Item 1. Business Introduction
LTX designs, manufactures, markets and services semiconductor test equipment. We sell our test systems to semiconductor designers and manufacturers worldwide, such as Texas Instruments, Philips Semiconductor, National Semiconductor, Motorola, NEC, Vitesse Semiconductor, Agere Systems, Infineon Technologies, and Hitachi. These customers use semiconductor test equipment to test every semiconductor device at two different stages during the manufacturing process. These devices are incorporated in a wide range of products, including data communications equipment such as switches, routers and servers, broadband access products such as cable modems and Ethernet accessories, personal communication devices such as cell phones and personal digital assistants, consumer products such as televisions, videogame systems, digital cameras and automobile electronics, and personal computer accessory products such as disk drives and 3D graphics accelerators.
We offer our customers the LTX Fusion(R) platform, which combines our enVision++ software with either our Fusion HF or Fusion HT/AC products. We believe that Fusion HF is the first of a new class of test systems that can test system-on-a-chip, or SOC, devices in a single test step. With Fusion HF, we believe we have the only test system capable of testing a broad range of analog, digital, and mixed signal (a combination of digital and analog) devices, and most importantly, SOC devices, on a single platform. We have over 100 customers in more than 15 countries, to which we provide test systems, global applications consulting, repair services and operational support.
In late 1996, we changed our strategic focus to develop a solution for the testing needs of the then emerging SOC market. Building on our twenty-year semiconductor test experience, we realigned our separate digital and mixed signal research and development organizations to work together to develop and deliver a single test platform incorporating our mixed signal test expertise with our extensive digital test technology and embedded memory test capability. We also restructured our operations and reorganized our management consistent with our new strategic focus. Our Fusion platform is the result of this change in strategy.
Industry Overview
The testing of devices is a critical step during the semiconductor production process. Typically, semiconductor companies test each device at two different stages during the manufacturing process to ensure its functional and electrical performance prior to shipment to the device user. These companies use semiconductor testing equipment to first test a device after it has been fabricated but before it has been packaged to eliminate non-functioning parts. Then, after the functioning devices are packaged, they are tested again to determine if they fully meet performance specifications. Testing is an important step in the manufacturing process because it allows devices to be fabricated at both maximum density and performance--a key to the competitiveness of semiconductor manufacturers. Shown below is a schematic depiction of the major steps in the semiconductor fabrication and test process.
[graph appears here]
Two rectangular fields, the first representing the front end of the manufacturing process and the second representing the back end of the manufacturing process, each step represented by a particular graphic. The process begins with "wafer fabrication," proceeds to a "wafer," through the "probe test tester," to a "wafer cut," and ends with a "sorted die." The back end field includes a second five-step process which continues the front end process, each step also represented by a particular graphic. The back end process begins with "device assembly and packaging," proceeds to a "packaged device," through the "final test tester," to a "good device," and ends in "shipment".
Three primary factors ultimately drive demand for semiconductor test equipment:
. increases in unit production of semiconductor devices;
. increases in the complexity and performance level of devices used in electronic products; and
. the emergence of next generation device technologies, such as SOC.
In recent years, increases in unit production resulted primarily from the proliferation of the personal computer and the continued growth of the telecommunications industry. We expect that future unit production growth will be led by a series of Internet hardware and software applications, Internet infrastructure performance increases, and Internet access device simplification and miniaturization. We also expect the continued proliferation of, and new applications in, communication products and consumer electronics. These increases in unit production in turn lead to a corresponding increase in the need for test equipment.
Furthermore, demand is increasing worldwide for smaller, more sophisticated electronic products, such as cellular phones, laptop computers, camcorders, wireless networking equipment and mobile Internet terminals. This has led to ever higher performance and more complex semiconductor devices, which, in turn, results in a corresponding increase in the demand for equally sophisticated test equipment.
