count mixed signal system.
Ninety
The Ninety system is an improved version of the LTX77, the Company's first
linear/mixed signal test system introduced in 1977. Although the Synchro has
largely superseded the Ninety, the Company continues
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to manufacture the Ninety for customers who are already using the Ninety or
LTX77 systems and desire to expand capacity. As with the Synchro, a wide array
of options are available. The current price range for the Ninety is from
approximately $200,000 to approximately $700,000, depending on the system
configuration.
Over the years, the Company has significantly upgraded the performance and
capabilities of the Ninety and LTX77 systems through the introduction of new
hardware and software. In fiscal 1992, the Company introduced the CP100, an
improved computer for use with the Ninety and LTX77 systems. The CP100 is
smaller and faster than the computer originally installed with these systems.
The Company currently offers the CP100 for approximately $80,000.
DISCRETE PRODUCTS
The Company's iPTest systems are used to test discrete semiconductor
components, such as diodes, small signal transistors and power transistors, as
well as arrays of these components. These discrete components are used in every
area of electronics. iPTest systems are also capable of accurately measuring the
characteristics of transient voltage suppression components, which are widely
used to protect personal computers and telecommunications products from harmful
voltage spikes or surges.
The Company expects that arrays of discrete components, such as
multi-device modules, will replace transistors in electric motor control and
will permit a wider use of semiconductors in extremely high power applications,
such as air conditioners, domestic appliances, electric locomotives and
automobiles. These arrays of discrete components are mostly constructed from
high power transistors of IGBT (insulated gate bipolar transistor) and MOSFET
technology. The Company's development programs for iPTest products are largely
focused on testing of these newer components, which the Company believes may
become the most significant market for discrete component test systems.
Prices of iPTest systems currently range from approximately $100,000 to
approximately $700,000, depending on the system configuration and testing
specifications.
NETWORKING PRODUCTS
LTX offers its EZNET hardware and software products to enable its customers
to interface LTX test systems as well as competitors' test systems with the
customer's manufacturing, engineering or management information systems. These
products enable the Company to provide its customers with a complete solution to
their test information needs. Included in the Company's EZNET product line is
its dataVision software package, which is used by customers to collect, analyze
and archive data from the testing process. EZNET systems typically range in
price from approximately $80,000 to approximately $250,000.
SALES, SERVICE AND CUSTOMER SUPPORT
The Company sells, services and supports its products primarily through its
worldwide sales and support organization. In Japan, the Company sells, services
and supports its products through its joint venture with Sumitomo Metal
Industries, Ltd. ("SMI"), except that Ando has the right to manufacture and sell
the Delta 50 to certain customers in Japan and to sell the Delta 100 to these
customers. The Company shares with its joint venture with SMI specified portions
of the royalties paid by Ando on the Delta 50 and of the revenues received on
the Delta 100. The Company uses a small number of independent sales
representatives in certain other regions of the world.
The Company considers service and support to be important to the success of
its business because of the highly technical nature of its products. Customer
support activities include installation, training, field service and
applications assistance. At July 31, 1994, the Company maintained 22 customer
support centers and three additional sales offices around the world. The
Company's support personnel are capable of performing all necessary maintenance
of test systems sold by the Company, including routine servicing of components
manufactured by third parties.
The Company is subject to the usual risks of international trade, including
unfavorable economic conditions, political instability, restrictive trade
policies, controls on funds transfers and foreign currency
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fluctuations. Most of the Company's export sales have been made in United States
dollars or dollar equivalents. For the fiscal years 1994, 1993 and 1992 export
sales made either directly from the United States or through foreign
subsidiaries and the joint venture accounted for 61%, 47% and 43%, respectively,
of net sales. Profit margins on export sales are approximately the same as on
domestic sales. For information about the Company's foreign operations and
export sales, see Note 10 of Notes to the Company's Consolidated Financial
Statements.
The Company provides a one-year parts and three-month labor warranty on
test systems or options designed and manufactured by the Company, and a
three-month labor warranty on components that have been purchased from other
manufacturers and incorporated into the Company's test systems. Customers who
desire longer term warranties may enter into maintenance contracts with LTX.
CUSTOMERS
The Company's customers include many of the world's leading semiconductor
manufacturers. The Company's major customers in fiscal 1994 include:
AT&T Philips
Hitachi Samsung
Intel SGS-Thomson
Motorola Silicon Systems
National Semiconductor Sony
Sales to these major customers accounted for approximately 58% of net sales
in fiscal 1994. No single customer accounted for 10% or more of net sales in
fiscal 1994. Sales to Intel accounted for approximately 16% and 22% of net sales
in fiscal 1993 and 1992, respectively. Sales to National Semiconductor accounted
for 10% of net sales in fiscal 1992.
ENGINEERING AND PRODUCT DEVELOPMENT
The market for STE is characterized by rapid technological change. The
Company believes that the timely introduction of new products and improvements
to existing products are essential for the Company to maintain its competitive
position. Accordingly, the Company devotes a significant portion of its
personnel and financial resources to engineering and product development
programs and seeks to maintain close relationships with its customers in order
to be responsive to their product needs. The Company's expenditures for
engineering and product development were $19,604,000, $19,744,000 and
$21,943,000 during fiscal year 1994, 1993 and 1992, respectively.
MANUFACTURING AND SUPPLY
LTX's principal manufacturing operations consist of component parts
assembly, final assembly and testing at its manufacturing facilities in
Westwood, Massachusetts and San Jose, California. The Company uses standard
components and prefabricated parts manufactured to the Company's specifications.
Most of the components for the Company's products are available from a number of
different suppliers; however, certain components are purchased from a single
supplier. Although LTX believes that all single-source components currently are
available in adequate amounts, there can be no assurance that shortages will not
develop in the future. Any disruption or termination of supply of certain
single-source components could have an adverse effect on the Company's business
and results of operations.
COMPETITION
The STE industry is highly competitive, with many other domestic and
foreign companies participating in the markets for each of the Company's
products. The Company's major competitors in the market for digital test systems
are Advantest Corporation (an affiliate of Fujitsu Limited), Schlumberger
Limited and Teradyne, Inc. The Company's principal competitor for linear/mixed
signal test systems is Teradyne, Inc. The Company's principal competitor for
discrete component test systems is Tesec, Ltd. Most of the Company's
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major competitors are also suppliers of other types of automatic test equipment
and have significantly greater financial and other resources than the Company.
The Company principally competes on the basis of performance, reliability,
customer service, applications support, price and ability to deliver its
products on a timely basis. Although the Company believes that it competes
favorably with respect to each of these factors, new product introductions by
the Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. In addition, increased
competitive pressure could lead to intensified price-based competition,
resulting in lower prices and adversely affecting the Company's business and
results of operations.
BACKLOG
At July 31, 1994, the Company's backlog of unfilled orders for all products
and services was $71.8 million, compared with $42.2 million at July 31, 1993.
The Company expects to ship 90% of its July 31, 1994 backlog in fiscal 1995.
While backlog is calculated on the basis of firm orders, no assurance can be
given that customers will purchase the equipment subject to such orders. As a
result, the Company's backlog at a particular date is not necessarily indicative
of actual sales for any succeeding period.
PROPRIETARY RIGHTS
The development of the Company's products is largely based on proprietary
information. The Company relies upon a combination of contract provisions,
copyright, trademark and trade secret laws to protect its proprietary rights in
products. It also has a policy of seeking patents on technology considered of
particular strategic importance. Although the Company believes that the
copyrights, trademarks and patents it owns are of value, the Company believes
that they will not determine the Company's success, which depends principally
upon its engineering, manufacturing, marketing and service skills. However, the
Company intends to protect its rights when, in its view, these rights are
infringed upon.
EXECUTIVE OFFICERS OF THE COMPANY
The Executive Officers of the Company are as follows:
EXECUTIVE OFFICER AGE POSITION
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Roger W. Blethen......................... 43 President and Director
Martin S. Francis........................ 48 President and Director
John J. Arcari........................... 49 Chief Financial Officer and Treasurer
Kenneth E. Daub.......................... 58 Senior Vice President
Executive officers are chosen by and serve at the discretion of the Board
of Directors of the Company.
Roger W. Blethen was elected a President of the Company in February 1994.
Mr. Blethen has been a Director since 1980 and had been a Senior Vice President
of the Company from 1985 until February 1994. Mr. Blethen was a founder of LTX
and has served in a number of senior management positions with the Company since
its formation in 1976.
Martin S. Francis was elected a President of the Company in February 1994.
Mr. Francis has been a Director since 1991 and had been responsible for
International Sales and Support Activities of the Company from 1989 until 1991,
as a Vice President, and from 1991 until 1994, as a Senior Vice President. Prior
to 1989, Mr. Francis had held senior management positions in the Company's
European and Japanese operations from the time that he joined LTX in 1982.
John J. Arcari has been Chief Financial Officer and Treasurer of the
Company since 1987. He had been Controller of LTX since joining the Company in
1981. Prior to joining LTX, Mr. Arcari spent ten years with the public
accounting firm of Price Waterhouse as a certified public accountant.
Kenneth E. Daub was appointed a Senior Vice President of the Company in
1991 and is responsible for North American and Pacific Rim sales. From the time
he joined the Company in 1987 until 1991, Mr. Daub
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served as Vice President responsible for North American sales. Prior to joining
the Company in 1987, Mr. Daub held various senior positions with Schlumberger
Limited.
