<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For Quarter Ended January 31, 1994 Commission File Number 0-10761
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 No.)
LTX Park at University Avenue, Westwood, Massachusetts 02090
(address of principal executive offices and zip code)
Registrant's telephone number, including area code (617) 461-1000
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 4, 1994
Common Stock, par value $0.05 per share 26,006,694
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LTX CORPORATION
Index
Page Number
Part I. FINANCIAL INFORMATION
Consolidated Balance Sheet 1
January 31, 1994 and July 31, 1993
Consolidated Statement of Operations
Three months and six months ended
January 31, 1994 and January 31, 1993 2
Consolidated Statement of Cash Flows
Six months ended January 31, 1994
and January 31, 1993 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 7
Part II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 8
Item 6 - Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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LTX CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
January 31, July 31,
1994 1993
----------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $13,344 $21,725
Accounts receivable, less allowances of $700 and $700 40,515 34,953
Inventories 50,761 45,180
Other current assets 4,280 4,116
--------- ---------
Total current assets 108,900 105,974
Property and equipment, net 28,574 28,258
Other assets 4,664 4,025
--------- ---------
$142,138 $138,257
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term liabilities $15,464 $10,047
Accounts payable 31,137 26,924
Accrued expenses and restructuring charges 24,205 8,708
Unearned service revenues 4,142 4,671
--------- ---------
Total current liabilities 74,948 50,350
Long-term liabilities, less current portion 972 1,060
Convertible subordinated debentures 20,068 19,943
Deferred compensation 428 428
Stockholders' equity:
Common stock, $0.05 par value 1,300 1,236
Additional paid-in capital 116,903 112,111
Accumulated deficit (72,481) (46,871)
--------- ---------
Total stockholders' equity 45,722 66,476
--------- ---------
$142,138 $138,257
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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LTX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
--------------------------- ---------------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
Product $32,911 $34,907 $75,377 $68,655
Service 5,208 4,399 9,906 8,742
-------- -------- -------- --------
Total net sales 38,119 39,306 85,283 77,397
-------- -------- -------- --------
Cost of sales:
Product 23,982 22,482 53,257 45,439
Service 3,182 2,826 6,126 5,588
Provision for excess inventories 3,500 -- 3,500 --
-------- -------- -------- --------
Total cost of sales 30,664 25,308 62,883 51,027
-------- -------- -------- --------
Gross profit 7,455 13,998 22,400 26,370
Engineering and product
development expenses 5,092 4,821 10,133 9,754
Selling, general and
administrative expenses 11,512 10,294 22,170 20,368
Restructuring charges 14,376 -- 14,376 --
-------- -------- -------- --------
Loss from operations (23,525) (1,117) (24,279) (3,752)
Interest expense, net 900 985 1,751 1,939
-------- -------- -------- --------
Loss before income
taxes and minority interest (24,425) (2,102) (26,030) (5,691)
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Loss before minority interest (24,425) (2,102) (26,030) (5,691)
Minority interest in net loss of subsidiary 420 447 420 1,207
-------- -------- -------- --------
Net loss $(24,005) $(1,655) $(25,610) $(4,484)
-------- -------- -------- --------
-------- -------- -------- --------
Primary and fully diluted net loss per share $(0.96) $(0.08) $(1.03) $(0.22)
Weighted average shares 25,060 20,114 24,933 20,104
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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LTX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months
Ended
January 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss $(25,610) $(4,484)
Add (deduct) non-cash items:
Depreciation and amortization 4,462 4,672
Minority interest in subsidiary net loss (420) (1,207)
Original issue discount amortization 125 131
(Increase) decrease in:
Accounts receivable (5,562) (73)
Inventories (5,581) 1,334
Other current assets (164) 491
Other assets (219) (1,301)
Increase (decrease) in:
Accounts payable 4,213 4,173
Accrued expenses and restructuring charges 15,497 422
Unearned service revenues (529) (2,834)
---------- ----------
Net cash provided by (used in) operating activities (13,788) 1,324
---------- ----------
CASH USED IN INVESTING ACTIVITIES:
Expenditures for property and equipment, net (7,619) (2,093)