Finally, the introduction and adoption of a new generation of end-user products requires the development of next generation device technologies. For example, access to information is migrating from the stand-alone desktop computer, which might be physically linked to a local network, to the seamless, virtual network of the Internet, which is accessible from anywhere by a variety of new portable electronic communication products. A critical enabling technology for this network and multimedia convergence is SOC. SOC provides the benefits of lower cost, smaller size and higher performance by combining advanced digital, analog and embedded memory technologies on a single device. These discrete technologies were, until recently, available only on several separate semiconductor devices, each performing a specific function. By integrating these functions on a single device, SOC enables lower cost, smaller size, higher performance, and lower power consumption.
Although the SOC concept had been in development for several years, until recently manufacturers did not have an efficient and comprehensive method of testing these devices. Historically, device manufacturers used several narrowly focused testers, each designed to test only digital, only memory, or only mixed signal devices, but incapable of testing all three. SOC does not fit into any one of these categories because it represents the convergence of these three technologies and requires new testing technology.
The increases in unit production of devices, the increase in complexity of those devices, and, ultimately, the emergence of new semiconductor device technology have mandated changes in the design, architecture and complexity of such test equipment. Semiconductor device manufacturers must still be able to test the increasing volume and complexity of devices in a reliable, cost- effective, efficient and flexible manner. However, the increased pace of technological change, together with the large capital investments required to achieve economies of scale, are changing the nature and urgency of the challenges faced by device designers and manufacturers.
Designers and manufacturers historically have not been able to use their test floors at peak efficiency because they had to use several separate digital and mixed signal testers to perform all of their required testing. This increased their cost of ownership as device mix changes led to some of these testers sitting idle while there was a shortage of capacity in other testers, resulting in overall decreased tester utilization. Furthermore, in the absence of a single test platform solution, manufacturers cannot fully test new SOC designs because their current testing equipment does not contain a sufficiently broad range of mixed signal instrumentation. Manufacturers are subject to further increased testing costs if their testing equipment lacks the flexibility and capacity to run parallel tests on multiple devices at one time, or multi-site testing. These problems are exacerbated when volume production of devices increases.
Fusion, the LTX Solution
Our solution is the Fusion test platform. Fusion tests new generations of highly-integrated mixed signal devices, advanced digital devices, and most importantly, SOC devices, which incorporate these technologies. The testing requirements of digital and mixed signal devices are essentially a subset of the testing requirements of SOC devices. The test requirements of all of these semiconductor devices are well within the range of Fusion's capability. The Fusion HF single test platform allows our customers to use a single integrated hardware and software system to test all of these devices, rather than the multiple test systems typically required. By using a single testing platform, our customers are able to optimize their asset utilization, thereby increasing their manufacturing flexibility and lowering the overall cost of their testing processes.
Fusion is a unique solution to the SOC test challenge because it provides all of the following:
A single test platform. Thoroughly testing an SOC device on more than one tester is either technically infeasible, because the device is not partitioned for its mixed signal, digital and embedded memory functions to operate independently from each other, or economically impractical due to the significantly more expensive cost of multiple testers and insertions required for comprehensive testing. Our Fusion test platform combines our test station hardware with our enVision++ software to provide a flexible, scalable test environment. By integrating the testing of mixed signal, digital and embedded memory functions, Fusion provides better test performance and lower cost of ownership for our customers. Our customers are also using Fusion to raise the utilization rates of their test floors in testing their digital and mixed signal devices. Not only have these customers selected Fusion as part of their SOC strategy, but they are also purchasing Fusion for capacity expansion on these traditional devices, eliminating the need for separate digital and mixed signal testers.
Multi-site test capability. Multi-site testing, the parallel testing of more than one device (of the same type) on one testing machine at a given time, lowers the overall cost of testing devices by making possible the more efficient use of each testing machine. We designed Fusion to make multi-site testing easier for the test designer. Earlier generations of testing equipment required test engineers to write specific software programs to run tests in parallel. Our enVision++ software allows test engineers to expand single-site testing programs into multi-site testing programs with ease. Fusion can also be configured with a sufficient number of instruments to perform multi-site testing even on highly complex SOC devices.