At July 31, 1994, the Company had a total of 880 employees, including 219
in engineering and product development, 180 in service and customer support, 293
in manufacturing, and 188 in sales, marketing and administration. Many of the
Company's employees are highly skilled, and the Company believes its future
success will depend in large part on its ability to attract and retain such
employees. None of the Company's employees are represented by a labor union, and
the Company has experienced no work stoppages. The Company believes that its
employee relations are excellent.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment. The Company does not anticipate
that compliance with these laws and regulations will have a material effect on
its capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
All of the Company's facilities are leased. The Company maintains its
headquarters in Westwood, Massachusetts, where corporate administration, sales
and customer support and manufacturing and engineering for its linear/mixed
signal products are located in two buildings that total 375,000 square feet. The
leases of these two buildings expire in 2007 and 2010. Manufacturing and
engineering for the Company's digital products are located in a 70,000 square
foot facility in San Jose, California. The lease of this facility expires in
1999. The Company also leases seven sales and customer support offices at
various locations in the United States totaling approximately 70,000 square
feet. The Company is consolidating its facilities and is actively seeking to
sub-lease a 208,000 square foot facility in Westwood, Massachusetts and a 42,000
square foot facility in San Jose, California.
The Company's European headquarters is located in Woking, United Kingdom.
The Company also maintains sales and customer support offices in facilities at
four other locations in Europe. The manufacturing and engineering facilities for
the Company's iPTest systems are located in Guildford, United Kingdom. The
Company also maintains sales and customer support offices in six locations in
the Far East. Office space leased in Europe and the Far East totals
approximately 100,000 square feet.
The headquarters of LTX Co., Ltd., the Company's joint venture with SMI, is
located in Kawasaki, Japan. The joint venture also leases additional sales and
customer support offices in four other locations in Japan. Office space leased
in Japan totals approximately 15,000 square feet.
The Company believes that its existing facilities are adequate to meet its
current and foreseeable future requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material pending legal proceedings other than routine
litigation relating to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of fiscal 1994.
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PART II
ITEM 5. MARKET VALUE FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market under
the symbol "LTXX." The following table sets forth the range of high and low sale
prices per share of Common Stock, as reported by the National Association of
Securities Dealers Automatic Quotation (NASDAQ) National Market System.
HIGH LOW
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Fiscal 1994:
First Quarter........................................................ $ 8 1/4 $ 4 3/4
Second Quarter....................................................... 5 5/8 3 1/8
Third Quarter........................................................ 4 1/2 2
Fourth Quarter....................................................... 3 3/4 2
Fiscal 1993:
First Quarter........................................................ $ 2 1/16 $ 1 3/8
Second Quarter....................................................... 4 1/2 1 3/4
Third Quarter........................................................ 5 7/8 3 1/8
Fourth Quarter....................................................... 6 1/2 4 5/8
The Company has never paid cash dividends. It is the present policy of the
Company's Board of Directors to retain earnings to finance expansion of the
Company's operations. The Company does not expect to pay dividends in the
foreseeable future.
As of September 30, 1994, there were 1,482 stockholders of record.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth on page 5 of the registrant's 1994 Annual Report
under the caption "Selected Financial Information Five Year Summary" is
incorporated herein by reference. That information summarizes certain selected
consolidated financial data and should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
report.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The table below sets forth for the periods indicated certain items in the
consolidated statement of operations as a percentage of net sales and the
percentage changes of such items compared to the prior period.
PERCENTAGE
INCREASE
(DECREASE)
PERCENTAGE OF NET SALES ---------------
YEAR ENDED JULY 31, 1994 1993
-------------------------- OVER OVER
1994 1993 1992 1993 1992
---- ---- ---- ---- ----
Net sales:
Product.................................. 86.6% 89.3% 90.1% (5.6)% 14.9%
Service.................................. 13.4 10.7 9.9 22.1 25.7
----- ----- -----
Total net sales..................... 100.0 100.0 100.0 (2.7) 16.0
Cost of sales:
Product.................................. 61.9 59.0 64.4 2.1 6.2
Service.................................. 7.6 6.6 6.7 10.7 14.6
Provision for excess inventories......... 2.1 -- -- N/M N/M
----- ----- -----
Total cost of sales................. 71.6 65.6 71.1 6.1 7.0
----- ----- -----
Gross profit........................ 28.4 34.4 28.9 (19.4) 38.1
Engineering and product development
expenses.................................... 11.6 11.5 14.7 (0.7) (10.0)
Selling, general, administrative and other
expenses.................................... 25.1 23.8 27.9 2.9 (1.1)
Restructuring charges......................... 8.6 -- 1.9 N/M N/M
Translation losses............................ -- 0.8 -- N/M N/M
----- ----- -----
Loss from operations................ (16.9) (1.7) (15.6) N/M (87.6)
Interest expense, net......................... 2.3 2.3 2.3 (0.3) 13.0
----- ----- -----
Loss before income taxes and
minority interest................. (19.2) (4.0) (17.9) N/M (74.3)
Provision for income taxes.................... -- -- -- N/M N/M
----- ----- -----
Loss before minority interest....... (19.2) (4.0) (17.9) N/M (74.3)
Minority interest in net loss of subsidiary... 0.6 1.5 1.6 (62.0) 2.2
----- ----- -----
Net loss............................ (18.6)% (2.5)% (16.3)% N/M (82.2)
===== ===== =====
- - - ---------------
N/M -- Not Meaningful
RESULTS OF OPERATIONS
Fiscal 1994 Compared to Fiscal 1993
Orders for the Company's products and services increased to $197.9 million
in fiscal 1994, the highest level in the Company's history, from $182.1 million
in fiscal 1993. The increase in orders was largely a result of expanding
production capacity in the semiconductor industry and new product options
offered by the Company, which created additional demand for the Company's test
systems. Orders for the Company's linear and mixed signal products increased by
over 60% in fiscal 1994 over fiscal 1993. This increase was partially offset by
a decline in orders for the Company's digital product line in fiscal 1994,
particularly for testing microprocessors, as compared to fiscal 1993.
Geographically, orders from European and Japanese customers increased
significantly year-to-year, while orders from customers in North America and the
Pacific Rim were below the level of the prior fiscal year. At July 31, 1994, the
Company had increased its backlog to a record $71.8 million, from $42.2 million
at July 31, 1993.
Net sales were $168.3 million in fiscal 1994 as compared to $172.9 million
in fiscal 1993. Sales of the Company's linear and mixed signal products
increased by over 30% in fiscal 1994 as compared to fiscal 1993, and service
revenues increased by over 20% year-to-year. However, this improvement was
offset by a reduction of over 30% in sales of the Company's digital product line
in fiscal 1994 as compared to fiscal 1993. The decline in shipments of the
Company's digital product line was due to lower demand from customers,
particularly in North America, for testing microprocessor and other personal
computer-related devices.
9
13
The gross profit margin was 28.4% of net sales in fiscal 1994 as compared
to 34.4% in fiscal 1993. In the second quarter of fiscal 1994, the Company
recorded a $3.5 million provision for excess inventories primarily as a result
of lower than anticipated shipment levels in the first half of fiscal 1994. This
provision lowered the gross profit margin by 2.1% of net sales in fiscal 1994.
In fiscal 1993, the gross profit margin was increased by 2.6% as a result of a
$6.5 million payment made by Ando Electric Co., Ltd. ("Ando") under the terms of
a development contract that was included in product sales. There was no similar
contract revenue in fiscal 1994. The gross profit margin in fiscal 1994 was also
adversely affected by proportionately higher fixed manufacturing costs on lower
digital product sales and by lower average selling prices for the Company's
digital products.
Engineering and product development expenses were $19.6 million in fiscal
1994 as compared to $19.7 million in fiscal 1993. Engineering expenses in both
fiscal 1994 and fiscal 1993 included significant development costs for the
Company's new generation of digital products, the Delta 50 and Delta 100, as
well as enhancements to the mixed signal product line.
In February 1994, Graham Miller resigned as President of LTX and, since
that date, has continued as Chairman of the Board of Directors of the Company.
The Board of Directors formed an Office of the Presidents and elected Roger W.
Blethen and Martin S. Francis as Presidents of LTX. This change in management
structure was made to decentralize management and profitability
responsibilities.
In March 1994, the Company announced a major restructuring to properly size
operations to its current level of business. The restructuring consisted of a
planned consolidation of facilities, primarily involving the Company's leased
facilities in Westwood, Massachusetts, and a workforce reduction of 100
employees. As a result of those decisions, the Company took a $14.4 million
restructuring charge to its second quarter results of operations. The
restructuring charge largely relates to the Company's plan to eliminate excess
leased facilities and included amounts for severance payments and outplacement
benefits for terminated employees. Largely as a result of the restructuring,
engineering and product development expenses and selling, general and
administrative expenses, combined, were $2.1 million lower in the fourth quarter
of fiscal 1994 as compared to the second quarter of fiscal 1994.
Although the initial effects of the restructuring benefited the second half
of fiscal 1994, selling, general and administrative expenses were $1.2 million
higher in fiscal 1994 as compared to fiscal 1993. This increase was primarily a
result of personnel additions and higher costs for sales activities in the first
half of fiscal 1994.
