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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, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 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
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None
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.05 PER SHARE
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. /X/
The aggregate market value of the Common Stock held by non-affiliates of
the registrant on September 20, 1996 was $174,978,554.
Number of shares outstanding of each of the issuer's classes of Common Stock as
of September 20, 1996:
Common Stock, Par Value $0.05 Per Share, 35,766,797 shares.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT IN CONNECTION WITH ITS 1996
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, 1996 ARE INCORPORATED BY REFERENCE INTO PART II.
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LTX CORPORATION
<TABLE>
INDEX
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PART I
Item 1. Business.................................................................... 1
Overview.................................................................... 1
Industry Background......................................................... 1
Company Strategy............................................................ 2
Products and Markets........................................................ 3
Linear/Mixed Signal Products................................................ 4
Digital Products............................................................ 5
Discrete Products........................................................... 6
Service..................................................................... 6
Sales and Distribution...................................................... 7
Customers................................................................... 7
Engineering and Product Development......................................... 7
Manufacturing and Supply.................................................... 8
Competition................................................................. 8
Backlog..................................................................... 8
Proprietary Rights.......................................................... 8
Executive Officers of the Company........................................... 9
Environmental Affairs....................................................... 9
Item 2. Properties.................................................................. 9
Item 3. Legal Proceedings........................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......................... 10
PART II
Item 5. Market Value for the Registrant's Common Stock and Related Security Holder
Matters..................................................................... 11
Item 6. Selected Consolidated Financial Data........................................ 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 11
Item 8. Financial Statements and Supplementary Data................................. 18
Report of Independent Public Accountants.................................... 18
Consolidated Statement of Operations........................................ 19
Consolidated Balance Sheet.................................................. 20
Consolidated Statement of Stockholders' Equity.............................. 21
Consolidated Statement of Cash Flows........................................ 22
Notes to Consolidated Financial Statements.................................. 23
Quarterly Results of Operations (unaudited)................................. 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 32
PART III
Item 10. Directors and Executive Officers of the Registrant......................... 32
Item 11. Executive Compensation..................................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management............. 32
Item 13. Certain Relationships and Related Transactions............................. 32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............ 32
Financial Statements........................................................ 32
Schedules................................................................... 32
Listing of Exhibits......................................................... 33
Reports on Form 8-K......................................................... 34
Exhibits.................................................................... 34
Signatures.......................................................................... 35
</TABLE>
LTX[Registered Trademark], HiPer[Registered Trademark] and enVision[Trademark]
are all trademarks of LTX Corporation.
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PART I
ITEM 1. BUSINESS
OVERVIEW
LTX Corporation ("LTX" or the "Company") 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 three lines of test systems: 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 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.
INDUSTRY BACKGROUND
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. Typically, all ICs are tested two or more
times during the manufacturing process. In addition, certain large electronic
equipment manufacturers employ STE for incoming inspection and for further
classification of ICs.
Demand for STE is driven by overall business expansion in the semiconductor
industry and advances in semiconductor technology. When demand for
semiconductors increases, semiconductor manufacturers will often purchase STE to
meet their growing capacity requirements. Advances in semiconductor technology
have allowed for increasingly complex semiconductor devices with 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, semiconductor
manufacturers are demanding STE that is faster, more versatile, more accurate,
more productive and easier to program and maintain.
Prices of STE systems generally increase as their capabilities increase.
The acquisition of STE represents a significant investment on the part of the
Company's customers, who typically consider both the capital and long term
operating costs of the test system in the acquisition process. Factors that can
vary from one test system to another, and thereby affect the total cost of
testing, include:
Speed. A test system that offers faster test times or that is able to test
more than one device at a time is able to test a greater number of devices over
its product life, thus increasing the system's efficiency and reducing the
customer's cost of testing.
Accuracy. Superior accuracy improves the yield of the semiconductor
production process because it reduces the number of good devices that are
improperly rejected and permits the selection of a higher number of premium
devices.
Efficiency. Greater efficiency in test program preparation, loading and
debugging leads to faster time to market for newly-designed semiconductors.
Software. Test system operating software which is easier to use and more
powerful reduces the amount of engineering resources needed to develop test
programs and operate test systems.
Reliability. A test system that operates with minimal downtime allows the
customer's production and engineering work to proceed without frequent
intervention and provides more cost-effective operation.
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System Architecture. Test system architecture that is modular extends the
product life of a test system because the system can be adapted to meet the
customer's new requirements while largely retaining compatibility with existing
test programs.
Customer Support. Customer specific applications programs, worldwide
service and customer training contribute to the efficient use of STE and
minimize the customer's cost of testing.
COMPANY STRATEGY
LTX's objective is to be the leading supplier of STE in the markets in
which it participates. The key elements of the Company's strategy are as
follows:
Focus on Leading-Edge Devices
The Company's test systems are designed to meet the design and production
test requirements of leading-edge digital, linear and mixed signal ICs and
discrete components. Testing of these devices requires high performance test
systems. The Company believes that only STE manufacturers with sophisticated
technological ability are able to compete effectively in these sectors of the
STE market. Moreover, the Company believes that by focusing on testing advanced
devices, it is able to gain valuable insight into future market opportunities.
Develop Adaptable Test Systems
The Company designs its test systems so that they may be adapted and
improved to meet its customers' future needs. This philosophy is reflected in
the modular architecture of many of the Company's products, which permits both
capacity additions and upgrading of performance as the Company develops new
modular options and associated software. When possible, the Company also seeks
to enable its customers to bridge different generations of the Company's
products. For example, the Company's enVision software has been designed to
operate on its new Delta Series products, as well as on its Master Series
products.
Provide Application Specific Solutions
The Company is committed to providing complete test solutions to its
customers by having a substantial group of engineers strategically located at
customer support centers throughout the world. By actively participating in the
application of its test systems, the Company is able to learn more about
requirements for new devices and to improve the design of future test systems.
LTX also believes that its participation in the application of its test systems
enables its customers to get devices to market more rapidly and builds stronger
ties with these customers.
Leverage Worldwide Presence
The semiconductor business is a worldwide industry, with well-established
manufacturers in the United States, Europe and the Far East. The Company has
nine offices in the United States, and in Europe maintains sales and support
offices in the United Kingdom, France, Italy and Germany. In recent years, an
increasing portion of semiconductor test and assembly operations have been
conducted in the Pacific Rim by manufacturers based in the United States and
Europe, as well as by local manufacturers. LTX has established sales and support
offices in Korea, Taiwan and Singapore to focus on the specific needs of the
markets within the Pacific Rim. In addition, through a majority-owned
subsidiary, the Company provides sales and support services at three locations
in Japan. The Company believes that this network of sales and support centers
improves its ability to sell and support its products to the world's major
semiconductor manufacturers.
Execute Strategic Alliances in Japan
The Japanese semiconductor industry represents the second largest market in
the world for STE. In Japan, the Company encounters significant competition from
local STE manufacturers. In fiscal 1990, the Company strengthened its resources
and presence in Japan by forming a joint venture with Sumitomo Metal Industries,
Ltd. ("SMI") through which the Company currently sells and services its products
in Japan. In addition, in fiscal 1993, the Company entered into a development,
manufacturing and marketing agreement
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with Ando Electric Co., Ltd. ("Ando"), a Japanese STE manufacturer and
majority-owned subsidiary of NEC, relating to the Delta 50, a digital test
system that the Company introduced in fiscal 1994. The Company believes that its
alliance with Ando will better enable it to penetrate the Japanese digital
production STE market. Moreover, since the Delta 50 is compatible with other
Delta Series machines, the Company believes that sales of Delta 50 test systems
to key Japanese semiconductor manufacturers will increase the Company's
opportunities to sell other Delta Series test systems to these same
manufacturers. In fiscal 1995, the Company entered into a development,
manufacturing and marketing agreement with Asia Electronics, Inc. ("Asia
Electronics"), a Japanese STE manufacturer which is 50% owned by Toshiba
Corporation ("Toshiba"), relating to a new discrete component test system for
testing integrated power modules. The Company believes that its alliance with
Asia Electronics will increase LTX's penetration of the market for discrete
component test systems in Japan.
Emphasize Quality and Reliability
The Company's People Driven Quality (PDQ) Program is designed to
continually improve all of its processes and increase the satisfaction of its
customers. The Company believes that this program will lead to: more efficient
and timely performance in engineering projects; improvement in manufacturing
costs through the reduction of defective products and manufacturing cycle time;
better on-time delivery performance; and greater reliability of its test
systems. The Company's Trillium Products Division in San Jose, California
achieved ISO 9001 certification in 1996. The Company is committed to
implementing ISO 9001 standards at all of its locations in 1997.
PRODUCTS AND MARKETS
Product Overview
The Company offers products in three broad product categories:
- Systems that are used to test linear and mixed signal devices, which
include the Synchro Series and Ninety;
- Systems that are used to test digital devices, which include the Delta
Series and Master Series, and enVision test development software; and
- Discrete component test systems, marketed as the iPTest product line.
The Company's test systems are used by semiconductor manufacturers for
design verification, characterization, qualification and failure analysis of
ICs. In addition, certain large electronic equipment manufacturers use the
Company's test systems for incoming inspection and for further classification of
ICs. All of the Company's test systems are comprised of multiple
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. The Company's
test system instrumentation is controlled by operating system software which is
developed by the Company. The Company also develops and sells test programs for
specific devices and offers software packages for use by semiconductor
manufacturers for test simulation in engineering design and test program
generation, data collection and statistical analysis in manufacturing.
Linear and Mixed Signal ICs
Linear ICs are used in almost every electronic application. Physical
occurrences, such as sound, images, temperature, pressure, speed, acceleration,
position and rotation, consist of continuously varying information. Linear ICs
are used to amplify, filter and shape this information. Mixed signal ICs convert
the signals from linear ICs into digital signals that can be processed by a
computer. Mixed signal devices 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, appliances,
personal computers, telephone systems, personal communication products, such as
cellular telephones and pagers, and home entertainment
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products. The complexity and density of these ICs have increased rapidly over
the past several years, 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.
Digital ICs
Digital ICs include microprocessors, microcontrollers, programmable DSPs
(digital signal processing), microperipherals and logic/ASIC (application
specific IC) devices. These ICs are used for computing, controlling and
calculating functions, and are at the heart of most electronic products. The
most well known of these devices is the microprocessor, which is the enabler of
personal computer technology. Microcontrollers, however, are much more broadly
used in automobiles, appliances, home entertainment products and many other
electronic products which utilize electronic control functions. Microprocessors
can cost hundreds or even thousands of dollars, while microcontrollers typically
cost tens of dollars. However, testing of microcontrollers can be as complex as
microprocessors and requires high performance test systems.
LINEAR/MIXED SIGNAL PRODUCTS
LTX offers two product lines for testing linear/mixed signal ICs, the
Synchro Series and Ninety.
Synchro Series
Synchro test systems are designed for high throughput testing of linear
devices and for testing mixed signal devices that require high digital pattern
rates and high digital pin counts along with analog signal generation and
measurement requirements. The Synchro features DSP (digital signal processing)
- -- per-pin architecture which allows for concurrent control of 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. The Synchro systems are
modular in design which enables customers to add new options to their systems in
the future. This allows customers to increase the capability of their Synchro
system to meet their new test requirements. Since its introduction, the Company
has significantly upgraded the performance and capabilities of the Synchro
through the introduction of new hardware and software.