A full range of mixed signal instrumentation. Testing different types of SOC input/output interfaces requires radio frequency (RF), digital signal processing (DSP), power, time measurement, and other instruments. Fusion provides customers with the broad range of mixed signal instrumentation necessary to test these devices to the customer's desired specifications. Mixed signal test expertise is in short supply in the industry and one of our strengths in SOC testing is the depth of our mixed signal intellectual property, based on our heritage as a pioneer in this field.
Scalable performance. Semiconductor devices, depending upon their application, require different levels of instrument performance for testing. For example, complex SOC devices require the advanced digital testing performance, including embedded memory testing, found in traditional high-end, stand-alone digital testers, whereas consumer- oriented digital and mixed signal devices typically have less stringent test performance requirements. Fusion delivers scalable instrument performance in an integrated, single platform at different price points, providing our customers with the ability to match test performance exactly to their needs.
Easy-to-use software for test program development. Our enVision++ software provides the customer's test engineer with an expandable library of prepackaged, reusable test program modules and debugging tools, all accessible through an easy-to-use graphical user interface. In most other testers, test engineers can reuse test code only by cutting and pasting lines of program code. enVision++ encapsulates
test techniques into software objects that are added to a library for reuse in subsequent test programs. The test engineer can use these software objects when designing new test programs simply by dragging them with a mouse into the program flow. The ease-of-use of our software accelerates our customers' development process, which allows them to introduce their semiconductor devices to market more rapidly.
The LTX Business Strategy
LTX's objective is to be the leading supplier of semiconductor test equipment. Key elements of our strategy include:
Extend our technological lead in single platform testing. We intend to continue to focus our resources on a single integrated hardware and software test platform solution. Rather than diluting our resources with a multiple platform strategy, we believe our resources will provide a higher return on investment by focusing on a single test platform for the advanced digital, mixed signal, and SOC markets. In addition, we believe our customers' requirements are better served by employing a single test platform solution to address the test requirements of their various devices.
Maintain our focus on the SOC test market. We believe that the fastest growing segment of the semiconductor industry over the next several years will be SOC. We designed our Fusion test platform specifically to provide optimal test capability for this class of devices. We intend to maintain and enhance our SOC test position by continuing to concentrate our development efforts on advanced functions and options for Fusion.
Concentrate our sales, applications consulting, and service efforts on key accounts. We have organized our selling, field service, and field applications organizations around key customers, and located these resources close to their facilities. We recognize that large, diversified semiconductor device manufacturers and certain offshore test and assembly companies purchase most of the world's test equipment, and that the level of support we are able to provide to them has a direct impact on future business. We believe that focusing our sales and support resources on these customers is the most efficient way to maximize revenue. We have also developed collaborative relationships with key customers and vendors that help guide us in developing future applications and system options. We are in the second phase of our Fusion selling strategy and are focusing selling efforts on key accounts in the subcontract test and assembly market. We believe this market represents an area of potential growth for us that will be at least partially driven by our success with the integrated diversified semiconductor manufacturers that use subcontract test and assembly services since they substantially influence which test systems are purchased by test and assembly companies.
Further improve the flexibility of our business model. To improve our responsiveness to customer needs, reduce fixed costs and working capital requirements, and manage the cyclicality of our industry more effectively, we have implemented a more flexible business model. With the transition of our assembly, system integration and testing operations to Jabil, substantially all of our manufacturing functions will be outsourced to third parties. We engage contract employees to address periods of peak demand. We have implemented additional international distribution and sub- contracted repair and support functions. We intend to continue to identify and implement programs which improve our customer responsiveness and reduce costs.
Build on our strategic alliances. We have established strategic alliances with companies specializing in different aspects of our business such as board repair and local sales and service. These alliances allow us to focus our resources on the development of Fusion, maintain flexibility in our business model, and expand our ability to provide our customers throughout the world with local support. For example, during the fiscal year, we made an equity investment in and entered into a development agreement with StepTech, Inc. to provide us with test technology to address the high-volume commodity semiconductor market. In addition, our alliance with DI Corporation, our partner in Korea, provides local
sales and support to the Korean market. Our alliances with Flextech Holding, based in Singapore, and MV Technical Sales, based in California, provide us with board repair services for our customers.