Interest expense was $4.3 million in both fiscal 1994 and fiscal 1993. A
decrease in interest expense in fiscal 1994 as a result of the conversion of the
Company's 10 1/2% Convertible Subordinated Debenture Due 2010 to common stock in
July 1993, was offset by an increase in interest expense on higher average bank
borrowings in fiscal 1994.
The Company's Japanese subsidiary had a net loss in fiscal 1994 and fiscal
1993. The minority interest in net loss of subsidiary represents the minority
partner's share of the Company's Japanese subsidiary's loss in both years. The
net loss in fiscal 1994 was reduced substantially from the prior fiscal year
primarily as a result of an increase in sales and gross margin in fiscal 1994
over fiscal 1993.
There was no tax provision in fiscal 1994 or fiscal 1993 due to the net
loss in both years. The Company is in a net operating loss carryforward position
in most tax jurisdictions.
The Company had a net loss of $31.3 million in fiscal 1994 as compared to a
net loss of $4.3 million in fiscal 1993. The Company reported a net loss of $1.6
million in the first quarter of fiscal 1994 and a net loss of $24.0 million in
the second quarter of fiscal 1994, including the restructuring charge of $14.4
million and a provision for excess inventories of $3.5 million. The Company
reduced its net loss to $4.3 million in the third quarter of fiscal 1994 and to
$1.4 million in the fourth quarter of fiscal 1994 as a result of a combination
of lower operating expenses from the restructuring effort initiated in March and
an improvement in the Company's shipment level and gross profit margin.
10
14
Fiscal 1993 Compared to Fiscal 1992
The Company experienced a substantial increase in orders, primarily in the
second half of fiscal 1993, over the prior fiscal year. Bookings rose 43%
year-to-year from $127.4 million to $182.1 million. This improvement in orders
resulted primarily from the favorable conditions in fiscal 1993 in the
semiconductor industry, particularly for manufacturers of devices used in
personal computers, that created increased demand for both the Company's
linear/mixed signal and digital test systems. Comparative second half of fiscal
1993 and fiscal 1992 orders by product category were as follows:
SECOND HALF OF
FISCAL YEAR
-------------------
1993 1992
---- ----
(DOLLARS IN
MILLIONS)
Digital............................................. $ 53.1 $33.5
Linear/mixed signal................................. 41.9 26.7
Service............................................. 7.9 6.8
Other............................................... 4.9 3.4
------ -----
$107.8 $70.4
====== =====
Geographically, the Company's fiscal 1993 order levels improved
significantly in the Pacific Rim other than Japan, with orders from domestic and
European customers also posting solid gains. The improvement in the Pacific Rim
other than Japan reflected both favorable conditions in fiscal 1993 for
semiconductors used in personal computers and the continued transfer of
semiconductor assembly and testing to that region. In Japan, orders for the
Company's systems were at a low level throughout fiscal 1993 as a result of
continuing weak business conditions in that country.
Net sales rose to $172.9 million in fiscal 1993 as compared to $149.1
million in the prior fiscal year. The Company increased its backlog from $33.0
million at July 31, 1992 to $42.2 million at July 31, 1993. Net sales of the
Company's digital products in fiscal 1993 increased 30% over the prior fiscal
year. Although net sales of linear/mixed signal systems were down slightly
year-to-year, the Company experienced significant growth in orders for these
products in the second half of fiscal 1993. Virtually all of the net sales
increase in fiscal 1993 reflected an increase in unit sales. Service revenues in
fiscal 1993 increased 26% over the prior fiscal year to $18.5 million,
reflecting the Company's service coverage of its growing base of installed
equipment.
The gross profit margin in fiscal 1993 was 34.4% of net sales as compared
to 28.9% in fiscal 1992. The majority of the improvement in gross profit margin
(2.9%) was the result of higher service revenues, better coverage of fixed
manufacturing costs and lower provisions for excess inventories in fiscal 1993,
as compared to the prior fiscal year. These improvements were partially offset
by lower average selling prices for the Company's digital products in fiscal
1993, primarily as a result of changes in product mix. The balance of the
improvement (2.6%) resulted from a $6.5 million payment made by Ando under the
terms of a development contract that was included in North American product
sales.
Engineering and product development expenses were $19.7 million in fiscal
1993 as compared to $21.9 million in fiscal 1992 because of cost reduction
measures initiated in fiscal 1992. Expenses in both years included substantial
development costs relating to the Delta 100 and Delta 50 generation of test
systems, enVision test system software and significant enhancements to the
Synchro product line. The Delta 50 efforts were partially funded in fiscal 1993
by the Ando development contract.
Selling, general and administrative expenses were $0.4 million lower in
fiscal 1993 as compared to fiscal 1992. The lower level of expenses in the
current year were primarily a result of cost reduction measures taken in fiscal
1992. This reduction was partially offset by an increase in selling expenses
associated with the higher level of net sales in fiscal 1993 over fiscal 1992.
The Company incurred a translation loss of $1.5 million in fiscal 1993. The
loss was a result of the adverse effect of exchange rates on the Company's
foreign operations, primarily in Japan.
11
15
In fiscal 1992, the Company took a $2.8 million charge for severance and
restructuring costs associated with the cost reduction measures initiated in
that fiscal year. There was no provision for severance and restructuring charged
to operations in fiscal 1993.
Interest expense rose slightly in fiscal 1993, primarily due to higher
average bank borrowings. In addition, interest income was lower year-to-year as
a result of a decline in average cash balances and lower interest rates.
The minority interest in net loss of subsidiary of $2.6 million represents
the minority partner's share of the Company's Japanese subsidiary's loss for
fiscal 1993. While the minority partner's original investment in the Company's
Japanese subsidiary was consumed in fiscal 1993, the minority partner made an
additional contribution in fiscal 1993 in the form of guarantees of a portion of
the subsidiary's bank lines.
There was no tax provision in fiscal 1993 or fiscal 1992 as the Company
operated at a loss and is in a net operating loss carryforward position in most
tax jurisdictions.
The Company made steady quarter-to-quarter improvement in its results of
operations in fiscal 1993, starting with a net loss of $2.8 million in the first
quarter and ending with net income of $1.0 million in the fourth quarter. For
the fiscal year, the Company had a net loss of $4.3 million as compared to a net
loss of $24.3 million in fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents were $17.2 million and $21.7 million at July 31, 1994
and July 31, 1993, respectively. The $4.5 million decrease in cash and
equivalents during fiscal 1994 was a result of $17.5 million in net cash used in
operating activities, $12.7 million of net cash used for property and equipment
expenditures and $25.7 million of net cash provided by financing activities.
The Company used $17.5 million in cash for operating activities in fiscal
1994, primarily as a result of the net loss for the fiscal year, before non-cash
restructuring charges and the provision for excess inventories. The Company sold
$1.7 million and $5.1 million of accounts receivable to its domestic bank,
without recourse, under factoring agreements at July 31, 1994 and July 31, 1993,
respectively. Excluding these transactions, accounts receivable were $5.1
million lower at July 31, 1994 as compared to July 31, 1993. This reduction is
primarily a result of the lower level of sales in the fourth quarter of fiscal
1994 as compared to the fourth quarter of the prior year. Inventories were
lowered by $2.5 million in fiscal 1994 as a result of the provision for excess
inventories of $3.5 million, together with lower inventory purchases in the
second half of fiscal 1994 as compared to the second half of the prior year.
However, these inventory reductions were partially offset by an increase in
inventories during fiscal 1994 for the Company's new generation of digital test
systems which the Company plans to deliver in fiscal 1995. Accounts payable were
reduced by $11.4 million in fiscal 1994 primarily as a result of the lower level
of inventory purchases in the second half of fiscal 1994 as compared to the
second half of fiscal 1993. At July 31, 1994, the Company had $11.7 million in
accrued restructuring charges which were primarily related to the provision for
excess leased facilities. Cash outflows for severance payments were $1.0 million
during fiscal 1994 and are estimated to be $0.9 million thereafter. Cash
outflows related to excess leased facilities were $1.7 million during fiscal
1994 and are estimated to be $10.8 million thereafter. The Company is actively
seeking to sub-lease these facilities. Finalization of sub-leasing arrangements
may change the reserves provided and related cash flows.
Additions to property and equipment in fiscal 1994 were $12.7 million and
exceeded depreciation charges in fiscal 1994 of $9.2 million. The capital
equipment additions consisted primarily of LTX test systems and modules for
engineering and customer support requirements. The Company financed $3.5 million
of the capital equipment additions with lease financing during fiscal 1994.
In July 1994, the Company received $20.0 million from Ando under a term
loan agreement through July 2001. The loan bears interest at 8%, which is
payable semi-annually beginning in January 1995, and has semi-annual principal
payments of $2.0 million beginning in January 1997. The loan is secured by the
Company's inventories and capital equipment and is subordinated in right of
payment to senior indebtedness of the Company. In conjunction with this loan
agreement, the Company issued to Ando a warrant to purchase
12
16
up to 2.0 million shares of common stock, at the fair market value of $2.31 per
share, during the term of the loan agreement. The Company also expanded its
existing license and development agreement with Ando to allow for further joint
development of the Company's Delta 50 technology. Proceeds from the loan were
used to repay domestic bank borrowings and to finance working capital
requirements.