The Synchro Series includes the Synchro II, Synchro Plus and Synchro
ProductionPAC test systems:
Synchro II. The configuration of the Synchro II test system is flexible.
This permits LTX customers to choose from a wide array of options to meet the
test requirements of a broad range of linear/mixed signal devices.
Synchro Plus. The Synchro Plus test system is configured with SuperSpeed
Data Pins which can test mixed signal devices at data rates of up to 400 MHz.
The Synchro Plus system addresses the test requirements of new, high speed
devices used in applications such as disk drives for personal computers and
advanced ATM(Asynchronous Transfer Mode) interface boards used to support the
development of the information superhighway.
Synchro ProductionPAC. The Synchro ProductionPAC test systems are lower
cost, smaller footprint, specifically focused configurations that address the
production requirements of high volume, low cost mixed signal devices. The RFPAC
system is configured to test devices used in the rapidly expanding wireless
communications market. The PowerPAC addresses "smart" power devices that are
being increasingly used in automobiles and consumer electronics. The TelePAC
addresses commodity ICs used in telecommunications. The ConverterPAC is focused
on devices used in multimedia applications.
All Synchro Series test systems are fully compatible in hardware, software
and specification. Current prices range from approximately $400,000 for a
Synchro ProductionPAC system to approximately $2,000,000 for a high pin count
Synchro Plus system.
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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 to manufacture the Ninety,
primarily for customers who are already using the Ninety or LTX77 systems and
desire to expand capacity. Many of the Ninety or LTX77 systems the Company has
previously sold are currently still in use. In the past, the Company has
upgraded the performance and capabilities of the Ninety system through the
introduction of new hardware and software. As with the Synchro, a wide array of
options are available. The current prices for a Ninety system range from
approximately $200,000 to approximately $700,000, depending on the system
configuration.
Software Tools
The Company offers two software options to facilitate the development of
test solutions off-line, called Device Tool and Synchro Models Toolbox. These
software tools work in conjunction with IC design and simulation software
allowing test solutions to be designed and debugged with a model of the IC.
Device Tool and the Synchro Models Toolbox allow the development of test
solutions concurrent with the design of the IC, reducing customers time to
market for the IC. The Company also offers data collection and analysis software
called dataVision. This software is easily adapted by the customer to collect
data from test systems and other manufacturing equipment and provides solutions
for improving the efficiency of the manufacturing process through yield
improvements and yield management. Device Tool typically sells for approximately
$25,000 per user, Synchro Models Toolbox typically sells for approximately
$35,000 per user, and dataVision typically sells for approximately $25,000 per
user.
DIGITAL PRODUCTS
LTX offers two product lines for testing digital ICs, the Delta Series and
Master Series, which are marketed under the Trillium name. The Delta Series and
Master Series product lines are based on a resource-per-pin architecture which
allows for a complete set of the test system's key features (timing generators,
waveform formatting and pattern memory) for each pin channel of the test system.
The Company believes that this architecture provides for faster, simpler
characterization and engineering debugging of new ICs, better system timing
accuracy, and simplified interfacing with computer-aided design systems. The
Company's enVision test development software is sold with both the Delta Series
and Master Series product lines.
Delta Series
The Delta Series includes the Delta 50 and Delta/STE test systems. The
Delta 50 is designed to meet the production test requirements of newer high
volume, lower cost devices such as microcontrollers. The Delta 50 has a compact
design 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. The Delta/STE, introduced in fiscal 1996,
incorporates Synchro mixed signal technology with Delta Series digital
technology to address the test requirements of a new generation of devices with
high performance analog signal interfaces to complex digital functions. These
new devices are enabling the development of powerful, yet low cost consumer
electronic products in areas such as multimedia and portable communications. The
Delta 50 and Delta/STE operate with the Company's enVision graphical software
environment providing customers with compatibility among these systems. The
current prices for the Delta Series test systems range from approximately
$500,000 for a low pin count Delta 50 to approximately $3,000,000 for a high pin
count Delta/STE.
In fiscal 1993, the Company entered into a development, manufacturing and
marketing agreement with Ando, a Japanese STE manufacturer and majority-owned
subsidiary of NEC, 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. 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, with certain exceptions in each case.
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Master Series
The Master Series product line includes the Deltamaster and Micromaster
test systems, which are enhanced versions of the Company's original digital test
system. The Deltamaster is a high-performance system with the capability of
testing up to 256 pins at data rates of up to 80 MHz. The Micromaster 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. Although the Delta Series product line is expected to eventually
replace the Master Series, the Company will continue to sell the Master Series
test systems, primarily to customers who are already using these systems and
desire to expand capacity. The current prices for the Master Series range from
approximately $400,000 for a low pin count Micromaster to approximately
$2,000,000 for a high pin count Deltamaster.
enVision
enVision, the Company's object-oriented programming software is designed
for use on all of its digital test 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, significantly improving the
throughput of the Company's digital test systems. enVision is an integral
feature of the Delta Series product line and can be purchased by customers of
the Master Series product line. The current price for enVision is approximately
$15,000 per user.
DISCRETE PRODUCTS
The Company's iPTest systems are used to test discrete components, such as
power transistors, as well as arrays of these components. 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 IGBT (insulated gate bipolar
transistor) technology and include devices such as intelligent power modules and
power MOSFETS. In fiscal 1996, the Company introduced the iPTest PowerTrak
system to address intelligent power modules (IPM) as well as the iPTest high
speed parallel test MosTrak system to address discrete power MOSFETS and IGBT
transistors.
In fiscal 1995, the Company entered into a development, manufacturing and
marketing agreement with Asia Electronics, a Japanese STE manufacturer which is
50% owned by Toshiba, relating to a new discrete component test system for
testing integrated power modules. The Company believes that its ability to
penetrate the Japanese market with its iPTest systems has been enhanced as a
result of this agreement together with its new product introductions in fiscal
1996.
Prices of iPTest systems currently range from approximately $200,000 to
approximately $500,000, depending on the system configuration and testing
specifications.
SERVICE
The Company considers service to be an important aspect of its business.
The Company's worldwide service organization is capable of performing
installations and all necessary maintenance of test systems sold by the Company,
including routine servicing of components manufactured by third parties. 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. The Company also provides training
on the maintenance and operation of test systems sold to its customers.
The Company offers a wide range of service contracts which gives its
customers flexibility to select the maintenance program best suited to their
needs. Customers may purchase service contracts which extend
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maintenance beyond the initial warranty provided by the Company with the sale of
its test systems. Many customers enter into annual or multiple-year service
contracts over the life of the equipment. The pricing of contracts is based upon
the level of service provided to the customer and the time period of the service
contract. As the installed base of LTX test systems has grown, service revenues
have been increasing on an annual basis. The Company believes that service
revenues should be less affected by the cyclicality of the semiconductor
industry than sales of test equipment. The Company maintains 22 service centers
around the world.
SALES AND DISTRIBUTION
The Company sells its products primarily through its worldwide sales
organization. In Japan, the Company sells, services and supports its products
through its joint venture with SMI, except that Ando has the right to
manufacture and sell the Delta 50 to certain customers in Japan. The Company
will share with its SMI joint venture specified portions of the royalties to be
paid by Ando on any sales by it of the Delta 50. Asia Electronics also has the
right to sell the Company's iPTest systems to certain customers in Japan. The
Company uses a small number of independent sales representatives in certain
other regions of the world.
Sales to customers outside the United States are subject to risks,
including the imposition of governmental controls, the need to comply with a
wide variety of foreign and United States export laws, political and economic
instability, trade restrictions, changes in tariffs and taxes, longer payment
cycles typically associated with international sales, and the greater difficulty
of administering business overseas as well as general economic conditions. Sales
by the Company to customers outside the United States are primarily denominated
in United States dollars. Sales by the Company to customers outside North
America were 64%, 66% and 61% of total sales of the Company in fiscal 1996, 1995
and 1994, respectively. For more information about the Company's foreign
operations and export sales see Note 9 -- Geographic Area Information of Notes
to the Company's Consolidated Financial Statements.
CUSTOMERS
The Company's customers include many of the world's leading semiconductor
manufacturers. The Company's major customers in fiscal 1996 included:
Hitachi National Semiconductor
Intel Philips
Lucky Goldstar Rockwell
Lucent Technologies SGS Thomson
Motorola Siemens
Sales to these major customers accounted for approximately 60% of net sales
in fiscal 1996. Sales to Philips accounted for approximately 17% of net sales in
fiscal 1995. No single customer accounted for 10% or more of net sales in fiscal
1996 or fiscal 1994.
ENGINEERING AND PRODUCT DEVELOPMENT
The STE market is characterized by rapid technological change and new
product introductions, as well as advancing industry standards. The Company's
ability to remain competitive in the digital, linear and mixed signal IC and
discrete component markets will depend upon its ability to successfully enhance
existing test systems and develop new generations of test systems and to
introduce these new products on a timely and cost-effective basis. 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 $22.9 million, $19.8 million and $19.6 million during fiscal
1996, 1995 and 1994, respectively.
The Company's engineering strategy is to develop its test systems in an
evolutionary manner so that they may be progressively upgraded. This approach
preserves its customers' substantial investments in test programs, and, in
general, maintains market acceptance for the Company's test systems. In order to
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implement this strategy, the Company works closely with its customers to define
new product features and to identify emerging applications for its products.
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. Over the past year, the
Company has significantly increased its outsourcing of certain subassemblies to
contract manufacturers. 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 Schlumberger Limited, Teradyne, Inc. and Credence Systems Corporation,
except in Japan where the Company's major competitor is Advantest Corporation
(an affiliate of Fujitsu Limited). The Company's principal competitor for
linear/mixed signal test systems is Teradyne, Inc., except in Japan where the
Company's major competitor is Yokogawa Electric Works. The Company's principal
competitor for discrete component test systems is Tesec, Ltd. Most of the
Company's 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, cost of test,
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, 1996, the Company's backlog of unfilled orders for all products
and services was $65.5 million, compared with $98.4 million at July 31, 1995.
The Company expects to deliver approximately 86% of its July 31, 1996 backlog in
fiscal 1997. 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.
The Company licenses some software programs from third party developers and
incorporates them in the Company's products. Generally, such agreements grant to
the Company non-exclusive licenses with respect to the subject program and
terminate only upon a material breach by the Company. The Company believes that
such licenses are generally available on commercial terms from a number of
licensors.
8
<PAGE> 11
The use of patents to protect hardware and software has increased in the
STE industry. The Company has at times been notified of claims that it may be
infringing patents issued to others. Although there are no pending actions
against the Company regarding any patents, no assurance can be given that
infringement claims by third parties will not have a material adverse effect on
the Company's business and results of operations. As to any claims asserted
against the Company, the Company may seek or be required to obtain a license
under the third party's intellectual property rights. There can be no assurance,
however, that a license will be available under reasonable terms or at all. In
addition, the Company could decide to resort to litigation to challenge such
claims or a third party could resort to litigation to enforce such claims. Such
litigation could be expensive and time consuming and could materially adversely
affect the Company's business and results of operations.
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
The executive officers of the Company, as of October 17, 1996, are as
follows:
<CAPTION>
EXECUTIVE OFFICER AGE POSITION
----------------- --- --------
<S> <C> <C>
Roger W. Blethen............. 45 President, Chief Executive Officer
and Director
John J. Arcari............... 51 Chief Financial Officer and Treasurer
Kenneth E. Daub.............. 60 Senior Vice President
</TABLE>
Executive officers are chosen by and serve at the discretion of the Board
of Directors of the Company.