Product Overview
Since late 1996, we have focused on designing, developing, marketing and servicing the Fusion test platform with its enabling technology for testing a broad range of devices, including SOC.
Fusion Test Platform
Fusion offers a unique solution for testing the full spectrum of SOC, mixed signal, and digital devices. The Fusion test platform provides customers with highly reliable test performance and cost-efficiency in their efforts to accelerate their time-to-market for SOC, mixed signal, and digital devices. The Fusion test platform combines our test station hardware with our enVision++ software. The Fusion platform is available in the Fusion HF and Fusion HT/AC configurations. These configurations depend primarily on the complexity of the device to be tested. We have also received our first order for a new Fusion product being developed through our alliance with StepTech, Inc.
enVision++
Our enVision++ software helps customers design device test programs faster and more efficiently by providing a customer's test engineer with an expandable library of prepackaged, reusable test program modules and debugging tools, all accessible through an easy-to-use graphical user interface. In most other testers, test engineers can reuse test code only by cutting and pasting lines of program code. enVision++ software circumvents much of this laborious process by encapsulating test techniques into software objects that are added to the library for reuse in subsequent test programs. The test engineer can use these software objects when designing new test programs simply by dragging them with a mouse into the program flow.
Fusion HF
Introduced in July 1998, our Fusion HF is one of the most advanced testers available. Before the advent of Fusion HF, semiconductor manufacturers required several narrowly focused testers, designed to test only digital, only memory, or only mixed signal devices, but not all three. Since the Fusion HF single platform can efficiently test complex devices ranging from mixed signal to digital to SOC, it eliminates the need for mutually exclusive testers. The Fusion HF test system offers the broadest range of leading-edge test capability in a single platform, including advanced mixed signal, high-speed digital, digital signal processing, RF wireless, embedded memory, power, and time measurement. This range of instrumentation on a single platform allows semiconductor manufacturers to optimize their asset utilization, thereby increasing their manufacturing flexibility and lowering the overall cost of their testing processes. Fusion's modular architecture has been designed so that it can keep pace with today's rapid changes in test technology. As new generations of devices require more advanced test capabilities, customers can easily upgrade their Fusion testers to accommodate these requirements.
Fusion HT/AC
The Fusion HT/AC test systems are used for high throughput testing of mixed signal devices primarily to satisfy capacity needs of customers using our prior generation Synchro HT and Synchro AC products. These manufacturers are producing the advanced mixed signal devices that are the precursors to, and the foundations of, the next generation of SOC devices. As with Fusion HF, Fusion HT and Fusion AC use the enVision++ development software, allowing customers to easily upgrade to Fusion HF. The Fusion HT features up to 48 digital pins, RF test instruments, and power management test technology. Typical device types tested on the Fusion HT include radio frequency/wireless, power management and consumer video and audio. The Fusion HT, powered by enVision++, is fully compatible with our previous generation mixed signal product, the
Synchro HT. The Fusion AC features up to 96 digital pins and high-speed DSP instruments. Typical device types tested on the Fusion AC include those used in high-speed local area networks, disk drives and data communications. The Fusion AC is also powered by enVision++, and is fully compatible with our previous generation mixed signal product, the Synchro AC.
Other Products
The Delta/STE, introduced in 1995, is our previous generation digital tester. The Synchro HT and Synchro AC testers are our previous generation of mixed signal products. While still supported by our service organization, we no longer manufacture or market the Synchro HT and Synchro AC. All of the installed base of Synchro applications are fully compatible with Fusion HT/AC testers.
Consistent with our business strategy to focus on the Fusion product family, we sold the iPTest product line in fiscal 2000. The iPTest division manufactured systems used to test specialized semiconductor components, such as power transistors. The percentage of net sales contributed by iPTest, compared to our total net sales, was 1.2%, or $3.8 million for the fiscal year ended July 31, 2000, 3.2%, or $5.1 million and for the fiscal year ended July 31, 1999.