At July 31, 1994, the Company's Japanese subsidiary had bank borrowings of
$6.9 million as compared to $9.9 million in borrowings at July 31, 1993. These
bank borrowings are on demand and are guaranteed by the Company's minority
partner in the Japanese subsidiary. The Company's Japanese subsidiary also had
an unused demand bank line of $2.0 million available at July 31, 1994 which is
guaranteed by the Company.
At July 31, 1994 and July 31, 1993, the Company had no borrowings
outstanding under its $5.0 million domestic bank line. This bank line was
amended in June 1994 and the financial covenants under this line were
restructured. On October 6, 1994, this line was replaced with a $5.0 million
line which extends through December 1995. The new line bears interest at the
bank's prime rate plus 1% and is secured by accounts receivable and inventories.
In January 1994, the Company received $4.0 million from the sale of 972,000
shares of its common stock to several private investors. The Company used the
proceeds from this sale for working capital requirements. In the third quarter
of fiscal 1993, the Company received $9.8 million from the sale of 2,458,000
shares of its common stock to a private investor.
The Company has two issues of convertible subordinated debentures
outstanding at July 31, 1994: $15.7 million (face amount) of 13 1/2% Convertible
Subordinated Debentures Due 2011 and $7.3 million of 7 1/4% Convertible
Subordinated Debentures Due 2011. Interest is payable on these debentures
semi-annually. Annual sinking fund payments of $785,000 and $366,000,
respectively, are due on these two debenture issues beginning in April 1996.
In fiscal 1993, the Company's operating activities provided $4.8 million in
cash. Financing activities provided $13.0 million in cash in fiscal 1993,
including $9.8 million from the sale of common stock. The Company used $7.8
million in cash for capital equipment expenditures in fiscal 1993. In fiscal
1992, the Company used $12.4 million in cash for operating activities, primarily
as a result of the net loss for the fiscal year before non-cash depreciation
charges. The Company used $7.6 million in cash for capital equipment
expenditures and additional bank borrowings provided $5.1 million in cash in
fiscal 1992.
Inflation during the years presented did not have any significant effects
on the operations of the Company. The Company attempts to mitigate inflationary
cost increases by continuing improvements in operating efficiency through
improved methods and technologies.
Management believes the Company has sufficient cash resources to meet its
fiscal 1995 requirements through a combination of existing cash balances, future
cash flows from operations and borrowing availability under its domestic and
Japanese bank lines of credit. The Company's fiscal 1995 cash requirements
include plans for capital equipment expenditures of approximately $8.0 million.
13
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of LTX Corporation:
We have audited the accompanying consolidated balance sheets of LTX
Corporation and subsidiaries as of July 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended July 31, 1994. These financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LTX Corporation and
subsidiaries as of July 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed on page
28 are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state, in all material respects, the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 13, 1994
(Except with respect
to the matter discussed
in Note 4, as to which the
date is October 6, 1994)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, included in this Form 10-K, into LTX's previously filed
registration statements on Form S-8 (File No. 2-77475, File No. 2-90698, File
No. 33-7018, File No. 33-14179, File No. 33-32140, File No. 33-32141, File No.
33-33614, File No. 33-38675, File No. 33-51683 and File No. 33-51685).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 14, 1994
14
18
LTX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED JULY 31
------------------------------------------
1994 1993 1992
-------- -------- --------
Net sales:
Product....................................... $145,688 $154,392 $134,353
Service....................................... 22,638 18,540 14,753
-------- -------- --------
Total net sales.......................... 168,326 172,932 149,106
Cost of sales:
Product....................................... 104,189 102,005 96,024
Service....................................... 12,750 11,521 10,050
Provision for excess inventories.............. 3,500 -- --
-------- -------- --------
Total cost of sales...................... 120,439 113,526 106,074
-------- -------- --------
Gross profit............................. 47,887 59,406 43,032
Engineering and product development expenses....... 19,604 19,744 21,943
Selling, general and administrative expenses....... 42,308 41,080 41,529
Restructuring charges.............................. 14,376 -- 2,800
Translation losses................................. -- 1,468 --
-------- -------- --------
Loss from operations..................... (28,401) (2,886) (23,240)
Other income (expense):
Interest expense.............................. (4,286) (4,277) (3,968)
Interest income............................... 412 298 448
-------- -------- --------
Loss before income taxes and minority
interest............................... (32,275) (6,865) (26,760)
Provision for income taxes......................... -- -- --
-------- -------- --------
Loss before minority interest............ (32,275) (6,865) (26,760)
Minority interest in net loss of subsidiary........ 971 2,556 2,500
-------- -------- --------
Net loss................................. $(31,304) $ (4,309) $(24,260)
======== ======== ========
Net loss per share:
Primary and fully diluted..................... $ (1.23) $ (0.20) $ (1.22)
Weighted average shares:
Primary and fully diluted..................... 25,485 21,089 19,888
The accompanying notes are an integral part of these consolidated financial
statements.
15
19
LTX CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
JULY 31
-----------------------
1994 1993
-------- --------
ASSETS
Current assets:
Cash and equivalents........................................... $ 17,226 $ 21,725
Accounts receivable, less allowances of $700 and $700.......... 33,323 34,953
Inventories.................................................... 42,672 45,180
Other current assets........................................... 3,848 4,116
-------- --------
Total current assets................................. 97,069 105,974
-------- --------
Property and equipment, net.................................... 28,946 28,258
Other assets................................................... 4,621 4,025
-------- --------
$130,636 $138,257
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................................. $ 6,870 $ 9,933
Current portion of long-term liabilities....................... 437 114
Accounts payable............................................... 15,545 26,924
Accrued compensation........................................... 2,512 2,579
Unearned service revenues and customer advances................ 3,867 4,671
Restructuring charges.......................................... 11,710 --
Other accrued expenses......................................... 7,275 6,129
-------- --------
Total current liabilities............................ 48,216 50,350
-------- --------
Long-term liabilities, less current portion......................... 21,204 1,060
Convertible subordinated debentures................................. 20,195 19,943
Deferred compensation............................................... 428 428
Stockholders' equity:
Common stock, $0.05 par value:
100,000,000 shares authorized; 26,223,942 shares and
24,716,370 shares issued and outstanding.................. 1,311 1,236
Additional paid-in capital..................................... 117,457 112,111
Accumulated deficit............................................ (78,175) (46,871)
-------- --------
Total stockholders' equity........................... 40,593 66,476
-------- --------
$130,636 $138,257
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
16
20
LTX CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- ------------
BALANCE, JULY 31, 1991............... 19,790,671 $ 989 $ 94,106 $(18,302) $76,793
Exercise of stock options............ 54,274 3 83 86
Issuance of shares under employees'
stock purchase plan................ 249,828 13 452 465
Net loss............................. (24,260) (24,260)
---------- ------ -------- -------- -------
BALANCE, JULY 31, 1992............... 20,094,773 1,005 94,641 (42,562) 53,084
Sale of common stock................. 2,458,000 123 9,709 9,832
Exercise of stock options............ 408,695 20 845 865
Issuance of shares under employees'
stock purchase plan................ 254,902 13 616 629
Conversion of 10 1/2% Convertible
Subordinated Debenture Due 2010.... 1,500,000 75 6,300 6,375
Net loss............................. (4,309) (4,309)
---------- ------ -------- -------- -------
BALANCE, JULY 31, 1993............... 24,716,370 1,236 112,111 (46,871) 66,476
Sale of common stock................. 971,515 48 3,959 4,007
Exercise of stock options............ 255,285 13 538 551
Issuance of shares under employees'
stock purchase plan................ 280,772 14 849 863
Net loss............................. (31,304) (31,304)
---------- ------ -------- -------- -------
BALANCE, JULY 31, 1994............... 26,223,942 $1,311 $117,457 $(78,175) $40,593
========== ====== ======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
17
21
LTX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JULY 31
-------------------------------
1994 1993 1992
-------- -------- -------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss.................................................... $(31,304) $ (4,309) $(24,260)
Add (deduct) non-cash items:
Minority interest in subsidiary........................ (971) (2,556) (2,500)
Depreciation and amortization.......................... 9,158 9,159 9,422
Original issue discount amortization................... 252 262 262
(Increase) decrease in:
Accounts receivable.................................... 1,630 (4,946) 8,863
Inventories............................................ 2,508 (5,027) 2,526
Other current assets................................... 268 538 (663)
Other assets........................................... 375 (540) (250)
Increase (decrease) in:
Accounts payable....................................... (11,379) 14,655 (7,760)
Accrued expenses, compensation and restructuring
charges............................................. 12,789 366 (1,666)
Unearned service revenues and customer advances........ (804) (2,797) 3,604
-------- -------- -------
Net cash provided by (used in) operating activities...... (17,478) 4,805 (12,422)
-------- -------- -------
CASH USED IN INVESTING ACTIVITIES:
Expenditures for property and equipment.................. (12,687) (7,797) (7,622)
-------- -------- -------
Net cash used in investing activities.................... (12,687) (7,797) (7,622)
-------- -------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from stock plans:
Employees' stock purchase plan........................... 863 629 465
Exercise of stock options................................ 551 865 86
Sale of common stock........................................ 4,007 9,832 --
Increase (decrease) in notes payable........................ (3,063) 1,240 5,096
Proceeds from sale and leaseback of equipment............... 3,483 1,142 575
Payments of long-term debt.................................. (175) (705) (447)
Proceeds from long-term debt................................ 20,000 -- --
-------- -------- -------
Net cash provided by financing activities................... 25,666 13,003 5,775
-------- -------- -------
Net increase (decrease) in cash and equivalents............... (4,499) 10,011 (14,269)
Cash and equivalents at beginning of year..................... 21,725 11,714 25,983
-------- -------- -------
Cash and equivalents at end of year........................... $ 17,226 $ 21,725 $11,714
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................. $ 4,237 $ 4,390 $ 3,979
Income taxes............................................. -- -- 162
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Conversion of convertible subordinated debenture to common
stock (See Note 6)....................................... -- $ 6,375 --
The accompanying notes are an integral part of these consolidated financial
statements.