Roger W. Blethen was appointed Chief Executive Officer of the Company in
September 1996. Mr. Blethen has been a President since 1994 and has been a
Director since 1980. He 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.
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 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, 1996, the Company had a total of 1,032 employees, including 250
in engineering and product development, 207 in service and customer support, 366
in manufacturing and 209 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.
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 mixed signal
products are located in a 167,000 square foot facility under a lease which
expires in 2007. In May 1995, the Company subleased a 208,000 square foot
facility in Westwood, Massachusetts for a ten year term. The Company's lease of
this facility expires in 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
9
<PAGE> 12
this facility expires in 1999. The Company also leases seven sales and customer
support offices at various locations in the United States totaling approximately
40,000 square feet.
The Company's European headquarters is located in Woking, United Kingdom.
The Company also maintains sales and support offices 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 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 offices in
two other locations in Japan. Office space leased in Japan totals approximately
10,000 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 been notified that the Korean semiconductor manufacturer
Daewoo Corporation alleges that certain purchase agreements aggregating $50.1
million were not properly authorized and will not be honored, and the Company
has commenced litigation seeking to enforce those agreements. At July 31, 1996,
the Company's backlog of $65.5 million did not include these purchase agreements
from Daewoo.
The Company has no other 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 1996.
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<PAGE> 13
PART II
ITEM 5. MARKET VALUE FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
<TABLE>
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "LTXX." The following table sets forth for the periods indicated the
actual high and low sales prices per share of Common Stock, as reported on the
Nasdaq National Market.
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year Ended July 31, 1996:
First Quarter........................................... $14 1/8 $9 1/2
Second Quarter.......................................... $13 1/4 $6 5/8
Third Quarter........................................... $10 3/4 $7 3/8
Fourth Quarter.......................................... $11 3/8 $4
Fiscal Year Ended July 31, 1995:
First Quarter........................................... $ 4 3/4 $3
Second Quarter.......................................... $ 5 11/16 $3 1/2
Third Quarter........................................... $ 6 7/16 $4 7/8
Fourth Quarter.......................................... $11 5/8 $6
</TABLE>
The Company has never declared or paid cash dividends on the shares of
Common Stock and does not anticipate paying any cash dividends on the shares of
Common Stock in the foreseeable future. The Company currently intends to retain
future earnings to fund the development and growth of its business.
As of September 20, 1996, there were 1,265 stockholders of record.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth on page 12 of the registrant's 1996 Annual Report
under the caption "Selected Financial Information Five Year Summary" is
incorporated herein by reference. That information summarizes certain selected
financial data and should be read in conjunction with the consolidated financial
statements and related notes appearing elsewhere in this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth for the periods indicated the items included
in the Consolidated Statement of Operations as percentages of total net sales.
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------
YEAR ENDED JULY 31
--------------------------
1996 1995 1994
----- ----- ------
<S> <C> <C> <C>
Net sales.......................................................... 100.0% 100.0% 100.0%
Cost of sales:
Product.......................................................... 60.7 65.0 69.5
Provisions for excess and obsolete inventories................... 1.4 -- 2.1
----- ----- -----
Total cost of sales........................................... 62.1 65.0 71.6
----- ----- -----
Gross profit....................................................... 37.9 35.0 28.4
Engineering and product development expenses....................... 8.6 9.4 11.6
Selling, general and administrative expenses....................... 17.5 18.5 25.1
Restructuring charges.............................................. -- -- 8.6
----- ----- -----
Income (loss) from operations...................................... 11.8 7.1 (16.9)
Interest (income) expense, net..................................... (0.1) 1.8 2.3
----- ----- -----
Income (loss) before income taxes and minority interest............ 11.9 5.3 (19.2)
Provision for income taxes......................................... 0.5 0.2 --
----- ----- -----
Income (loss) before minority interest............................. 11.4 5.1 (19.2)
Minority interest in net loss of subsidiary........................ -- -- 0.6
----- ----- -----
Net income (loss).................................................. 11.4% 5.1% (18.6)%
===== ===== =====
</TABLE>
11
<PAGE> 14
Fiscal 1996 Compared to Fiscal 1995
Orders of $233.6 million for the Company's products and services in fiscal
1996 were slightly lower than the fiscal 1995 level of $236.9 million. The
Company experienced strong industry demand during the first half of fiscal 1996.
However, industry conditions began to weaken during the Company's third fiscal
quarter and demand for test equipment continued to fall through the balance of
the fiscal year. Primarily as a result of weakening industry conditions, the
Company's backlog declined to $65.5 million at July 31, 1996, as compared to
$98.4 million at July 31, 1995.
Net sales were $266.5 million in fiscal 1996 as compared to $210.3 million
in fiscal 1995, an increase of 27%. Sales of the Company's mixed signal test
systems were 18% higher in fiscal 1996 as compared to fiscal 1995 and sales of
digital test systems in fiscal 1996 increased 55% over fiscal 1995. The increase
in sales for both product lines in fiscal 1996 was primarily a result of strong
semiconductor industry conditions during the first half of fiscal 1996 together
with the large backlog of unshipped orders at the beginning of the fiscal year.
Sales to customers outside of North America represented 64% of total sales in
fiscal 1996 as compared to 66% of total sales in fiscal 1995.
The gross profit margin was 37.9% of net sales in fiscal 1996 as compared
to 35.0% of net sales in fiscal 1995. The improvement in the gross profit margin
in fiscal 1996 was a result of proportionately lower fixed manufacturing costs
on the higher shipment levels, savings from product cost reduction programs and
higher average selling prices, particularly on the Synchro Series. These
improvements were partially offset by a provision of $3.6 million for excess and
obsolete inventories in the fourth quarter of fiscal 1996. This provision was
largely a result of obsolete components and parts due to product redesigns
associated with the Company's Delta Series test systems.
Engineering and product development expenses were $22.9 million, or 8.6% of
net sales, in fiscal 1996 as compared to $19.8 million, or 9.4% of net sales, in
fiscal 1995. The increase in engineering and product development expenses
reflects additional resources the Company has invested in product development
programs relating to its Synchro, Delta and iPTest product lines.
Selling, general and administrative expenses were $46.8 million, or 17.5%
of net sales, in fiscal 1996, as compared to $39.0 million, or 18.5% of net
sales, in fiscal 1995. The increase in expenses in fiscal 1996 included the
introduction of an employee profit sharing bonus plan and matching of
contributions to the Company's 401(k) plan along with higher travel expenses and
sales commissions on the higher level of sales.
Net interest income was $0.3 million in fiscal 1996 as compared to net
interest expense of $3.8 million in fiscal 1995. Interest expense of $2.5
million in fiscal 1996 was $1.7 million lower than fiscal 1995 primarily as a
result of the conversion of the Company's 13 1/2% Convertible Subordinated
Debentures into 2,241,000 shares of the Company's common stock in July 1995. In
fiscal 1996, the Company generated $2.8 million in interest income, $2.4 million
more than in fiscal 1995, primarily as a result of the investment of the $55.8
million in proceeds received in October 1995 from a public offering of the
Company's common stock.
The Company's tax provision in fiscal 1996 was $1.4 million, or 4.4% of
pre-tax income. The Company fully used its United States federal net operating
loss carryforward, and a portion of its United States federal tax credit
carryforwards, during fiscal 1996. As a result, the tax provision represents a
minimal level of U.S. federal, state and foreign income taxes. In fiscal 1995,
the tax provision of $0.4 million represented only certain state and foreign tax
liabilities.
The Company's Japanese subsidiary's results of operations were
approximately break-even in fiscal 1996 and 1995. As a result, the minority
partner's share of the Company's Japanese subsidiary's results was
insignificant.
The Company had net income of $30.3 million, or $0.82 per share, in fiscal
1996, as compared to $10.7 million, or $0.36 per share, in fiscal 1995. The 183%
increase in net income year-to-year was largely a result of the combination of
higher sales levels, an improvement in the gross profit margin as a percentage
of net sales, the reduction in operating expenses as a percentage of net sales
and added interest income.
12
<PAGE> 15
Management believes that the current weak semiconductor equipment industry
conditions will continue for the near term. These conditions will adversely
affect the Company's results of operations. The Company has reduced its
workforce by approximately 150 employees, since July 1996, and has taken
additional steps to reduce discretionary spending and limit capital expenditures
in fiscal 1997.
Fiscal 1995 Compared to Fiscal 1994
The Company experienced strong semiconductor industry conditions during
fiscal 1995 which resulted in a significant increase in demand for its test
systems. Orders for the Company's products and services were $236.9 million in
fiscal 1995 as compared to $197.9 million in fiscal 1994, an increase of
approximately 20%. Orders for the Company's linear and mixed signal test systems
remained at a high level in fiscal 1995, increasing 11% over fiscal 1994, while
orders for the Company's digital products increased 41% year-to-year. As a
result, the Company's backlog of unfilled orders for products and services was
$98.4 million at July 31, 1995 as compared to $71.8 million at July 31, 1994.
Net sales were $210.3 million in fiscal 1995 as compared to $168.3 million
in fiscal 1994, an increase of approximately 25%. Sales of the Company's linear
and mixed signal test systems were about 40% higher in fiscal 1995 as compared
to fiscal 1994. Sales of the Company's digital test systems in fiscal 1995 were
slightly higher than fiscal 1994.
The gross profit margin was 35.0% of net sales in fiscal 1995 as compared
to 28.4% in fiscal 1994. The improvement in the gross profit margin was largely
a result of proportionately lower fixed manufacturing costs on the higher level
of shipments and higher average selling prices. In fiscal 1994, the gross profit
margin was reduced by 2.1% as a result of a $3.5 million provision for excess
and obsolete inventories.
Engineering and product development expenses were $19.8 million, or 9.4% of
net sales, in fiscal 1995, as compared to $19.6 million, or 11.6% of net sales,
in fiscal 1994. Engineering and product development expenses have remained
approximately equal year-to-year reflecting the Company's continuing development
efforts, particularly for its Delta Series and Synchro product lines.
Selling, general and administrative expenses were $39.0 million, or 18.5%
of net sales, in fiscal 1995, as compared to $42.3 million, or 25.1% of net
sales, in fiscal 1994. The decrease in selling, general and administrative
expenses of $3.3 million was largely a result of cost reduction and
restructuring measures in fiscal 1994.
In March 1994, the Company announced a major restructuring program which
consisted of a consolidation of facilities and a workforce reduction of
approximately 100 employees. As a result of those decisions, the Company took a
$14.4 million restructuring charge to its second quarter results of operations
in fiscal 1994. The restructuring charge largely related to the consolidation of
excess leased facilities, primarily in Westwood, Massachusetts, and severance
payments for terminated employees.
Net interest expense was $3.8 million in fiscal 1995 as compared to $3.9
million in fiscal 1994. In July 1995, the Company's 13 1/2% Convertible
Subordinated Debentures Due 2011 were converted into 2,241,000 shares of Common
Stock, which reduced interest expense beginning in the fourth quarter of fiscal
1995. In addition, lower average bank borrowings reduced interest expense in
fiscal 1995 as compared to fiscal 1994. This reduction in interest expense was
largely offset by an increase in interest due to a long-term loan the Company
received in July 1994.