Service
We consider service to be an important aspect of our business. Our worldwide service organization is capable of performing installations and all necessary maintenance of test systems sold by us, including routine servicing of components manufactured by third parties. We provide various parts and labor warranties on test systems or options designed and manufactured by us, and labor warranties on components that have been purchased from other manufacturers and incorporated into our test systems. We also provide training on the maintenance and operation of test systems we sell. Service revenue totaled $37.3 million, or 11.3% of net sales, in fiscal 2001, $32.0 million, or 10.5% of net sales, in fiscal 2000, and $28.9 million, or 18.4% of net sales, in fiscal 1999.
We offer a wide range of service contracts, which gives our customers the flexibility to select the maintenance program best suited to their needs. Customers may purchase service contracts which extend maintenance beyond the initial warranty provided. 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 our test systems has grown, service revenues have been increasing on an annual basis. We believe that service revenues should be less affected by the cyclical nature of the semiconductor industry than sales of test equipment. We maintain service centers around the world.
Engineering and Product Development
The test equipment market is characterized by rapid technological change and new product introductions, as well as advancing industry standards. Our competitive position will depend upon our ability to successfully enhance Fusion and develop new instrumentation, and to introduce these new products on a timely and cost-effective basis. We devote a significant portion of personnel and financial resources to the continued development of our single platform SOC capabilities, including embedded memory, digital and mixed signal core competencies. We also seek to maintain close relationships with our customers in order to be responsive to their product needs. Our expenditures for engineering and product development were $66.0 million, $50.6 million, and $34.8 million, during fiscal 2001, 2000, and 1999, respectively.
Our engineering strategy is to focus on development of the Fusion single test platform. We also intend to develop our future test systems in an evolutionary manner so that they may be progressively upgraded. This approach preserves our customers' substantial investments in our pre-existing test programs, and, in general, helps us maintain market acceptance for our test systems. We work closely with our customers and our strategic alliance partners to define new product features and to identify emerging applications for our products.
Sales and Distribution
We sell our products primarily through a worldwide sales organization. Our sales organization is structured around key accounts, with a sales force of 28 people. We use a small number of independent sales representatives and distributors in certain other regions of the world.
Our sales to customers outside the United States are primarily denominated in United States dollars. Sales outside North America were 48%, 62%, and 61%, of total sales in fiscal 2001, 2000, and 1999, respectively.
Strategic Alliances
In October 2000, we made an equity investment in, and entered into a development agreement with, StepTech, Inc., an outsource technology provider to a broad range of semiconductor test equipment suppliers. Based in Hopkinton, Massachusetts, StepTech is privately held and specializes in the design and manufacture of cost-effective test instrument solutions and software encompassing key growth areas such as wireless and mixed-signal semiconductor testing. StepTech also provides product enhancements, engineering services and turn-key applications software to vendors and users of automatic test equipment. The development agreement with StepTech will provide LTX with test technology to broaden the reach of Fusion's single platform, scalable architecture into the high volume, commodity semiconductor market. We have received our first order for the new Fusion product developed through this alliance. The agreement also grants LTX exclusive rights, for a three-year period, to certain StepTech technologies. In return, StepTech will receive royalties on technology they have developed for the Fusion platform.
We have also established additional alliances that we believe will allow us to achieve strategic goals such as focusing our resources on the further development of Fusion, maintaining flexibility in our business model and expanding our ability to provide our customers throughout the world with local support. These alliances have also allowed us to provide more localized support. For example, DI Corporation, our partner in Korea, provides local sales and support to the Korean market resulting in improved communications for our customers and better market access for us. Flextech Holdings, based in Singapore, and MV Technical Sales, based in California, provide board repair services for our customers, providing quick repair turnarounds for our customers and allowing us to focus on new product development.