18
22
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned domestic subsidiaries and wholly-owned and majority-owned
foreign subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.
Minority interest in net loss of subsidiary represents the minority
shareholder's proportionate share of the results of operations of the Company's
majority-owned Japanese subsidiary (see Note 12).
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated in accordance with Statement of Financial Accounting Standards No.
52. The Company's functional currency is the U.S. dollar. Accordingly, the
Company's foreign subsidiaries translate monetary assets and liabilities at
year-end exchange rates while nonmonetary items are translated at historical
rates. Income and expense accounts are translated at the average rates in effect
during the year, except for sales, cost of sales and depreciation which are
primarily translated at historical rates. Net realized and unrealized gains and
losses resulting from foreign currency remeasurement and transaction gains and
losses are included in the results of operations.
Cash Equivalents
Cash equivalents consist of short-term investments with maturity dates of
one month or less and which are readily convertible into cash.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on the first-in, first-out method, and include material, labor and
manufacturing overhead.
Property and Equipment
Property and equipment is recorded at cost. The Company provides for
depreciation and amortization on the straight-line method. Charges are made to
operating expenses in amounts which are sufficient to amortize the cost of the
assets over their estimated useful lives.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment. Service
revenues are recognized over the applicable contractual periods or as services
are performed. Revenues from engineering contracts are recognized over the
contract period on a percentage of completion basis.
Warranty Costs
Warranty costs incurred by the Company during the three years ended July
31, 1994 were not significant. Future warranty costs are not expected to be
significant, and therefore, the Company has not provided any warranty reserves.
Engineering and Product Development Costs
The Company expenses all engineering, research and development costs as
incurred. Expenses subject to capitalization in accordance with the Statement of
Financial Accounting Standards No. 86, relating to certain software development
costs, were insignificant.
19
23
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in fiscal 1994. The change in accounting
principles was not material to the results of operations for the years ended
July 31, 1994, 1993 or 1992.
Deferred income taxes are recorded for temporary differences between the
financial reporting and tax basis of assets and liabilities. Research and
development tax credits are recognized for financial reporting purposes to the
extent they can be used to reduce the tax provision. The Company has not
provided for federal income taxes on the cumulative undistributed earnings of
its foreign subsidiaries in the past since it reinvested those earnings. At July
31, 1994, the Company's foreign subsidiaries had accumulated deficits.
Net Loss per Share
Net loss per share is based on the weighted average number of shares of
common stock outstanding only, as the inclusion of common stock equivalents
would be anti-dilutive. Common stock equivalents include shares issuable under
stock option plans and warrants to purchase shares. None of the Company's
Convertible Subordinated Debentures are common stock equivalents.
2. INVENTORIES
Inventories consist of the following:
JULY 31
-------------------------
1994 1993
---------- ----------
Raw materials................................. $12,075,000 $11,694,000
Work-in-process............................... 18,810,000 23,859,000
Finished goods................................ 11,787,000 9,627,000
----------- -----------
$42,672,000 $45,180,000
=========== ===========
3. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
JULY 31 DEPRECIABLE
------------------------- LIFE IN
1994 1993 YEARS
---------- ---------- ------------
Machinery and equipment................... $68,365,000 $67,060,000 5
Office furniture and equipment............ 3,917,000 7,910,000 3-7
Leasehold improvements.................... 7,297,000 7,486,000 10 or term
of lease
----------- -----------
79,579,000 82,456,000
Less: accumulated depreciation and
amortization............................ (50,633,000) (54,198,000)
----------- -----------
$28,946,000 $28,258,000
=========== ===========
4. NOTES PAYABLE
The Company's Japanese subsidiary had borrowings outstanding of $6,870,000
at July 31, 1994 under demand bank lines of credit of $7,000,000, which are
guaranteed by the Company's minority partner in Japan. The Company's Japanese
subsidiary also had an unused demand bank line of $2,000,000 at July 31, 1994,
which is guaranteed by the Company. At July 31, 1993, the Company's Japanese
subsidiary had borrowings outstanding of $9,933,000 under demand bank lines of
credit.
The Company had no borrowings outstanding under a $5,000,000 domestic bank
line at July 31, 1994 and July 31, 1993. This line was available to finance
certain designated foreign receivables and designated export
20
24
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
inventories of the Company and was guaranteed by the Export-Import Bank of the
United States. This line was amended in June 1994 and the financial covenants
under this line were restructured. On October 6, 1994, this line was replaced
with a new $5,000,000 line of credit which matures in December 1995 and which
requires no guarantees. The new line bears interest at the bank's prime rate
plus 1%. Borrowing availability under the line is on a formula basis and
borrowings are secured by accounts receivable and inventories. The line of
credit has financial covenants which largely relate to results of operations and
a minimum level of liquidity.
5. LONG-TERM LIABILITIES
Long-term liabilities consist of the following:
JULY 31
-----------------------------
1994 1993
---------- ---------
Subordinated note payable
with interest at 8%................... $20,000,000 $ --
Lease purchase obligations at various
interest rates, net of deferred
interest.............................. 1,641,000 1,174,000
----------- ----------
21,641,000 1,174,000
Less -- current portion................. (437,000) (114,000)
----------- ----------
$21,204,000 $1,060,000
=========== ==========
In July 1994, the Company received $20,000,000 from Ando Electric Co., Ltd.
of Japan ("Ando") under a long-term loan agreement which extends through July
2001. The loan bears interest at 8%, which is payable semi-annually beginning in
January 1995 and has semi-annual principal payments of $2,000,000 beginning in
January 1997. The loan is secured by the Company's inventories and capital
equipment and is subordinated in right of payment to senior indebtedness of the
Company. In connection with this loan agreement, the Company issued to Ando a
warrant to purchase up to 2,000,000 shares of common stock during the term of
the loan agreement. (See Note 8). The Company also expanded its existing license
and development agreement with Ando to allow for further joint development of
the Company's Delta 50 technology. Proceeds from the loan were used to repay
domestic bank borrowings and to finance working capital requirements.
6. CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures consist of:
JULY 31
-----------------------------
1994 1993
---------- ----------
13 1/2% Debentures Due 2011................ $12,887,000 $12,625,000
7 1/4% Debentures Due 2011................ 7,308,000 7,318,000
----------- -----------
$20,195,000 $19,943,000
=========== ===========
On July 31, 1990, the Company exchanged $27,532,000 of its original issue
of $35,000,000 of 7 1/4% Convertible Subordinated Debentures Due 2011 for
$15,693,000 at par value of a new issue of 13 1/2% Convertible Subordinated
Debentures Due 2011. The debentures were issued at a value of $11,839,000, the
market value of the securities on the date of the exchange. The resulting
original issue discount of $3,854,000 is being charged to operations through
2011. The debentures are subordinated in right of payment to senior indebtedness
and are convertible by the holders into common stock at $7.00 per share at any
time prior to redemption. The debentures are redeemable at the Company's option,
in whole or in part, at 100% of the principal amount. Holders of the debentures
have the right to require the Company to redeem the debentures if, prior to
April 15, 2000, a change in control of the Company occurs. Annual sinking fund
payments of $785,000 are required beginning April 15, 1996. Interest is payable
semi-annually on April 15 and October 15.
21
25
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 25, 1986, the Company issued and sold at par $35,000,000 of 7 1/4%
Convertible Subordinated Debentures Due 2011. A total of $7,308,000 of the
original issue of $35,000,000 of 7 1/4% Convertible Subordinated Debentures
remain outstanding on July 31, 1994. The debentures are subordinated in right of
payment to senior indebtedness and are convertible by the holders into common
stock at $18 per share at any time prior to redemption or maturity. The
debentures are redeemable at the Company's option at any time, in whole or in
part, at 100% of the principal amount. Annual sinking fund payments of $366,000
are required beginning April 15, 1996. Interest is payable semi-annually on
April 15 and October 15.
On July 30, 1993, Sumitomo Metal Industries, Ltd. of Japan converted its
$6,375,000 10 1/2% Convertible Subordinated Debenture Due 2010 into 1,500,000
shares of common stock of the Company. The Company had issued the debenture to
Sumitomo Metal Industries, Ltd. in May 1990 (see Note 12).
7. INCOME TAXES
At July 31, 1994, the Company had $4,575,000 of federal tax credits
available for carryforward, which expire in fiscal years 1998 through 2004. In
addition, the Company had a federal net operating loss carryforward available of
$29,600,000 which expires in fiscal years 2007 through 2009.