The tax provision of $0.4 million in fiscal 1995 reflected certain state
and foreign tax provisions. The Company is in a net operating loss carryforward
position in most tax jurisdictions. There was no tax provision in fiscal 1994
due to the net operating loss for the year.
The Company's Japanese subsidiary's results of operations were break-even
in fiscal 1995. In fiscal 1994, the minority partner's share of the Company's
Japanese subsidiary's net loss was $1.0 million.
The Company had net income of $10.7 million, or $0.36 per share, in fiscal
1995, as compared to a net loss of $31.3 million, or $1.23 per share, in fiscal
1994. The net loss in fiscal 1994 included a restructuring charge of $14.4
million and a provision for excess and obsolete inventories of $3.5 million. The
Company's
13
<PAGE> 16
operating results improved sequentially during fiscal 1995, beginning with net
income of $0.8 million in the first quarter and ending with net income of $5.1
million in the fourth quarter. The quarterly improvement in the Company's
results reflected the increasing level of sales, higher gross profit margin and
reduction of operating expenses as a percentage of net sales.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short term investments were $76.0 million at July 31, 1996 as
compared to $29.2 million at July 31, 1995. The increase in cash and short term
investments of $46.8 million was a result of $7.7 million of net cash provided
by operating activities, $20.0 million of net cash used for property and
equipment expenditures and $59.7 million of net cash provided by financing
activities.
The positive net cash flow of $7.7 million from operating activities was
largely a result of the net income of $30.3 million and non-cash depreciation
charges of $10.5 million, offset by a combined increase in accounts receivable
and inventories of $33.7 million. The increase of $14.3 million in accounts
receivable in fiscal 1996 was a result of the increase in fourth quarter sales
of $7.3 million, in combination with a lower level of collections on fourth
quarter shipments, as compared to the fourth quarter of fiscal 1995. The
increase in inventories of $19.4 million during the fiscal year largely
reflected the requirement to support higher sales levels. In addition, the
increase in inventories also reflected the adverse effect of customers
rescheduling test systems the Company had anticipated delivering in the fourth
quarter. The increase in accounts payable of $6.9 million in fiscal 1996 is a
result of the increase in inventories. The Company made cash expenditures of
$4.9 million in fiscal 1996, primarily relating to sublease agreements
associated with excess leased facilities, which reduced the balance of its
restructuring reserve from $6.1 million at July 31, 1995 to $1.2 million at July
31, 1996.
Property and equipment additions of $20.0 million during fiscal 1996 were
largely for use in product development and customer support activities, as well
as leasehold improvements and furnishings for the Company's facility in
Massachusetts. The Company anticipates that expenditures for property and
equipment will not exceed $12 million (approximately equal to depreciation
charges) in fiscal 1997.
The Company's Japanese subsidiary had bank borrowings of $8.3 million at
July 31, 1996 as compared to $8.5 million at July 31, 1995. The Company had no
borrowings outstanding under its domestic bank line at July 31, 1996 or 1995.
In October 1995, the Company received $55.8 million in proceeds as a result
of a public offering of 5.25 million shares of common stock. In June 1996, Ando
purchased 1.0 million shares of common stock, for $2.3 million, pursuant to the
partial exercise of its warrant issued by the Company. In June 1996, the Company
announced a stock repurchase program to purchase up to 3.5 million shares of its
common stock. Under this program, the Company purchased 0.2 million shares of
common stock, for $1.0 million, during the fourth quarter of fiscal 1996.
In July 1995, the Company's 13 1/2% Convertible Subordinated Debentures Due
2011 were converted into 2,241,000 shares of common stock. The outstanding
principal amount of $15.7 million of Debentures was converted at the conversion
price of $7.00 per share. As a result, long-term debt was reduced by $13.1
million for the book value of the Debentures and stockholders' equity was
increased by $12.1 million.
Management believes that the Company has sufficient cash resources to meet
its fiscal 1997 requirements. These resources include cash and short term
investments of $76.0 million at July 31, 1996 together with future cash flows
from operations.
14
<PAGE> 17
FORWARD-LOOKING STATEMENTS
The Company in this report makes, and may from time to time elsewhere make,
disclosures which contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such disclosures in this
report include, without limitation, the Company's belief, under "Results of
Operations" as to the continued weakness of industry conditions and under
"Liquidity and Capital Resources", as to the adequacy of its cash resources.
Such forward-looking statements involve risks and uncertainties including, but
not limited to, the following important factors that could cause actual results
to differ materially from those in the forward-looking statement:
Cyclicality of Semiconductor Industry
The Company's business is largely dependent upon the capital expenditures
of semiconductor manufacturers. The semiconductor industry is highly cyclical
and has historically experienced, and is currently experiencing, recurring
periods of oversupply, which often have had a severely detrimental effect on
such industry's demand for test equipment and could cause cancellations,
rescheduling or reductions of customer orders. No assurance can be given that
the Company's business and results of operations will not be materially
adversely affected if the current downturn continues for a prolonged period or
if downturns or changes in any particular market segments of the semiconductor
industry occur in the future, especially if all of the market segments in which
the Company participates experience downturns at the same time.
Fluctuations in Sales and Operating Results
Given the relatively large selling prices of the Company's test systems,
sales of a limited number of test systems account for a substantial portion of
sales in any particular fiscal quarter and a small number of transactions could
therefore have a significant impact on sales and gross margins for that fiscal
quarter. The Company's sales and operating results have fluctuated and could in
the future fluctuate significantly from period to period, including from one
quarterly period to another, due to a combination of factors, including the
cyclical demand of the semiconductor industry, order cancellations or
rescheduling by customers, the large selling prices of the Company's test
systems (which typically result in a long selling process), competitive pricing
pressures and the mix between and configuration of digital and linear/mixed
signal and discrete component test systems sold in a particular period. The
impact of these and other factors on the Company's sales and operating results
in any future period cannot be forecast with accuracy. In addition, the need for
continued investment in research and development, for capital equipment
requirements and for extensive worldwide customer support capability results in
significant fixed costs which would be difficult to reduce in the event that the
Company does not meet its sales objectives.
Importance of New Product Introductions
The semiconductor test equipment ("STE") market is subject to rapid
technological change and new product introductions, as well as advancing
industry standards. The development of increasingly complex semiconductors and
the utilization of semiconductors in a broader spectrum of products has driven
the need for more advanced test systems to test such devices at an acceptable
cost. The Company's ability to remain competitive in the digital, linear and
mixed signal integrated circuit ("IC") and discrete component markets will
depend upon its ability to successfully enhance existing test systems and
develop new generations of test systems and to introduce these new products on a
timely and cost-effective basis. The Company also has to manufacture its
products in volume at a competitive price and on a timely basis to enable
customers to integrate them into their operations as they begin to produce their
next generation of semiconductors. The Company's failure to have a competitive
test system available when required by a semiconductor manufacturer would make
it substantially more difficult for the Company to sell test systems to that
manufacturer for a number of years. The Company has in the past experienced
delays in introducing certain of its products and enhancements, and there can be
no assurance that it will not encounter technical or other difficulties that
could in the future delay the introduction of new products or enhancements. If
new products have reliability or functionality problems, then reduced, canceled
or rescheduled orders, higher manufacturing costs, delays in collecting accounts
receivable and additional warranty expense may result, which could reduce gross
margins on new product sales and otherwise materially affect the Company's
business and results of operations. The
15
<PAGE> 18
Company's Delta Series of products continues to be subject to the risks
associated with new product introductions, including the risk that reliability
or functionality problems could increase expenses and reduce gross margins on
new product sales. Furthermore, announcements by the Company or its competitors
of new products could cause customers to defer or forego purchases of the
Company's existing products, which would also adversely affect the Company's
business and results of operations. There can be no assurance that the Company
will be successful in the introduction and volume manufacture of its new
products, that such introduction will coincide with the development by
semiconductor manufacturers of their next generation semiconductors or that such
products will satisfy customer needs or achieve market acceptance. The failure
to do so could materially adversely affect the Company's business and results of
operations.
Highly Competitive Industry
The STE industry is highly competitive in all areas of the world. Most of
the Company's major competitors have substantially greater financial resources
and some have more extensive engineering, manufacturing, marketing and customer
support capabilities than the Company. The Company expects its competitors to
continue to improve the performance of their current products and to introduce
new products with improved price and performance characteristics. The Company
principally competes on the basis of performance, cost of test, reliability,
customer service, applications support, price and ability to deliver its
products on a timely basis. 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 and could prevent the successful introduction of the
Company's new 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. The Company believes
that to remain competitive it will require significant financial resources for
investment in new product development and for the maintenance of customer
support centers worldwide. There can be no assurance that the Company will be
able to compete successfully in the future.
Customer Concentration
The loss of a major customer or reduction in, or rescheduling or
cancellation of, orders by major customers, including reductions, cancellations
or rescheduling due to market or competitive conditions in the semiconductor
industry, has had in the past and would have in the future an adverse effect on
the Company's business and results of operations. In addition, the Company's
ability to increase its sales will depend in part upon its ability to obtain
orders from new customers. The loss of one or more of its top ten customers
could have a material adverse effect on the Company's business and results of
operations.
Dependence upon Key Personnel
The Company's success is dependent upon certain key management and
technical personnel. There is intense competition for a limited number of
qualified employees among companies in the semiconductor test equipment
industry, and the loss of certain of the Company's employees or an inability to
attract and motivate highly skilled employees could adversely affect its
business.
Dependence upon Key Suppliers
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. Any disruption or termination of supply of components,
particularly single source components, could have an adverse effect on the
Company's business and results of operations.
Acquisitions
The Company from time to time may acquire technologies, product lines or
businesses that are complementary to those of the Company. Although the Company
believes that integration of acquired technologies, product lines and businesses
will result in long-term growth and profitability, there can be no assurance
that the Company will be able to successfully negotiate finance or integrate
such acquired technologies, product lines or businesses. Furthermore, the
integration of an acquired company or business may cause a diversion of
management time and resources. There can be no assurance that a given
acquisition, if consummated, would not materially adversely affect the Company.
16
<PAGE> 19
Proprietary Rights
The Company's future success depends in part upon its proprietary
technology. Although the Company attempts to protect its proprietary technology
through a combination of contract provisions, trade secrets, copyrights and
patents, it believes that its future success depends more upon its engineering,
manufacturing, marketing and service skills. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be adequate to
prevent misappropriation of its technology or the independent development by
others of similar technology. Although there are no pending actions against the
Company regarding any patents, no assurance can be given that infringement
claims by third parties will not have a material adverse effect on the Company's
business and results of operations.
17
<PAGE> 20
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 sheet of LTX
Corporation and subsidiaries as of July 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended July 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 6, 1996
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 Corporation'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, File No. 33-51685, File No.