---------- ----------
Net cash used in investing activities (7,619) (2,093)
---------- ----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from sale of common stock 4,000 --
Proceeds from stock purchase and option plans 856 239
Increase in bank debt 5,417 3,655
Proceeds from sale and leaseback of equipment 2,841 --
Payments of long-term debt (88) (392)
---------- ----------
Net cash provided by financing activities 13,026 3,502
---------- ----------
Net increase (decrease) in cash and equivalents (8,381) 2,733
Cash and equivalents at beginning of period 21,725 11,714
---------- ----------
Cash and equivalents at end of period $13,344 $14,447
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for:
Interest $1,988 $2,041
Income taxes 0 0
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying financial statements have been prepared by the Company,
without audit, and reflect all adjustments which, in the opinion of
management, are necessary for a fair statement of the results of the
interim periods presented. Certain information and footnote disclosures
normally included in the annual financial statements which are prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Accordingly, although the Company believes that the
disclosures are adequate to make the information presented not misleading,
the financial statements should be read in conjunction with the footnotes
contained in the Company's Annual Report on Form 10-K.
2. Revenues from product sales are recognized at the time units are shipped.
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.
3. Inventories are stated at the lower of cost (first-in, first-out) or
market and include material, labor and manufacturing overhead. Inventories
consisted of the following at:
<TABLE>
<CAPTION>
January 31, July 31,
1994 1993
----------- --------
(In thousands)
<S> <C> <C>
Raw materials $11,738 $11,694
Work-in-process 25,526 23,859
Finished goods 13,497 9,627
------- -------
$50,761 $45,180
------- -------
------- -------
</TABLE>
4. Interest expense and income were as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
---------------------- ----------------------
1994 1993 1994 1993
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Expense $1,033 $1,048 $1,988 $2,036
Income (133) (63) (237) (97)
-------- -------- -------- --------
Interest expense, net $900 $985 $1,751 $1,939
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
5. Net loss per share is based on the weighted average number of shares of
common stock outstanding.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
The following table sets forth for the periods indicated the principal
items included in the Consolidated Statement of Operations as percentages of
total revenues.
<CAPTION>
Percentage
Percentage of Net Sales Increase/(Decrease)
-------------------------------------------------- ------------------------
Three Months Six Months Three Months Six Months
Ended Ended 1994 1994
January 31, January 31, Over Over
1994 1993 1994 1993 1993 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales:
Product 86.3 % 88.8 % 88.4 % 88.7 % (5.7)% 9.8 %
Service 13.7 11.2 11.6 11.3 18.4 13.3
-------- -------- -------- --------
Total sales 100.0 100.0 100.0 100.0 (3.0) 10.2
Cost of sales:
Product 62.9 57.2 62.5 58.7 6.7 17.2
Service 8.3 7.2 7.2 7.2 12.6 9.6
Provision for excess inventories 9.2 -- 4.0 -- N/M N/M
-------- -------- -------- --------
Total cost of sales 80.4 64.4 73.7 65.9 21.2 23.2
-------- -------- -------- --------
Gross profit 19.6 35.6 26.3 34.1 (46.7) (15.1)
Engineering and product
development expenses 13.4 12.2 11.9 12.6 5.6 3.9
Selling, general and
administrative expenses 30.2 26.2 26.0 26.3 11.8 8.8
Restructuring charges 37.7 -- 16.9 -- N/M N/M
-------- -------- -------- --------
Loss from operations (61.7) (2.8) (28.5) (4.8) N/M N/M
Interest expense, net 2.4 2.5 2.0 2.5 (8.6) (9.7)
-------- -------- -------- --------
Loss before income
taxes and minority interest (64.1) (5.3) (30.5) (7.3) N/M N/M
Provision for income taxes -- -- -- --
-------- -------- -------- --------
Loss before minority
interest (64.1) (5.3) (30.5) (7.3) N/M N/M
Minority interest in net loss of
subsidiary 1.1 1.1 0.5 1.5 (6.0) (65.2)
-------- -------- -------- --------
Net loss (63.0)% (4.2)% (30.0)% (5.8)% N/M N/M
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
In the second quarter of fiscal 1994, the Company was adversely
affected by a short-fall in orders for its digital product line, particularly
from domestic customers. Revenues declined from $47.2 million in the first
quarter of the fiscal year to $38.1 million in the current period due to this
short-fall, in combination with the low level of shippable backlog at the
beginning of the period.