Reconciliations of the U.S. federal statutory rate to the Company's
effective tax rate are as follows:
YEAR ENDED JULY 31
-----------------------------
1994 1993 1992
----- ----- -----
U.S. federal statutory rate............................ (34.0)% (34.0)% (34.0)%
Losses without current tax benefit..................... 34.0 34.0 34.0
----- ----- -----
Effective tax rate..................................... 0.0% 0.0% 0.0%
===== ===== =====
The temporary differences and carryforwards which created the deferred tax
assets and liabilities as of July 31, 1994 and July 31, 1993 are as follows:
JULY 31
---------------------
1994 1993
---- ----
Deferred tax assets:
Net operating losses.................................... $ 10,360,000 $ 2,625,000
Tax credits............................................. 4,575,000 4,309,000
Inventory valuation reserves............................ 4,426,000 3,418,000
Restructuring charges................................... 4,099,000 0
Spares amortization..................................... 2,761,000 2,413,000
Unearned service revenues............................... 949,000 1,332,000
Other................................................... 720,000 862,000
------------ ------------
Total deferred tax assets............................. 27,890,000 14,959,000
Valuation allowance..................................... (26,375,000) (13,302,000)
------------ ------------
Net deferred tax assets............................... $ 1,515,000 $ 1,657,000
============ ============
Deferred tax liabilities:
Depreciation............................................ $ (243,000) $ (266,000)
Basis difference -- debenture exchange.................. (807,000) (899,000)
Other................................................... (465,000) (492,000)
------------ ------------
Total deferred tax liabilities........................ $ (1,515,000) $ (1,657,000)
============ ============
Net deferred taxes recorded........................... $ -- $ --
============ ============
The valuation allowance relates to uncertainty surrounding the realization
of the deferred tax assets as a result of the Company's operating losses.
22
26
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY
Authorized Shares
At the Company's Annual Meeting of Stockholders in December 1993, the
stockholders approved an increase in the Company's authorized common stock from
50,000,000 shares to 100,000,000 shares.
Stock Option Plans
The Company has three stock option plans: the 1990 Incentive Stock Option
Plan ("1990 I.S.O. Plan"), the 1984 Stock Option Plan for LTX (Europe) Ltd.
("U.K. Plan") and the 1983 Non-Qualified Stock Option Plan ("Non-Qualified
Plan").
The 1990 I.S.O. Plan and the U.K. Plan provide for the granting of options
to employees to purchase shares of common stock at not less than 100% of the
fair market value on the date of grant. Options under both plans are exercisable
over a three-year vesting period beginning one year from the date of grant. In
December 1993, the stockholders of the Company approved an increase to the
number of shares of common stock that may be granted under the 1990 I.S.O. Plan,
through October 2000, from 1,000,000 shares to 1,500,000 shares. At July 31,
1994, options to purchase 1,119,818 shares had been granted, and 380,182 shares
were subject to future grant under the 1990 I.S.O. Plan. At July 31, 1994,
options to purchase 108,800 shares had been granted, and 41,200 shares were
subject to future grant under the U.K. Plan.
The Non-Qualified Plan provides for the granting of options to key
employees, directors and advisors of the Company to purchase shares of common
stock at prices to be determined by the Board of Directors. Compensation expense
relating to shares granted under this plan at less than fair market value has
been charged to operations over the applicable vesting period. At July 31, 1994,
options to purchase 731,820 shares had been granted, and 118,180 shares were
subject to future grant under this plan.
The following table summarizes stock option activity for the three years
ended July 31, 1994:
RANGE OF
OPTION
SHARES PRICES
-------- ------------
Outstanding at July 31, 1991.................................... 1,732,525 $0.50 - $6.88
Granted.................................................... 546,000 0.05 - 2.38
Exercised.................................................. (54,274) 0.50 - 2.50
Terminated................................................. (128,223) 1.88 - 3.75
---------
Outstanding at July 31, 1992.................................... 2,096,028 0.05 - 6.88
Granted.................................................... 569,000 0.05 - 1.88
Exercised.................................................. (408,695) 0.50 - 3.75
Terminated................................................. (143,895) 1.88 - 3.75
---------
Outstanding at July 31, 1993.................................... 2,112,438 0.05 - 6.88
Granted.................................................... 398,000 0.05 - 3.94
Exercised.................................................. (255,285) 0.05 - 3.75
Terminated................................................. (71,814) 1.75 - 3.75
---------
Outstanding at July 31, 1994.................................... 2,183,339 0.05 - 6.88
=========
Of the total options outstanding at July 31, 1994, 1,451,473 shares were
exercisable and 32,500 shares were at the option price of $0.05 per share.
Warrants
In July 1994, in connection with a term loan agreement, the Company issued
to Ando Electric Co., Ltd. a warrant to purchase up to 2,000,000 shares of
common stock, at the fair market value of $2.31 per share, during the term of
the loan agreement (see Note 5). At July 31, 1994, the total warrant was
outstanding.
23
27
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employees' Stock Purchase Plan
In December 1993, the stockholders of the Company approved the adoption of
the 1993 Employees' Stock Purchase Plan, which replaced the 1983 Employees'
Stock Purchase Plan which expired in December 1993. Under this plan, eligible
employees may contribute up to 15% of their annual compensation for the purchase
of common stock of the Company up to $25,000 of fair market value of the stock
per calendar year. The plan limits the number of shares which can be issued for
any semi-annual plan period to 150,000 shares and, over the term of the plan,
the Company may issue up to 600,000 shares. Under the plan, 280,772 shares were
issued in fiscal 1994 and 319,228 shares were available for future issuance
under this plan at July 31, 1994.
Rights Agreement
The Board of Directors of the Company adopted a Rights Agreement, dated as
of May 11, 1989, between the Company and The First National Bank of Boston, as
rights agent (the "Rights Agreement") and in connection therewith, distributed
one common share purchase right for each outstanding share of common stock. The
rights will become exercisable only if a person or group acquires 20% or more of
the Company's common stock or announces a tender offer that would result in
ownership of 30% or more of the common stock. Initially, each right will entitle
a stockholder to buy one share of common stock of the Company at a purchase
price of $30.00 per share, subject to significant adjustment depending upon the
occurrence thereafter of certain events. Before any person or group has acquired
20% or more of the common stock of the Company, the rights are redeemable by the
Board of Directors at $0.01 per right. The rights will expire on May 11, 1999,
unless redeemed by the Company prior to that date.
9. RETIREMENT PLAN
The Company's retirement plan provides for an annual discretionary
contribution by the Company from current or accumulated profits of an amount not
to exceed 5% of the eligible compensation of the participants in the plan.
Amounts are allocated to the accounts of the participants based on their
compensation and years of service and are subject to certain vesting provisions.
No contribution was made in fiscal 1994, 1993 or 1992. Eligible employees may
also make voluntary contributions to the plan through a salary reduction
contract up to the statutory limit or 15% of their annual compensation.
10. GEOGRAPHIC AREA INFORMATION
The Company's operations by geographic segment for the three years ended
July 31, 1994 are summarized as follows:
YEAR ENDED JULY 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Sales to unaffiliated customers
North America................................. $ 65,240,000 $ 91,248,000 $ 85,030,000
Europe........................................ 24,423,000 20,744,000 20,704,000
Japan......................................... 21,106,000 9,447,000 14,984,000
Rest of world (principally Pacific Rim)....... 57,557,000 51,493,000 28,388,000
------------ ------------ ------------
Total sales to unaffiliated customers.... $168,326,000 $172,932,000 $149,106,000
============ ============ ============
Transfers between geographic areas
United States................................. $ 67,225,000 $ 51,003,000 $ 27,211,000
Europe........................................ 7,751,000 5,857,000 5,391,000
Japan......................................... 364,000 142,000 865,000
------------ ------------ ------------
Total transfers between geographic
areas.................................. $ 75,340,000 $ 57,002,000 $ 33,467,000
============ ============ ============
24
28
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED JULY 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
Income (loss) from operations
United States................................. $(25,991,000) $ 2,288,000 $(17,728,000)
Europe........................................ (613,000) (212,000) (1,030,000)
Japan......................................... (1,892,000) (5,717,000) (4,678,000)
Eliminations.................................. 95,000 755,000 196,000
------------ ------------ ------------
Total income (loss) from operations...... $(28,401,000) $ (2,886,000) $(23,240,000)
============ ============ ============
Identifiable assets
United States................................. $124,029,000 $135,962,000 $112,765,000
Europe........................................ 20,730,000 9,382,000 13,302,000
Japan......................................... 13,180,000 12,428,000 14,369,000
Eliminations.................................. (27,303,000) (19,515,000) (22,152,000)
------------ ------------ -----------
Total identifiable assets................ $130,636,000 $138,257,000 $118,284,000
============ ============ ============
Transfer prices on products sold to foreign subsidiaries are intended to
produce profit margins that correspond to the subsidiary's sale and support
efforts.
The Company incurred translation losses, from foreign currency
remeasurement, of $1,468,000, primarily in Japan, in fiscal 1993. Transaction
gains or losses were not significant in fiscal 1993. Translation and transaction
gains or losses were not significant in fiscal 1994 or fiscal 1992.