33-57457, File No. 33-57459, File No. 33-65245 and File No. 33-65247).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 14, 1996
18
<PAGE> 21
LTX CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
YEAR ENDED JULY 31
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $266,476 $210,319 $168,326
Cost of sales.............................................. 161,794 136,748 116,939
Provision for excess and obsolete inventories.............. 3,600 -- 3,500
-------- -------- --------
Gross profit.......................................... 101,082 73,571 47,887
Engineering and product development expenses............... 22,927 19,778 19,604
Selling, general and administrative expenses............... 46,787 38,953 42,308
Restructuring charges...................................... -- -- 14,376
-------- -------- --------
Income (loss) from operations......................... 31,368 14,840 (28,401)
Other income (expense):
Interest expense...................................... (2,529) (4,254) (4,286)
Interest income....................................... 2,826 480 412
-------- -------- --------
Income (loss) before income taxes and minority
interest....................................... 31,665 11,066 (32,275)
Provision for income taxes................................. 1,395 372 --
-------- -------- --------
Income (loss) before minority interest........... 30,270 10,694 (32,275)
Minority interest in net loss of subsidiary................ -- -- 971
-------- -------- --------
Net income (loss)................................ $ 30,270 $ 10,694 $(31,304)
======== ======== ========
Net income (loss) per share:
Primary............................................... $ 0.82 $ 0.37 $ (1.23)
Fully diluted......................................... $ 0.82 $ 0.36 $ (1.23)
Weighted average shares:
Primary............................................... 36,716 28,805 25,485
Fully diluted......................................... 36,755 29,787 25,485
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 22
LTX CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
JULY 31
---------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................................. $ 66,069 $ 29,183
Short-term investments............................................ 9,941 --
Accounts receivable, less allowances of $900 and $700............. 46,201 32,785
Inventories....................................................... 66,496 47,101
Other current assets.............................................. 5,239 4,929
-------- --------
Total current assets......................................... 193,946 113,998
-------- --------
Property and equipment, net....................................... 37,880 28,407
Other assets...................................................... 3,493 3,512
-------- --------
$235,319 $145,917
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................... $ 8,252 $ 8,457
Current portion of long-term liabilities.......................... 4,143 359
Accounts payable.................................................. 28,451 21,744
Accrued compensation.............................................. 4,667 3,155
Unearned service revenues and customer advances................... 6,429 7,157
Restructuring charges............................................. 1,198 6,087
Other accrued expenses............................................ 3,187 4,857
-------- --------
Total current liabilities.................................... 56,327 51,816
-------- --------
Long-term liabilities, less current portion............................ 16,645 20,959
Convertible subordinated debentures.................................... 7,308 7,308
Deferred compensation.................................................. -- 427
Stockholders' equity:
Common stock, $0.05 par value:
100,000,000 shares authorized; 35,995,796 and 29,268,826 shares
issued......................................................... 1,800 1,463
Additional paid-in capital........................................ 191,455 131,425
Accumulated deficit............................................... (37,211) (67,481)
Less - treasury stock (200,000 shares), at cost................... (1,005) --
-------- --------
Total stockholders' equity................................... 155,039 65,407
-------- --------
$235,319 $145,917
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 23
LTX CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL TOTAL
OUTSTANDING PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
----------- ------ ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
Conversion of 13 1/2%
Convertible Subordinated
Debentures due 2011........... 2,240,581 112 11,943 12,055
Exercise of stock options....... 504,595 25 965 990
Issuance of shares under
employees' stock purchase
plan.......................... 299,708 15 1,060 1,075
Net income...................... 10,694
---------- ------ -------- -------- ------- --------
BALANCE, JULY 31, 1995.......... 29,268,826 1,463 131,425 (67,481) -- 65,407
Exercise of stock options....... 228,842 12 954 966
Exercise of stock warrant....... 1,000,000 50 2,260 2,310
Issuance of shares under
employees' stock purchase
plan.......................... 248,128 12 1,282 1,294
Sale of common stock............ 5,250,000 263 55,534 55,797
Purchase of Treasury Shares..... (200,000) (1,005) (1,005)
Net income...................... 30,270 30,270
---------- ------ -------- -------- ------- --------
BALANCE, JULY 31, 1996.......... 35,795,796 $1,800 $191,455 $(37,211) $(1,005) $155,039
========== ====== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 24
LTX CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED JULY 31
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Provided By (Used In) Operating Activities:
Net income (loss).......................................... $ 30,270 $ 10,694 $(31,304)
Add (deduct) non-cash items:
Minority interest in subsidiary....................... -- -- (971)
Depreciation and amortization......................... 10,533 9,701 9,158
Original issue discount amortization.................. -- 263 252
Translation (gain) loss............................... (562) 178 320
(Increase) decrease in:
Accounts receivable................................... (14,319) 990 1,739
Inventories........................................... (19,395) (4,429) 2,508
Other current assets.................................. (310) (980) 268
Other assets.......................................... 415 382 413
Increase (decrease) in:
Accounts payable...................................... 6,946 6,033 (11,450)
Accrued expenses, compensation and restructuring
charges............................................ (5,177) (6,626) 12,717
Unearned service revenues and customer advances....... (728) 3,290 (804)
-------- -------- --------
Net cash provided by (used in) operating activities..... 7,673 19,496 (17,154)
-------- -------- --------
Cash Used In Investing Activities:
Purchases of held-to-maturity securities, net........... (9,941) -- --
Expenditures for property and equipment................. (20,006) (10,222) (12,687)
-------- -------- --------
Net cash used in investing activities................... (29,947) (10,222) (12,687)
-------- -------- --------
Cash Provided By (Used In) Financing Activities:
Proceeds from stock plans:
Employees' stock purchase plan.......................... 1,294 1,075 863
Exercise of stock options............................... 538 990 551
Sale of common stock....................................... 55,797 -- 4,007
Exercise of stock warrant.................................. 2,310 -- --
Purchase of Treasury Stock................................. (1,005) -- --
Increase (decrease) in notes payable....................... 1,250 1,187 (3,385)
Proceeds from sale and leaseback of equipment.............. -- -- 3,483
Payments of long-term debt................................. (486) (627) (221)
Costs of debenture conversion.............................. -- (367) --
Proceeds from long-term debt............................... -- -- 20,000
-------- -------- --------
Net cash provided by financing activities............... 59,698 2,258 25,298
-------- -------- --------
Effect of exchange rate changes on cash...................... (538) 425 44
Net increase (decrease) in cash and equivalents......... 36,886 11,957 (4,499)
Cash and equivalents at beginning of year.................... 29,183 17,226 21,725
-------- -------- --------
Cash and equivalents at end of year.......................... $ 66,069 $ 29,183 $ 17,226
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest................................................ $ 2,529 $ 4,872 $ 4,237
Income taxes............................................ 1,953 364 --
Supplemental Disclosure of Non-Cash Financing Activities:
Conversion of convertible subordinated debentures to common
stock (See Note 5)...................................... -- $ 12,415 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE> 25
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
LTX Corporation ("the Company") 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
is headquartered in Westwood, Massachusetts, has development and manufacturing
facilities in Westwood, Massachusetts and San Jose, California, and worldwide
sales and service facilities to support its customer base.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
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. The Consolidated Statement of Cash Flows
for fiscal year 1994 has been reclassified to conform with the current year's
presentation.
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.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of income and expenses during the reporting
periods. Operating results in the future could vary from the amounts derived
from management's estimates and assumptions.
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, which have not been significant in the past three fiscal years, are
included in the results of operations.
Revenue Recognition
Revenue from product sales and related warranty costs are 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.
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.
Income Taxes
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, which is not significant, in the past since it
reinvested those earnings. At July 31, 1996, most of the Company's foreign
subsidiaries had accumulated deficits.
23
<PAGE> 26
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income (Loss) per Share
Primary and fully diluted net income per share are based on the weighted
average number of shares of common stock and common stock equivalents (shares
issuable under stock option plans and warrants) outstanding. None of the
Company's Convertible Subordinated Debentures are common stock equivalents. 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.
Financial Instruments
Cash and Short-Term Investments
The Company considers all highly liquid investments which are readily
convertible to cash and which have original maturity dates of three months or
less to be cash equivalents. Cash equivalents consist primarily of repurchase
agreements and commercial paper. Effective August 1, 1995 the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS 115). In accordance with FAS
115, investments in debt securities are classified as trading,
available-for-sale or held-to-maturity. Investments are classified as
held-to-maturity when the Company has the positive intent and ability to hold
those securities to maturity. Held-to-maturity securities are stated at
amortized cost with premiums and discounts amortized to interest income over the
life of the investment.
All of the Company's short-term investments are considered as
held-to-maturity and consist of $2,992,000 of commercial paper, $1,950,000 of
U.S. Treasury bills and $4,999,000 of other corporate debt securities. The fair
market value of cash equivalents and short term investments is substantially
equal to the amortized cost, due to the short period of time to maturity, which
is less than one year.
Fair Value
Statement of Financial Accounting Standards No. 107, "Disclosures about the
Fair Value of Financial Instruments," which was adopted by the Company effective
August 1, 1995, requires that disclosure be made of estimates of the fair value
of financial instruments. The fair value of the Company's notes payable and
long-term liabilities is estimated based on quoted market prices for the same or
similar issues or on current rates offered to the Company for debt of the same
remaining maturities. At July 31, 1996, the carrying value of $8,252,000 for
notes payable and $20,788,000 for long-term liabilities, including current
portion, approximates fair value. At July 31, 1996, the Company's 7 1/4%
Convertible Subordinated Debentures Due 2011 had a carrying value of $7,308,000
and the estimated fair value was approximately $5,800,000. For all other balance
sheet financial instruments the carrying amount approximates fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments in cash
equivalents, short-term investments and trade receivables. The Company places
its investments with high-quality financial institutions, limits the amount of
credit exposure to any one institution and has established investment guidelines
relative to diversification and maturities designed to maintain safety and
liquidity. The Company's trade receivables result primarily from sales to
semiconductor manufacturers located in North America, Japan, the Pacific Rim and
Europe. Receivables are from major corporations or are supported by letters of
credit. The Company maintains reserves for potential credit losses and such
losses have been immaterial.
24
<PAGE> 27
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
<TABLE>
Inventories are stated at the lower of cost or market, cost being
determined on the first-in, first-out method, and include materials, labor and
manufacturing overhead. Inventories consist of the following:
<CAPTION>
JULY 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials.................................. $17,752,000 $12,388,000
Work-in-process................................ 34,261,000 24,680,000
Finished goods................................. 14,483,000 10,033,000
----------- -----------
$66,496,000 $47,101,000
=========== ===========
</TABLE>
Property and Equipment
<TABLE>
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. Property and equipment are summarized
as follows:
<CAPTION>
JULY 31 DEPRECIABLE
---------------------------- LIFE IN
1996 1995 YEARS
------------ ------------ --------------------
<S> <C> <C> <C>
Machinery and equipment....................... $ 84,854,000 $ 73,147,000 3-5
Office furniture and equipment................ 5,779,000 3,881,000 3-7
Leasehold improvements........................ 7,736,000 4,499,000 10 or term of lease
------------ ------------
98,369,000 81,527,000
Less: accumulated depreciation and (60,489,000) (53,120,000)
amortization................................ ------------ ------------
$ 37,880,000 $ 28,407,000
============ ============
</TABLE>
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-Lived Assets to Be Disposed Of" (FAS 121), which
is effective for the Company's fiscal year beginning August 1, 1996. FAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management anticipates that the application of the new statement
will not have a significant impact on the results of operations or financial
condition of the Company.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123) which is effective for the fiscal year ending July 31,
1997. FAS 123 requires employee stock-based compensation to be either recorded
or disclosed at its fair value. The Company will adopt the disclosure-only
alternative under FAS 123 and will include the additional required disclosures
in its fiscal 1997 consolidated financial statements.