Although sales of digital test systems in the Pacific Rim and Japan
were satisfactory, the Company's digital business was well below expectations
and declined significantly from the first quarter level. However in the other
product segments the Company experienced good growth. Synchro mixed signal
system sales posted strong gains and service revenues continued to expand as a
result of the increasing level of service contracts on the Company's installed
base of equipment. Nevertheless, these improvements were not sufficient to
offset the decline in digital systems sales. On a year-to-year basis, net sales
of $38.1 million were 3% lower than the same period of the prior year. For the
six month period, net sales were 10% higher in the current year as compared to
the same period of the prior year.
The gross profit margin was 28.7% of net sales in the current quarter,
before a provision for excess inventories of $3.5 million, compared to 35.6% in
the same quarter of the prior year. The Company's gross profit margin was
adversely affected by the continuing lower average selling prices for its
digital products and by proportionately higher fixed costs on the lower
shipment levels.
In February, the Company announced that Graham Miller resigned as
President of LTX. He will continue as the Chairman of the Board of Directors of
the Company. The Board of Directors formed an Office of the Presidents and
elected Roger Blethen and Martin Francis as Presidents of LTX. This change in
management structure was made to decentralize management and profitability
responsibilities.
In early March, the Company announced a major restructuring to
properly size operations to its current level of business. The restructuring
consists of a planned consolidation of facilities, primarily involving the
Company's leased buidings in Westwood, Massachusetts, and a workforce reduction
of 100 employees. As a result of these 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 out placement
benefits for terminated employees. In addition, the Company took a
$3.5 million provision for excess inventories in the second quarter. The
increase in excess inventories was primarily a result of the lower than
anticipated shipment levels in the first half of fiscal 1994.
Operating expenses in the second quarter were $1.5 million higher than
in the same quarter of the prior year. The increase in engineering and product
development expenses of $0.3 million year-to-year relate to the Company's
continuing investment in the development of a new generation of digital test
systems and enhancements to its Synchro product line. Selling, general and
administrative expenses rose $1.2 million year-to-year largely as a result of
higher selling costs, including travel and trade show expenses, as well as
salary increases and personnel additions.
Interest expense was lower year-to-year as a result of the conversion to
common stock of the Company's 10 1/2% Convertible Subordinated Debentures Due
2010 in July 1993. This savings was partially offset by an increase in
interest expense on higher average bank borrowings in the period.
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<PAGE> 9
The Company's Japanese subsidiary operated at a net loss in the second
quarter of the fiscal year. The minority interest in net loss of subsidiary
represents the minority partner's share of the Company's Japanese subsidiary's
loss in the period.
There was no tax provision in the second quarter due to the net loss.
The Company is in a net operating loss carry-forward position in most tax
jurisdictions.
The Company reported a net loss of $24.0 million in the second quarter
of fiscal 1994. The net loss for the quarter included the restructuring charge
of $14.4 million and a provision for excess inventories of $3.5 million.
With the restructuring announced in March, the Company's level of
quarterly operating expenses has been lowered by approximately 15%. The Company
is continuing to review additional options to further reduce operating
expences. In the near term, the Company will still be dependent on a relatively
high level of business that can be delivered within the quarter to be able to
improve its results of operations.