11. COMMITMENTS
The Company has operating lease commitments for certain facilities and
equipment and capital lease commitments for certain equipment. Minimum lease
payments under non-cancelable leases at July 31, 1994 are as follows:
TOTAL TOTAL
REAL OPERATING CAPITAL
ESTATE EQUIPMENT LEASES LEASES
---------- --------- ---------- ---------
Year ended July 31,
1995................................ $6,813,000 $2,146,000 $ 8,959,000 $ 581,000
1996................................ 5,876,000 1,826,000 7,702,000 461,000
1997................................ 5,741,000 659,000 6,400,000 220,000
1998................................ 5,817,000 243,000 6,060,000 220,000
1999................................ 5,290,000 14,000 5,304,000 220,000
2000 and thereafter................. 38,334,000 -- 38,334,000 149,000
----------- ---------- ----------- ---------
Total minimum lease payments............. $67,871,000 $4,888,000 $72,759,000 $1,851,000
========== ========== ===========
Less: amount representing interest....... (210,000)
----------
Present value of total capital leases.... $1,641,000
==========
Total rental expense for fiscal 1994, 1993 and 1992 was $9,849,000,
$10,822,000 and $11,295,000, respectively.
As a result of the Company's restructuring in fiscal 1994, certain leased
facilities have been considered excess. At July 31, 1994, the Company had
accrued $8,200,000, which is included in restructuring charges on the
accompanying balance sheet, relating to the lease commitments on these
facilities.
25
29
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. JOINT VENTURE AGREEMENT
In May 1990, the Company completed a joint venture agreement with Sumitomo
Metal Industries, Ltd. ("SMI") of Japan to manufacture, sell and support the
Company's semiconductor test equipment products in Japan. Under this joint
agreement, SMI acquired 235,000 newly issued shares of the Company's Japanese
subsidiary for $12,000,000 and the Company invested an additional $4,000,000 in
the subsidiary. As a result, 50.5% of the shares of the Japanese company are
owned by LTX and 49.5% are owned by SMI. As part of the joint venture agreement,
the Company has licensed certain of its test technology to the joint venture,
and will receive royalties should its products be manufactured by the joint
venture. SMI also purchased 1,500,000 shares of the Company's common stock for
$5,625,000 and purchased a $6,375,000 convertible debenture that was converted
into common stock in July 1993 (see Note 6).
At July 31, 1994, other assets include a minority interest receivable from
SMI of $2,320,000 which arose as a result of cumulative losses of the Company's
Japanese subsidiary allocable to SMI, exceeding SMI's investment in the
Company's subsidiary. The Company believes this asset is fully realizable from
SMI due to SMI's guarantee of a portion of the Company's Japanese subsidiary's
bank lines of credit.
26
30
LTX CORPORATION
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1994
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(1) QUARTER QUARTER
------- ---------- ---------- ----------
Net sales........................... $47,164 $ 38,119 $ 40,216 $ 42,827
Gross profit........................ 14,945 7,455 11,494 13,993
Net loss............................ (1,605) (24,005) (4,331) (1,363)
Net loss per share.................. (0.06) (0.96) (0.17) (0.05)
1993
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ---------- ---------- ----------
Net sales........................... $38,091 $ 39,306 $ 45,785 $ 49,750
Gross profit........................ 12,372 13,998 15,317 17,719
Net income (loss)................... (2,829) (1,655) (837) 1,012
Net income (loss) per share......... (0.14) (0.08) (0.04) 0.04
- - - ---------------
(1) The Company took a restructuring charge of $14,376,000 to its second quarter
results of operations. The restructuring charge largely related to the
Company's plan to eliminate excess leased facilities and included amounts
for severance payments and benefits to employees terminated in a workforce
reduction. The Company also took a provision for excess inventories of
$3,500,000 in the second quarter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under these Items is included in Item 1. of Part I of
this report and in the Proxy Statement for the Annual Meeting of Stockholders to
be held on December 7, 1994, under the headings "Certain Stockholders,"
"Election of Directors," and "Compensation of Executives," which information is
incorporated herein by reference. Such Proxy Statement shall be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
Company's fiscal year, July 31, 1994.
27
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of LTX Corporation are
included in response to Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheet -- July 31, 1994 and 1993
Consolidated Statement of Operations for the years ended
July 31, 1994, 1993 and 1992
Consolidated Statement of Stockholders' Equity for the years
ended July 31, 1994, 1993 and 1992
Consolidated Statement of Cash Flows for the years
ended July 31, 1994, 1993 and 1992
Notes to the Consolidated Financial Statements
(B) 2. SCHEDULES
The following consolidated financial statement schedules of LTX Corporation
are included in response to Item 14(d):
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation and Amortization of
Property, Plant and Equipment
Schedule IX -- Short-Term Borrowings
Schedule X -- Supplementary Income Statement Information
All other schedules have been omitted since they are not required, not
applicable or the information is included in the financial statements or notes
thereto.
Separate financial statements of LTX Corporation (parent only) have been
omitted since they are not required.
(A) 3. EXHIBITS
Certain of the exhibits listed hereunder have previously been filed with
the Commission as exhibits to the Company's Registration Statement No. 2-75470
on Form S-1 filed December 23, 1981, as amended (the 1981 Registration
Statement); to the Company's Registration Statement No. 2-94218 on Form S-1
filed November 8, 1984, as amended (the 1984 Registration Statement); to the
Company's Registration Statement No. 33-35401 on Form S-4 filed June 26, 1990,
as amended (the 1990 Registration Statement No. 1); to the Company's
Registration Statement No. 33-39610 on Form S-3 filed June 10, 1991, as amended
(the 1991 Registration Statement No. 1); to the Company's Form 8A/A filed
September 30, 1993 amending the Company's Registration Statement on Form 8-A
filed November 24, 1982 (the 1993 8A/A); to the Company's Current Report on Form
8-K, filed May 11, 1989; or the Company's Annual Reports on Form 10-K for one of
the years ended July 31, 1993, 1992, 1991, 1990, 1989, 1988, 1987, 1986, 1985,
1984 and 1983 and are hereby incorporated by reference. The location of each
document so incorporated by reference is noted parenthetically.
(A) EXHIBITS
(3)(A) -- Articles of Organization, as amended. (Exhibit 2 to the 1993 8A/A)
(3)(B) -- By-laws, as amended. (Exhibit 3 to the 1993 8A/A)
(4)(A) -- Indenture dated April 15, 1986 between the Company and The First
National Bank of Boston. (Exhibit 4(A) to the 1990 Registration
Statement No. 1)
(4)(A)(ii) -- Indenture dated June 15, 1990 between the Company and The First
National Bank of Boston. (Exhibit 4(A)(ii) to the 1990 Annual Report
on Form 10-K)
28
32
(4)(C) -- Rights Agreement. (Exhibit 1 of the Registrant's Current Report on
Form 8-K, filed May 11, 1989), as amended by Amendment No. 1 to
Rights Agreement dated as of September 17, 1993 (Exhibit 4(C) to the
1993 Annual Report on Form 10-K)
(10)(B)(i)+ -- 1990 Incentive Stock Option Plan. (Exhibit 10(B)(i) to the 1991
Annual Report on Form 10-K)
(10)(D)+ -- 1993 Employees' Stock Purchase Plan. (Exhibit 10(D) hereto)
(10)(E)+ -- 1983 Non-Qualified Stock Option Plan. (Exhibit 10(E) to the 1983
Annual Report on Form 10-K)
(10)(F) -- LTX Corporation Growth and Investment Program, as restated. (Exhibit
10(F) to the 1993 Annual Report on Form 10-K)
(10)(G) -- 1984 Stock Option Plan for LTX (Europe) Ltd. (Exhibit 10(G) to the
1984 Annual Report on Form 10-K)
(10)(I) -- Lease dated as of March 8, 1984 relating to land and building at
McCandless Park, San Jose, California. (Exhibit 10(I) to the 1984
Registration Statement)
(10)(J) -- Lease dated as of July 16, 1984 relating to Company's administration
facility on Rosemont Avenue, Westwood, Massachusetts. (Exhibit 10(J)
to the 1984 Registration Statement)
(10)(K) -- Lease dated as of February 27, 1985 relating to land and building at
McCandless Park, San Jose, California. (Exhibit 10(K) to the 1985
Annual Report on Form 10-K)
(10)(M) -- Lease dated as of November 26, 1980 relating to Company's
manufacturing facility at 5 Rosemont Avenue, Westwood,
Massachusetts, and Amendment dated as of April 29, 1982, and Third
Amendment and Restatement of Lease dated April 29, 1982. (Exhibit
10(M) to the 1993 Annual Report on Form 10-K)
(10)(N) -- Joint Venture Agreement dated May 14, 1990 among Sumitomo Metal
Industries, Ltd., LTX Corporation and LTX Co., Ltd. (Exhibit 10(N)
to the 1990 Registration Statement No. 1)
(10)(O) -- License Agreement dated May 14, 1990 between LTX Corporation and LTX
Co., Ltd. (Exhibit 10(O) to the 1990 Registration Statement No. 1)
(10)(P) -- Distribution and Supply Agreement between LTX Corporation and LTX
Co., Ltd. (Exhibit 10(P) to the 1990 Registration Statement No. 1)
(10)(Q) -- Securities Purchase Agreement for sale of LTX Common Stock, $0.05
par value, and 10 1/2% Convertible Subordinated Debentures Due 2010
to Sumitomo Metal Industries, Ltd. (Exhibit 10(Q) to the 1990
Registration Statement No. 1)
(10)(R)* -- License and Development Agreement dated as of January 28, 1993
between LTX Corporation and Ando Electric Co., Ltd. (Exhibit 10(R)
to the 1993 Annual Report on Form 10-K)
(10)(S)* -- Distribution and Supply Agreement dated as of January 28, 1993
between LTX Corporation and Ando Electric Co., Ltd. (Exhibit 10(S)
to the 1993 Annual Report on Form 10-K)
(10)(T)* -- Letter Agreement dated as of January 29, 1993 between LTX
Corporation and Ando Electric Co., Ltd. (Exhibit 10(T) to the 1993
Annual Report on Form 10-K)
(10)(U) -- Credit Agreement dated as of October 6, 1994 between LTX Corporation
and Silicon Valley Bank (Exhibit 10(U) hereto)
(10)(V) -- Loan Agreement dated as of July 20, 1994 between LTX Corporation and
Ando Electric Co., Ltd. (Exhibit 10(V) hereto)
29
33
(10)(W)* -- Amendment No. 1 to License and Development Agreement dated as of
July 20, 1994 between LTX Corporation and Ando Electric Co., Ltd.