3. NOTES PAYABLE
The Company's Japanese subsidiary had borrowings outstanding of $8,252,000
at July 31, 1996 under demand bank lines of credit. Borrowings of $7,130,000 at
the local prime rate plus 1/4%, are guaranteed by the Company's minority partner
in Japan, and borrowings of $1,122,000, at the local prime plus 3/4%, under a
$1,869,000 demand bank line, are guaranteed by the Company. At July 31, 1995,
the Company's Japanese subsidiary had borrowings outstanding of $8,457,000 under
demand bank lines of credit.
The Company had no borrowings outstanding under a $5,000,000 domestic bank
line at July 31, 1996 and 1995. This line of credit matures in December 1996 and
bears interest at the bank's prime rate. Borrowing availability under the line
is on a formula basis and borrowings are unsecured. The line of credit has
financial covenants which largely relate to results of operations and a minimum
level of liquidity.
25
<PAGE> 28
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM LIABILITIES
<TABLE>
Long-term liabilities consist of the following:
<CAPTION>
JULY 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Subordinated note payable with interest
at 8%........................................ $20,000,000 $20,000,000
Lease purchase obligations at various interest
rates, net of deferred interest (see
Note 10)..................................... 788,000 1,318,000
----------- -----------
20,788,000 21,318,000
Less -- current portion........................ (4,143,000) (359,000)
----------- -----------
$16,645,000 $20,959,000
=========== ===========
</TABLE>
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 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 7). 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.
5. CONVERTIBLE SUBORDINATED DEBENTURES
On 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 remained outstanding on July 31, 1996 and 1995.
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. No
sinking fund payments are required before maturity date of debentures in 2011.
Interest is payable semi-annually on April 15 and October 15.
In July 1995, the Company's 13 1/2% Convertible Subordinated Debentures Due
2011 were converted into 2,240,581 shares of common stock. The outstanding
principal amount of $15,693,000 of Debentures was converted at the conversion
price of $7.00 per share. On the conversion date, the Debentures had a book
value of $13,149,000, which included the remaining unamortized original issue
discount of $2,544,000.
6. INCOME TAXES
At July 31, 1996 the Company had, for tax purposes, $2,244,000 of federal
tax credits available for carryforward, which expire in fiscal years 2000
through 2004.
The tax provision of $1,395,000 in fiscal 1996 consisted of $600,000 in
currently payable federal income taxes, $195,000 in currently payable state
income taxes and $600,000 in currently payable foreign income taxes. The tax
provision of $372,000 in fiscal 1995 consisted of $50,000 in currently payable
state income taxes and $322,000 in currently payable foreign income taxes.
26
<PAGE> 29
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Reconciliations of the U.S. federal statutory rate to the Company's
effective tax rate are as follows:
<CAPTION>
YEAR ENDED JULY 31
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
U.S. federal statutory rate...................... 35.0% 35.0% (35.0)%
State income taxes, net of federal income tax
effect......................................... 0.4 0.3 --
Foreign income taxes............................. (1.4) (2.0) --
Realization of deferred tax assets............... (3.0) (29.9) --
Losses without current tax benefit............... -- -- 35.0
Tax credits...................................... (4.2) -- --
Benefit of net operating loss carryforward....... (18.6) -- --
Other, net....................................... (3.8) -- --
----- ----- -----
Effective tax rate............................... 4.4% 3.4% 0.0%
===== ===== =====
</TABLE>
<TABLE>
The temporary differences and carryforwards which created the deferred tax
assets and liabilities as of July 31, 1996 and July 31, 1995 are as follows:
<CAPTION>
JULY 31
----------------------------
1996 1995
----------- ------------
<S> <C> <C>
Deferred tax assets:
Net operating losses......................... $ -- $ 7,356,000
Tax credits.................................. 2,244,000 3,560,000
Inventory valuation reserves................. 3,634,000 3,144,000
Restructuring charges........................ 419,000 1,869,000
Spares amortization.......................... 3,419,000 2,959,000
Unearned service revenues.................... 2,005,000 2,344,000
Other........................................ 936,000 803,000
----------- ------------
Total deferred tax assets............... 12,657,000 22,035,000
Valuation allowance.......................... (9,181,000) (21,073,000)
----------- ------------
Net deferred tax assets................. $ 3,476,000 $ 962,000
=========== ============
Deferred tax liabilities:
Depreciation................................. $ (690,000) $ (684,000)
Other........................................ (286,000) (278,000)
----------- ------------
Total deferred tax liabilities.......... $ (976,000) $ (962,000)
=========== ============
Net deferred taxes recorded............. $ 2,500,000 $ --
=========== ============
</TABLE>
Deferred tax assets and liabilities as of July 31, 1995 have been
reclassified to reflect the tax returns as actually filed. The valuation
allowance relates to uncertainty surrounding the realization of the deferred tax
assets.
7. 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 Repurchase Program
In June 1996, the Board of Directors authorized a stock repurchase program
under which the Company may acquire up to 3,500,000 shares of its common stock
over a 12 month period. In fiscal 1996, the Company purchased 200,000 shares, to
be held in treasury, at a cost of $1,005,000 under this program.
Stock Option Plans
The Company has two stock option plans: the 1990 Stock Option Plan ("1990
Plan") and the 1995 LTX (Europe) Ltd. Approved Stock Option Plan ("U.K. Plan").
27
<PAGE> 30
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1990 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. The 1990 Plan also provides for the granting
of options to an employee, director or consultant of the Company or its
subsidiaries 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. Options under both plans are exercisable over vesting
periods which are typically three years beginning one year from the date of
grant. In December 1995, the stockholders of the Company approved an increase to
the number of shares of common stock that may be granted under the 1990 Plan,
through October 2000, from 2,700,000 shares to 3,700,000 shares. At July 31,
1996, 2,105,857 shares were subject to future grant under the 1990 Plan and
100,000 shares were subject to future grant under the U.K. Plan.
<TABLE>
The following table summarizes stock option activity for the three years
ended July 31, 1996:
<CAPTION>
RANGE OF
SHARES OPTION PRICES
--------- ---------------
<S> <C> <C>
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
---------
Granted................................. 391,000 1.00 - 5.56
Exercised............................... (504,595) 0.05 - 3.75
Terminated.............................. (35,675) 1.88 - 4.13
---------
Outstanding at July 31, 1995................. 2,034,069 0.05 - 6.88
---------
Granted................................. 225,500 1.00 - 12.63
Exercised............................... (228,842) 0.05 - 5.56
Terminated.............................. (5,500) 10.94 - 12.63
---------
Outstanding at July 31, 1996................. 2,025,227 0.05 - 12.63
=========
</TABLE>
Of the total options outstanding at July 31, 1996, 1,469,082 shares were
exercisable.
Warrants
In July 1994, in connection with a term loan agreement, the Company issued
to Ando a warrant to purchase up to 2,000,000 shares of common stock, at the
then fair market value of $2.31 per share, during the term of the loan agreement
(see Note 4). On June 17, 1996 Ando purchased 1,000,000 shares of common stock
under its warrant. At July 31, 1996, 1,000,000 shares of common stock under this
warrant remained outstanding.
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 1,200,000 shares. At July 31, 1996, 371,392 shares
were available for future issuance under this plan.
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, and in connection therewith, distributed
28
<PAGE> 31
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
8. EMPLOYEE BENEFIT PLANS
In fiscal 1996, the Company established a Profit Sharing Bonus Plan,
wherein a percentage of pretax profits are distributed semi-annually to all
employees. In addition, the Company has a 401(k) Growth and Investment Program.
Eligible employees may make voluntary contributions to this plan through a
salary reduction contract up to the statutory limit or 15% of their annual
compensation. In fiscal 1996, the Company began matching employees' voluntary
contributions to the plan, up to certain prescribed limits. These Company
contributions vest at a rate of 20% per year. The total charge to expense under
these plans was $2,006,000 in fiscal 1996.
9. GEOGRAPHIC AREA INFORMATION
<TABLE>
The Company's operations by geographic segment for the three years ended
July 31, 1996 are summarized as follows:
<CAPTION>
YEAR ENDED JULY 31
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Sales to unaffiliated customers
United States................................... $ 95,086,000 $ 70,797,000 $ 65,240,000
Europe.......................................... 40,193,000 33,268,000 24,423,000
Japan........................................... 17,461,000 21,352,000 21,106,000
Rest of world (principally Pacific Rim)......... 113,736,000 84,902,000 57,557,000
------------ ------------ ------------
Total sales to unaffiliated customers...... $266,476,000 $210,319,000 $168,326,000
============ ============ ============
Transfers between geographic areas
United States................................... $ 40,973,000 $ 81,666,000 $ 67,225,000
Europe.......................................... 10,156,000 10,966,000 7,751,000
Japan........................................... 315,000 519,000 364,000
------------ ------------ ------------
Total transfers between geographic areas... $ 51,444,000 $ 93,151,000 $ 75,340,000
============ ============ ============
Income (loss) from operations
United States................................... $ 30,310,000 $ 9,228,000 $(25,991,000)
Europe.......................................... 191,000 2,853,000 (613,000)
Japan........................................... 582,000 569,000 (1,892,000)
Eliminations.................................... 285,000 2,190,000 95,000
------------ ------------ ------------
Total income (loss) from operations........ $ 31,368,000 $ 14,840,000 $(28,401,000)
============ ============ ============
Identifiable assets
United States................................... $228,187,000 $136,563,000 $124,029,000
Europe.......................................... 20,529,000 17,866,000 20,730,000
Japan........................................... 14,129,000 13,296,000 13,180,000
Eliminations.................................... (27,526,000) (21,808,000) (27,303,000)
------------ ------------ ------------
Total identifiable assets.................. $235,319,000 $145,917,000 $130,636,000
============ ============ ============
</TABLE>
Transfer prices on products sold to foreign subsidiaries are intended to
produce profit margins that correspond to the subsidiary's sale and support
efforts.
29
<PAGE> 32
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
<TABLE>
The Company has operating lease commitments for certain facilities and
equipment and capital lease commitments for certain equipment. Minimum lease
payments net of sublease proceeds under non-cancelable leases at July 31, 1996
are as follows:
<CAPTION>
TOTAL TOTAL
REAL OPERATING CAPITAL
ESTATE EQUIPMENT LEASES LEASES
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Year ended July 31,
1997..................................... $ 4,244,000 $2,476,000 $ 6,720,000 $ 206,000
1998..................................... 3,591,000 2,144,000 5,735,000 206,000
1999..................................... 3,178,000 1,400,000 4,578,000 206,000
2000..................................... 2,129,000 461,000 2,590,000 206,000
2001..................................... 2,201,000 419,000 2,620,000 137,000
2002 and thereafter...................... 21,289,000 1,874,000 23,163,000
----------- ---------- ----------- ---------
Total minimum lease payments.................. $36,632,000 $8,774,000 $45,406,000 961,000
=========== ========== ===========
Less: amount representing interest............ (173,000)
---------
Present value of total capital leases......... $ 788,000
=========
</TABLE>
Total rental expense for fiscal 1996, 1995 and 1994 was $7,993,000,
$9,611,000 and $9,849,000, respectively.