Liquidity and Capital Resources
The Company increased its cash position by $6.0 million in the second
quarter. This increase was largely a result of the $4.0 million sale of
970,000 shares of common stock in the latter part of January. Accounts
receivable fell by $7.4 million primarily as a result of lower than anticipated
revenue levels. Inventories rose by $4.6 million in the second quarter,
excluding the provision for excess inventories. Capital equipment
additions of $2.9 million exceeded depreciation charges of $2.3 million. The
Company financed $1.7 million of the equipment additions in the period through
sale and leaseback arrangements. Accounts payable rose to $31.1 million at
the end of the period.
The Company did not expand its domestic bank line during the second
quarter as originally anticipated, but, alternatively, factored certain
receivables with its domestic bank during the period to help meet working
capital requirements. The Company recieved a waver of default from its domestic
bank relating to the first quarter results of operations.
As of January 31, 1994, the Company had $4.1 million in borrowings
outstanding under its domestic bank line and $11.3 million in borrowings
outstanding under its Japanese bank lines. As a result of the loss in the
second quarter, the Company is in default of its financial covenants under its
domestic bank line. The Company is currently negotiating with its bank to
recieve a waver of default and to restructure the agreement.
The Company plans to reduce its cash requirements for the balance of
the fiscal year by reducing working capital requirements and minimizing
capital expenditures. However, the Company expects to reduce its borrowing
level by $4.8 million during the third quarter with one of its Japanese banks.
The Company's ability to fund working capital requirements, capital
expenditures and reduce existing Japanese bank line balances will depend on the
continued availability of credit lines or future debt or equity financings.
There can be no assurance that the Company will be able to abtain such funding
as and when required.
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PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on December
14, 1993.
(b) Stockholders elected Messrs. Graham C.C. Miller and Robert E.
Moore as Class I Directors to serve a three year term.
(c) Other matters voted upon and the results of the voting were as
follows:
(1) Stockholders voted 20,734,064 shares FOR; 1,894,655 shares
AGAINST; 159,306 shares ABSTAINED and 2,105,287 shares did
note vote to increase the Company's authorized common stock,
$0.05 par value per share, from 50,000,000 shares to
100,000,000 shares.
(2) Stockholders voted 18,967,585 shares FOR; 3,612,350 shares
AGAINST; 208,090 shares ABSTAINED and 2,105,287 shares did
not vote to increase the number of shares subject to the
1990 Incentive Stock Option Plan from 1,000,000 shares to
1,500,000 shares.
(3) Stockholders voted 18,346,273 shares FOR; 4,175,757 shares
AGAINST; 265,995 shares ABSTAINED and 2,105,287 shares did
not vote to increase the number of shares issuable to
members of the Company's Board of Directors who are not
employees of the Company.
(4) Stockholders voted 20,025,191 shares FOR; 2,568,303 shares
AGAINST; 194,531 shares ABSTAINED and 2,105,287 shares did
not vote to approve the 1993 Employees' Stock Purchase Plan.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(1) Proxy Statement dated November 19, 1993 (incorporated
herein by reference to the Company's definitive Proxy
material filed pursuant to Section 14(a) of the Security
Exchange Act of 1934 on November 19, 1993).
(b) There were no reports on Form 8-K filed during the three months
ended January 31, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LTX Corporation
Date: March 17, 1994 By: /s/ Roger W. Blethen
-------------------- --------------------------------
Roger W. Blethen
President
Date: By:
-------------------- --------------------------------
Martin S. Francis
President
Date: March 17, 1994 By: /s/ John J. Arcari
-------------------- --------------------------------
John J. Arcari
Treasurer
Chief Financial Officer
(Principal Financial Officer)
Date: March 17, 1994 By: /s/ Glenn W. Meloni
-------------------- --------------------------------
Glenn W. Meloni
Controller
(Principal Accounting Officer)
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