(Exhibit 10(W) hereto)
(22) -- Subsidiaries of Registrant
(27) -- Financial Data Schedules (Exhibit 27 hereto)
- - - ---------------
+ This exhibit is a compensatory plan or arrangement in which executive officers
or directors of the Company participate.
* Confidential treatment requested as to certain portions thereof. The
confidential portion has been omitted and filed separately with the
Commission.
Pursuant to Item 601 of Regulation S-K, certain instruments with respect to
long-term debt not exceeding 10% of the total assets of the Company and its
subsidiaries on a consolidated basis are not filed herewith. The Company hereby
agrees to furnish to the Commission a copy of each such instrument upon request.
ITEM 14(B). REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of fiscal 1994.
ITEM 14(C). EXHIBITS
Exhibit 22 -- Subsidiaries of Registrant
JURISDICTION
COMPANY OF ORGANIZATION OWNERSHIP
------- --------------- ---------
LTX Co., Ltd. Japan 50.5%
LTX (Europe) Limited United Kingdom 100%
LTX International, Inc., a Domestic
International Sales Corporation (DISC) Delaware 100%
LTX (Deutschland) GmbH West Germany 100%
LTX France S.A. France 100%
LTX Test Systems Corporation Delaware 100%
LTX (Italia) S.r.l. Italy 100%
LTX Benelux B.V. The Netherlands 100%
LTX International B.V. The Netherlands 100%
LTX (Foreign Sales Corporation) B.V. The Netherlands 100%
LTX Asia International, Inc. Delaware 100%
LTX Israel Limited Israel 100%
LTX (Malaysia) SDN.BHD. Malaysia 100%
iPTest (Holdings) Limited United Kingdom 100%
The subsidiaries listed are all included in the consolidated financial
statements of the Company.
30
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LTX CORPORATION
/S/ ROGER W. BLETHEN
/S/ MARTIN S. FRANCIS
By ................................
ROGER W. BLETHEN
DIRECTOR AND PRESIDENT
MARTIN S. FRANCIS
DIRECTOR AND PRESIDENT
October 14, 1994
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ GRAHAM C. C. MILLER Chairman of the Board October 14, 1994
..........................................
(GRAHAM C. C. MILLER)
/S/ ROGER W. BLETHEN President and Director October 14, 1994
.......................................... (Principal Executive
(ROGER W. BLETHEN) Officer)
/S/ MARTIN S. FRANCIS President and Director October 14, 1994
.......................................... (Principal Executive
(MARTIN S. FRANCIS) Officer)
/S/ JOHN J. ARCARI Chief Financial Officer and October 14, 1994
.......................................... Treasurer (Principal
(JOHN J. ARCARI) Financial Officer)
/S/ GLENN W. MELONI Controller (Principal October 14, 1994
.......................................... Accounting Officer)
(GLENN W. MELONI)
/S/ JACQUES BOUYER Director October 14, 1994
..........................................
(JACQUES BOUYER)
/S/ FRED J. BUTLER Director October 14, 1994
..........................................
(FRED J. BUTLER)
/S/ ROGER J. MAGGS Director October 14, 1994
..........................................
(ROGER J. MAGGS)
/S/ ROBERT E. MOORE Director October 14, 1994
..........................................
(ROBERT E. MOORE)
/S/ SAMUEL RUBINOVITZ Director October 14, 1994
..........................................
(SAMUEL RUBINOVITZ)
31
35
LTX CORPORATION
SCHEDULE V -- PROPERTY AND EQUIPMENT
(IN THOUSANDS)
YEAR BALANCE AT BALANCE AT
ENDED BEGINNING ADDITIONS END OF
JULY 31 CLASSIFICATION OF PERIOD AT COST RETIREMENTS PERIOD
- - - -------- -------------- ---------- --------- ----------- ----------
1992 Machinery and equipment......... $ 73,150 $ 8,743(1) $ (19,316)(2) $ 62,577
Office furniture and
equipment....................... 10,367 675 (2,931) 8,111
Leasehold improvements.......... 8,251 562 (679) 8,134
-------- ------- --------- --------
$ 91,768 $ 9,980 $ (22,926) $ 78,822
======== ======= ========= ========
1993 Machinery and equipment......... $ 62,577 $ 8,774(1) $ (4,291)(2) $ 67,060
Office furniture and
equipment....................... 8,111 508 (709) 7,910
Leasehold improvements.......... 8,134 424 (1,072) 7,486
-------- ------- --------- --------
$ 78,822 $ 9,706 $ (6,072) $ 82,456
======== ======= ========= ========
1994 Machinery and equipment......... $ 67,060 $14,313(1) $ (13,008)(2) $ 68,365
Office furniture and
equipment....................... 7,910 338 (4,331) 3,917
Leasehold improvements.......... 7,486 71 (260) 7,297
-------- ------- --------- --------
$ 82,456 $14,722 $ (17,599) $ 79,579
======== ======= ========= ========
- - - ---------------
(1) Includes transfers of $10,042, $6,698 and $4,985 in 1994, 1993 and 1992,
respectively, from inventory to equipment manufactured by the Company.
(2) Includes transfers of $5,840, $3,965 and $5,742 from equipment to inventory
in 1994, 1993 and 1992, respectively.
LTX CORPORATION
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY AND EQUIPMENT
(IN THOUSANDS)
ADDITIONS
YEAR BALANCE AT CHARGED TO BALANCE AT
ENDED BEGINNING COSTS AND END OF
JULY 31 CLASSIFICATION OF PERIOD EXPENSES(1) RETIREMENTS PERIOD
- - - -------- -------------- ---------- ----------- ----------- ----------
1992 Machinery and equipment....... $ 47,392 $ 7,807 $ (17,296)(2) $ 37,903
Office furniture and
equipment..................... 8,389 940 (2,662) 6,667
Leasehold improvements........ 4,567 675 (610) 4,632
-------- ------- --------- --------
$ 60,348 $ 9,422 $ (20,568) $ 49,202
======== ======= ========= ========
1993 Machinery and equipment....... $ 37,903 $ 7,973 $ (3,179)(2) $ 42,697
Office furniture and
equipment..................... 6,667 497 (180) 6,984
Leasehold improvements........ 4,632 689 (804) 4,517
-------- ------- --------- --------
$ 49,202 $ 9,159 $ (4,163) $ 54,198
======== ======= ========= ========
1994 Machinery and equipment....... $ 42,697 $ 8,066 $ (8,350)(2) $ 42,413
Office furniture and
equipment..................... 6,984 513 (4,210) 3,287
Leasehold improvements........ 4,517 579 (163) 4,933
-------- ------- --------- --------
$ 54,198 $ 9,158 $ (12,723) $ 50,633
======== ======= ========= ========
- - - ---------------
(1) The annual provisions for depreciation and amortization are based on the straight-line method
with the cost of the assets being written off over their estimated useful life as follows:
Machinery and equipment........................ 5 years
Office furniture and equipment................. 3-7 years
Leasehold improvements......................... 10 years or term of lease
(2) Includes transfers of $2,110, $2,947 and $3,882 from equipment to inventory in 1994, 1993 and 1992, respectively.
32
36
LTX CORPORATION
SCHEDULE IX -- SHORT-TERM BORROWINGS
(IN THOUSANDS)
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
AT END INTEREST DURING DURING RATE DURING
OF YEAR RATE THE YEAR THE YEAR(1) THE YEAR(2)
------- -------- ----------- ----------- -----------
Year ended July 31, 1992
Notes payable to banks............ $8,693 7.0% $ 9,972 $ 7,446 7.5%
Year ended July 31, 1993
Notes payable to banks............ $9,933 6.0% $13,261 $ 9,534 7.0%
Year ended July 31, 1994
Notes payable to banks............ $6,870 3.3% $15,350 $12,074 5.0%
- - - ---------------
(1) The average amount outstanding during the period was computed by dividing
the total of month-end outstanding principal balances by 13.
(2) The weighted average interest rate during the period was computed by
dividing actual interest expense by average short-term debt outstanding.
LTX CORPORATION
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
YEAR ENDED JULY 31
--------------------------------
1994 1993 1992
------ ------ ------
Maintenance and repairs...................................... $2,312 $2,368 $1,935
Amounts for other items required in this schedule have been omitted since
they are less than one percent of net sales.
33