30
<PAGE> 33
LTX CORPORATION
<TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
1996
-------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales..................................... $62,158 $65,054 $71,979 $67,285
Gross profit.................................. 23,430 26,047 29,127 22,478
Net income.................................... 6,546 8,745 10,591 4,388
Net income per share:
Primary.................................. 0.19 0.23 0.28 0.12
Fully diluted............................ 0.19 0.23 0.28 0.12
<CAPTION>
1995
----------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
Net sales.................................... $46,790 $50,017 $53,571 $59,941
Gross profit................................. 15,861 17,469 18,691 21,550
Net income................................... 786 1,917 2,911 5,080
Net income per share:
Primary................................. 0.03 0.07 0.10 0.17
Fully diluted........................... 0.03 0.07 0.10 0.16
<FN>
- ---------------
(1) Fully diluted earnings per share in the fourth quarter of fiscal year 1995
is based on the weighted average number of common stock and common stock
equivalents outstanding and the shares issued upon conversion of the 13 1/2%
Convertible Subordinated Debentures Due 2011.
</TABLE>
31
<PAGE> 34
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 10, 1996, 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, 1996.
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, 1996 and 1995
Consolidated Statement of Operations for the years ended July 31, 1996,
1995 and 1994
Consolidated Statement of Stockholders' Equity for the years ended July
31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended July 31, 1996,
1995 and 1994
Notes to the Consolidated Financial Statements
(A) 2. SCHEDULES
Separate financial statements of LTX Corporation (parent only) have been
omitted since they are not required.
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.
(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 Amendment No. 1 to
Registration Statement No. 33-62125 on Form S-3 filed September 11, 1995 (the
1995 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, 1995, 1994, 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.
32
<PAGE> 35
<TABLE>
(a) LISTING OF EXHIBITS
<C> <C> <S>
(3)(A) -- Articles of Organization, as amended. (Exhibit 3.1 to the 1995 Registration
Statement No. 1)
(3)(B) -- By-laws, as amended. (Exhibit 3.3 to the 1995 Registration Statement No. 1)
(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)
(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)+ -- 1990 Stock Option Plan. (Exhibit 10(B) to the 1995 Annual Report on Form
10-K)
(10)(D)+ -- 1993 Employees' Stock Purchase Plan. (Exhibit 10(D) to the 1994 Annual
Report on Form 10-K)
(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)(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)
</TABLE>
33
<PAGE> 36
<TABLE>
<C> <C> <S>
(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) to the 1994 Annual Report on Form 10-K)
(10)(V) -- Loan Agreement dated as of July 20, 1994 between LTX Corporation and Ando
Electric Co., Ltd. (Exhibit 10(V) to the 1994 Annual Report on Form 10-K)
(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) to
the 1994 Annual Report on Form 10-K)
(10)(X) -- Loan Document Modification Agreement dated as of December 4, 1995 between
LTX Corporation and Silicon Valley Bank. (Exhibit 10(X) hereto)
(22) -- Subsidiaries of Registrant
(27) -- Financial Data Schedules (Exhibit 27 hereto)
<FN>
- ---------------
+ 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.
</TABLE>
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 1996.
ITEM 14(C). EXHIBITS
<TABLE>
Exhibit 22 -- Subsidiaries of Registrant
<CAPTION>
JURISDICTION
COMPANY OF ORGANIZATION OWNERSHIP
------- ---------------- ---------
<S> <C> <C>
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.1............................. 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%
</TABLE>
The subsidiaries listed are all included in the consolidated financial
statements of the Company.
34
<PAGE> 37
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
By..................................
ROGER W. BLETHEN
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND DIRECTOR
October 10, 1996
<TABLE>
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.
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GRAHAM C. C. MILLER Chairman of the Board October 10, 1996
........................................
(GRAHAM C. C. MILLER)
/s/ ROGER W. BLETHEN Chief Executive Officer, October 10, 1996
........................................ President and Director
(ROGER W. BLETHEN) (Principal Executive
Officer)
/s/ JOHN J. ARCARI Chief Financial Officer and October 10, 1996
........................................ Treasurer (Principal
(JOHN J. ARCARI) Financial Officer)
/s/ GLENN W. MELONI Controller (Principal October 10, 1996
........................................ Accounting Officer)
(GLENN W. MELONI)
/s/ JACQUES BOUYER Director October 10, 1996
........................................
(JACQUES BOUYER)
/s/ MARTIN S. FRANCIS Director October 10, 1996
........................................
(MARTIN S. FRANCIS)
Director
........................................
(ROGER J. MAGGS)
/s/ ROBERT E. MOORE Director October 10, 1996
........................................
(ROBERT E. MOORE)
/s/ SAMUEL RUBINOVITZ Director October 10, 1996
........................................
(SAMUEL RUBINOVITZ)
</TABLE>
35
<PAGE> 1
Exhibit 10(x)
LOAN DOCUMENT MODIFICATION AGREEMENT
------------------------------------
(No. 2; dated as of December 4, 1995)
-------------------------------------
LOAN DOCUMENT MODIFICATION AGREEMENT dated as of December 4, 1995 by and
between LTX Corporation, a Massachusetts corporation with its principal place of
business at LTX Park at University Avenue, Westwood, Massachusetts 02090 (the
"BORROWER") and SILICON VALLEY BANK (the "BANK"), a California-chartered bank
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054, and with a loan production office located at Wellesley Office
Park, 45 William Street, Wellesley, MA 02181, doing business under the name
"Silicon Valley East."
1 . Reference to Existing Loan Documents.
------------------------------------
Reference is hereby made to that Credit Agreement dated October 6, 1994
between the Bank and the Borrower, as previously amended as of July 20, 1995
(with the attached schedules and exhibits, the "CREDIT AGREEMENT") and the Loan
Documents referred to therein, including without limitation that certain
Promissory Note of the Borrower dated October 6, 1994 in the principal amount of
$5,000,000 (the "NOTE"), and the Security Documents referred to therein. Unless
otherwise defined herein, capitalized terms used in this Agreement shall have
the same respective meanings as set forth in the Credit Agreement.
2. Effective Date.
--------------
This Agreement shall become effective as of December 4, 1995 (the
"EFFECTIVE DATE"), provided that the Bank shall have received the following on
or before January 26, 1996, and provided further, however, in no event shall
this Agreement become effective until signed by an officer of the Bank in
California:
a. two copies of this Agreement, duly executed by the
Borrower;
b. an amended and restated promissory note (working capital
line of credit) in the form enclosed herewith (the "AMENDED WORKING CAPITAL
NOTE"), duly executed by the Borrower;
c. a promissory note in the principal amount of $2,000,000
in respect of the Equipment Line Commitment in the form enclosed herewith (the
"EQUIPMENT LINE NOTE"), duly executed by the Borrower; and
d. a Security Agreement in respect of the Equipment Line
Commitment (the "SECURITY AGREEMENT"), in the form enclosed herewith, duly
executed by the Borrower; and
<PAGE> 2
-2-
e. evidence of the approval by your Board of Directors of
this Agreement the Amended Working Capital Note, the Equipment Line Note and the
Security Agreement.
By the signature of its authorized officer below, the Borrower is hereby
representing that, except as modified in SCHEDULE A attached hereto, the
representations of the Borrower set forth in the Loan Documents (including those
contained in the Credit Agreement, as amended by this Agreement) are true and
correct as of the Effective Date as if made on and as of such date. In addition,
the Borrower confirms its authorization as to the debiting of its account with
the Bank in the aggregate amount of $15,000 ($10,000 in respect of the Working
Capital Line of Credit Commitment and $5,000 in respect of the Equipment Line
Commitment) in order to pay the Bank's facility fee for the period up to and
including the extended Commitment Expiration Date. Finally, the Borrower agrees
that, as of the Effective Date, it has no defenses against its obligations to
pay any amounts outstanding under the Credit Agreement and the other Loan
Documents.
3. Description of Change in Terms.
------------------------------
As of Effective Date, the Credit Agreement is modified in the following
respects:
a. Section 1.1 is hereby amended by deleting the date
"December 4, 1995" appearing in the third and fourth lines thereof and
substituting in place thereof the date "December 3, 1996."
b. Section 1.4, as previously amended by the Letter Amendment
dated as of July 20, 1995, is hereby amended by deleting the percentage
"seventy-five percent (75%)" appearing on the nineteenth line thereof in clause
(ii) and substituting in place thereof "eighty percent (80%)."
c. Section 1.5 is hereby amended by deleting the date
"December 5, 1995" appearing in the second line thereof and substituting in
place thereof the date "December 4, 1996."
d. Section 1.7 is hereby amended by deleting the amount
"$1,000,000" appearing in the first line thereof and substituting in place
thereof the amount "$5,000,000."
e. Section 1.8, as previously added by the Letter Agreement
dated as of July 20, 1995, is hereby amended by deleting the amount
"$4,000,000" appearing in the second line of subsection (a) and the third line
of subsection (c) thereof and substituting in place thereof the amount
"$5,000,000."
f. There is hereby inserted immediately following Section 1
the following new Section 1A:
<PAGE> 3
-3-
Section 1A Equipment Line of Credit Loans.
- ---------- ------------------------------
1A.1 AMOUNT. Subject to and upon the terms and conditions set forth
below, the Bank agrees to make loans (each an "EQUIPMENT LINE OF CREDIT LOAN"
and collectively, the "EQUIPMENT LINE OF CREDIT LOANS") to the Borrower under
this Section 1A.1 from time to time and including September 30, 1996 (the
"EQUIPMENT LINE COMMITMENT EXPIRATION DATE"), unless earlier terminated pursuant
to Section 1A.6, in an aggregate amount not to exceed at any one time
outstanding $2,000,000 (the "EQUIPMENT LINE COMMITMENT"), subject to the
limitation set forth in Section 1A.4.
1A.2. EQUIPMENT NOTE. The Equipment Line of Credit Loans shall be
evidenced by and payable with interest in accordance with the note of the
Borrower in the form of attached EXHIBIT A-1, dated as of the date hereof (the
"EQUIPMENT LINE NOTE"). The Working Capital Line Note and the Equipment Line
Note are sometimes together referred to as the "BORROWER NOTES."
1A.3. REQUESTS FOR EQUIPMENT LINE LOANS. The Borrower may make
requests for Equipment Line of Credit Loans, and the Bank shall make such loans
in the same manner as provided in Section 1.3 with respect to Working Capital
Line of Credit Loans, except that together with the Notice of Borrowing, the
Borrower shall furnish to the Bank copies of all invoices for items of Eligible
Equipment and such other information as the Bank shall reasonably request.
1A.4. RESTRICTIONS ON ADVANCES. Equipment Line of Credit Loans may be
made only with respect to an item or items of Eligible Equipment specifically
identified in accordance with Section 1A.4, and the principal amount of any such
Equipment Line of Credit Loans may not exceed 100% of the invoice price of such
item or items of Eligible Equipment, including sales taxes, shipping charges,
installation charges and similar charges and expenses.
1A.5. MATURITY DATE OF EQUIPMENT LINE LOANS. All Equipment Line of
Credit Loans shall be repayable in installments in accordance with the terms of
the Equipment Line Note, provided that all Equipment Line of Credit Loans shall
mature and the total principal amount thereunder shall be prepayable on April 4,
2000 (the "EQUIPMENT LINE MATURITY DATE"), at which time all amounts advanced
under this Section 1A shall be immediately due and payable.
1A.6. TERMINATION OF COMMITMENT. The Borrower, upon (a) at least two
(2) Banking Days' prior written notice to the bank and (b) the repayment in full
of the outstanding principal balance of the Equipment Line of Credit Loans (and
accrued interest thereon) and the payment in full of any expenses or other fees
owed by the Borrower to the Bank under or pursuant to this Agreement, may elect
to permanently terminate the Equipment Line Commitment.
<PAGE> 4
-4-
g. Section 2.1(a) is hereby amended by deleting the phrase "Prime
Rate plus 1%" appearing in the fourth line thereof and substituting in place
thereof the phrase "Prime Rate."
h. Section 2.1(a) is hereby further amended by deleting the word
"last" appearing on the sixth line thereof and substituting in place thereof the
word "fourth."
i. Subparagraph(b) of Section 2.1 is hereby relettered as
"subparagraph (c)" and is further amended by inserting immediately following the
words "Line of Credit Loans" in the first line thereof the following: "or the
Equipment Line of Credit Loans (together, the "BORROWER LOANS").
j. There is hereby inserted immediately following subparagraph (a)
of Section 2.1 the following new subparagraph (b):
"(b) The Borrower agrees to pay interest on the unpaid
principal amount of each Equipment Line of Credit Loan for each day
from and including the date such Equipment Line of Credit Loan was
made to it, but excluding the date the principal on such Equipment
Line of Credit Loan is due (whether at maturity, by acceleration
of otherwise), at a fluctuating rate per annum equal to the Prime Rate
plus 1%, which interest shall change when the Prime Rate shall
change. Such interest shall be payable monthly in arrears on the
fourth day of each month commencing with the first such date hereafter
and when the principal amount of such Equipment Line of Credit Loan is
due (whether at maturity, by acceleration or otherwise)."
k. Section 3.1 is hereby deleted in its entirety and there is
hereby substituted in place thereof the following:
3.1 SECURITY INTERESTS. The Borrower agrees to grant to the
Bank a security interest in, and a lien on, all right, title and
interest of the Borrower in and to Eligible Equipment financed by the
Bank and to enter a Security Agreement in favor of the Bank in a form
reasonably satisfactory to the Bank (the "SECURITY AGREEMENT") in
order to secure payment and performance of the Borrower's obligations
to the Bank under this Agreement in respect of the Equipment Line of
Credit Loans and Equipment Line Commitment, under the Equipment Line
Note and under the other Loan Documents in respect of the Equipment
Line of Credit Loans and the Equipment Line Commitment.
l. Section 4 is hereby amended by deleting the words "Line of
Credit Loans" appearing in the third line of the initial unnumbered paragraph
thereof and substituting the words "Borrower Loans."
<PAGE> 5
-5-
m. Section 5 is hereby amended by deleting the words "Line of Credit
Loans" appearing in the fifth line of the initial unnumbered paragraph thereof
and substituting the words "Borrower Loans."
n. Section 5.5 is hereby amended by inserting at the end of the
section after the words "(as defined in the Security Agreement)," the words "and
the filing of termination statements in the appropriate UCC filing offices
listed on the Perfection Certificate with respect to the Security Agreement
between the Borrower and the Bank dated as of October 6, 1994."
o. Section 6.4, subsection(d) is hereby amended by inserting at the
end of the subsection after the words "appropriately completed" the following:
", provided, however, that the foregoing information need not be
furnished if there are no Working Capital Line of Credit Loans or
Extension of Credit under the Working Capital Line of Credit Commitment
outstanding, but shall be required as a precondition to any future
Working Capital Line of Credit Loans or Extensions of Credit under the
Working Capital Line of Credit Commitment."
p. Section 6.8 is hereby amended by inserting at the end of the
subsection after the words "as often as the Bank may reasonably request and
cause each of its Subsidiaries to do so" the following:
", provided, however, that as long as no event of default has occurred
or is continuing, the Bank will not conduct more than one such
inspection per calendar year, and in such case, only if the aggregate
outstanding borrowings and Extensions of Credit under the Working
Capital Line of Credit Commitment have exceeded 10% of the Working
Capital Line of Credit Commitment at any quarter end in the prior
twelve month fiscal period."
q. Sections 7.11 through 7.14 of the Credit Agreement are amended
in their entirety to read as follows:
"7.11 QUICK RATIO. The Borrower will not permit the Quick Ratio
at the end of any fiscal quarter, commencing with the quarter
ending January 31, 1996, to be less than 1.75 to 1.
7.12 MINIMUM PROFITABILITY. The Borrower will not permit the Net
Income at the end of any fiscal quarter, commencing with the
fiscal quarter ending January 31, 1996, to be less than
$2,500,000.
7.13 DEBT SERVICE RATIO. The Borrower will not permit the Debt
Service Ratio at the end of any fiscal quarter, commencing with
the quarter ending January 31, 1996, to be less than 1.5 to 1.
<PAGE> 6
-6-
7.14 TANGIBLE NET WORTH. The Borrower will not permit Tangible Net
Worth at the end of any fiscal quarter, commencing with the fiscal
quarter ending January 31, 1996, to be less than $145,000,000."
r. Section 9 is hereby further amended by inserting the following
additional definitions in alphabetical order:
"BORROWER LOANS" shall have the meaning specified in Section 2.1(b).
"BORROWER NOTES" shall have the meaning specified in Section 1A.2.
"COMMITMENTS" shall mean the Working Capital Line Commitment and the
Equipment Line Commitment.
"DEBT SERVICE RATIO" shall mean, for any fiscal period, the ratio of
(a) Net Income, PLUS the sum of depreciation and amortization for such
period, PLUS tax expense for such period, PLUS the sum of the aggregate
amount of interest accrued during such period on Indebtedness of the
Borrower and its Subsidiaries on a consolidated basis ("INTEREST
EXPENSE") to (b) the sum of Interest Expense and the current
portion of Long-Term Indebtedness.
"ELIGIBLE EQUIPMENT" means any items of equipment that the Borrower has
requested that the Bank finance the purchase of through an Equipment
Line of Credit Loan under this Agreement, and which, both on the date
of such request and the date of such loan, meets the following
requirements:
(a) such equipment is not (i) a motor vehicle, airplane or
similar mode of transportation, (ii) a fixture or leasehold
improvement, or (iii) intended by the Borrower to become a fixture or
leasehold improvement;
(b) such equipment has been purchased by the Borrower from the
manufacturer or a distributor thereof, has not been put in service by
any Person prior to the date of the invoice furnished to the Borrower
by such manufacturer or distributor, and has an invoice date of not
earlier than September 30, 1995 or later than September 30, 1996;
(c) such equipment is owned solely by the Borrower and is not
subject to any leasehold interest, assignment, claim, lien or security
interest, other than a security interest in favor of the Bank pursuant
to the Security Agreement; and
(d) such equipment is in the possession of the Borrower and is
located in the State Massachusetts or another jurisdiction of which the
Borrower has given the Bank written notice.
<PAGE> 7
-7-
"Equipment Line Commitment" shall have the meaning set forth in
Section 1A.1.
"Equipment Line Expiration Date" shall have the meaning
specified in Section 1A.1.
"Equipment Line of Credit Loans" shall have the meaning set
forth in Section 1A.1.
"Equipment Line Maturity Date" shall have the meaning specified
in Section 1A.5.
"Equipment Line Note" shall have the meaning set forth in
Section 1A.1.
s. The definitions of "Line of Credit Loans," and "Line of Credit
Commitment," are hereby changed to "Working Capital Line of Credit Loans" and
"Working Capital Line of Credit Commitment," respectively, and all references
to such terms throughout the Credit Agreement and the other Loan Documents are
changed accordingly.
t. All references to the term "Note" in Section 1 of the Credit
Agreement are changed to the term "Working Capital Line of Credit Note." All
other references to the term "Note" in the Credit Agreement and the other Loan
Documents shall (unless it is clear from the context that the reference is
solely to the Working Capital Line of Credit Note) shall be changed to refer to
"the Borrower Notes."
u. The Credit Agreement and the other Loan Documents are hereby
amended wherever necessary or appropriate to reflect the foregoing changes.
4. The Bank agrees with the Borrower that from and after the effective
Date, the Security Agreement between the Borrower and the Bank dated as of
October 6, 1994 shall be of no further force and effect. The Bank agrees to
execute and cause to be filed with the appropriate filing authorities the UCC
termination statements and other appropriate documentation to confirm
termination of the security interests granted by the foregoing document.
5. Continuing Validity
---------- --------
Upon the effectiveness hereof, each reference in each Security Instrument
or other Loan Document to "the Credit Agreement", "thereunder", "thereof",
"therein", or words of like import referring to the Credit Agreement, shall mean
and be a reference to the Credit Agreement, as amended hereby. Except as
specifically set forth above, the Credit Agreement shall remain in full force
and effect and is hereby ratified and confirmed. Each of the other Loan
Documents, except the Security Agreement between the Borrower and the Bank
dated as of October 6, 1994, is in full force and effect and is hereby
ratified and confirmed. The amendments set forth above
<PAGE> 8
-8-
(i) do not constitute a waiver or modification of any term, condition or
covenant of the Credit Agreement or any other Loan Document, other than as
expressly set forth herein, and (ii) shall not prejudice any rights which the
Bank may now or hereafter have under or in connection with the Credit
Agreement, as modified hereby, or the other Loan Documents and shall not
obligate the Bank to assent to any further modifications.
6. Miscellaneous.
-------------
a. This Agreement may be signed in one or more
counterparts each of which taken together shall constitute one and the same
document.
b. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
c. THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH
ITS PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR
BY REASON OF THIS LOAN MODIFICATION AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR
ANY REASON LENDER CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA CLARA COUNTY, CALIFORNIA.
d. The Borrower agrees to promptly pay on demand all costs
and expenses of the Bank in connection with the preparation, reproduction,
execution and delivery of this letter amendment and the other instruments and
documents to be delivered hereunder, including the reasonable fees and
out-of-pocket expenses of Sullivan & Worcester, special counsel for the Bank
with respect thereto.
[This space is intentionally left blank.]
<PAGE> 9
-9-
IN WITNESS WHEREOF, the Bank and the Borrower have caused this Agreement
to be signed under seal by their respective duly authorized officers as of the
date set forth above.
Sincerely,
SILICON VALLEY EAST, a Division
of Silicon Valley Bank
By: /s/ MARK PASCULANO
------------------------------------
Name: Mark Pasculano
Title: Vice President
SILICON VALLEY BANK
By:
------------------------------------
Name:
Title:
(signed in Santa Clara, CA)
LTX CORPORATION
By: /s/ JOHN J. ARCARI
------------------------------------
Name: John J. Arcari
Title: Chief Financial Officer
<PAGE> 10
Schedule A
----------
- No modifications -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> JUL-31-1996
<CASH> 66,069
<SECURITIES> 9,941
<RECEIVABLES> 47,101
<ALLOWANCES> 900
<INVENTORY> 66,496
<CURRENT-ASSETS> 193,946
<PP&E> 98,369
<DEPRECIATION> 60,489
<TOTAL-ASSETS> 235,319
<CURRENT-LIABILITIES> 56,327
<BONDS> 28,096
<COMMON> 1,800
0
0
<OTHER-SE> 153,239
<TOTAL-LIABILITY-AND-EQUITY> 235,319
<SALES> 238,755
<TOTAL-REVENUES> 266,476
<CGS> 148,998
<TOTAL-COSTS> 165,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,529
<INCOME-PRETAX> 31,665
<INCOME-TAX> 1,395
<INCOME-CONTINUING> 30,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,270
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
</TABLE>