Customers
Our customers include many of the world's leading semiconductor device manufacturers. In fiscal year 2001 and 2000, Texas Instruments accounted for 26% and 19%, Philips Semiconductor accounted for 12% and 13% and Vitesse Semiconductor Corporation accounted for 22% and 11% of net sales, respectively. In fiscal year 2001, Infineon Technologies accounted for 11% of net sales. No single customer accounted for 10% or more of net sales in fiscal 1999. Customers that have ordered Fusion products include the following:
Acer Labs Infineon Technologies SMSC Agere Systems Maxim Integrated Samsung Amkor Devices Siliconware AMS International Motorola STATS ASAT National Semiconductor STMicroelectronics ASE NEC Texas Instruments Hitachi On Semiconductor UTAC Hynix Philips Semiconductor Vitesse Semiconductor Qlogic
Because the semiconductor industry consists of a small number of device manufacturers, we believe that sales to a limited number of customers will continue to account for a high percentage of net sales for the foreseeable future. The loss of or reduction or delay in orders from a significant customer could hurt our business and financial results.
Manufacturing and Supply
Our principal manufacturing operations consist of final assembly, system integration, and testing at our facilities in Westwood, Massachusetts. We also perform some limited testing and assembly in our San Jose facility. In June 2001, we announced our intent to transition our assembly, system integration and testing operations to Jabil Circuit. In addition, we outsource certain components and subassemblies to other contract manufacturers. We use standard components and prefabricated parts manufactured to our specifications. We assemble these components and subassemblies to produce testers in configurations specified by our customers. Most of the components for our products are available from a number of different suppliers; however, certain components are purchased from a single supplier or a limited group of suppliers. Although we believe that all single source components currently are available in adequate amounts, we cannot be certain that shortages will not develop in the future. We are dependent on two semiconductor device manufacturers, Vitesse Semiconductor and Maxtech Components, who are sole source suppliers of custom components for our products, although Vitesse has two separate manufacturing facilities capable of manufacturing our custom components. We have no written supply agreements with these sole source suppliers and purchase our custom components through individual purchase orders. We are in the process of evaluating sources for our custom components. We cannot assure you that such alternative sources will be qualified or available to us.
Competition
Many other domestic and foreign companies participate in the markets for each of our products and the industry is highly competitive. We compete principally on the basis of performance, cost of test, reliability, customer service, applications support, price and ability to deliver our products on a timely basis. Our principal competitors in the market for test systems are Agilent Technologies (formerly a division of Hewlett-Packard), Credence Systems, Schlumberger Limited, and Teradyne. Most of our major competitors are also suppliers of other types of automatic test equipment and have greater financial and other resources than we do. We expect our competitors to enhance their current products and they may introduce new products with comparable or better price and performance. In addition, new competitors, including semiconductor manufacturers themselves, may offer new technologies, which may in turn reduce the value of our product lines.
Backlog
At July 31, 2001, our backlog of unfilled orders for all products and services was $145.6 million, compared with $236.8 million at July 31, 2000. Historically, test systems generally ship within six months of receipt of a customer's purchase order. The semiconductor industry and demand for semiconductor test equipment is highly cyclical. Customer delivery dates and order patterns typically get delayed and become less predictable when the semiconductor industry capacity exceeds demand. Recent business conditions indicate that the industry is in an excess capacity situation and therefore LTX cannot rely on historical trends to accurately determine firm delivery dates for items remaining in our backlog of unfilled orders as of July 31, 2001. While backlog is calculated on the basis of firm orders, all orders are subject to cancellation or delay by the customer with limited or no penalty. Our backlog at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period. Historically, our backlog levels have fluctuated based upon the ordering patterns of our customers and changes in our manufacturing capacity.
Proprietary Rights
The development of our products is largely based on proprietary information. We rely upon a combination of contract provisions, copyright, trademark and trade secret laws to protect our proprietary rights in products. We also have a policy of seeking U.S. patents on technology considered of particular strategic importance. Although we believe that the copyrights, trademarks and patents we own are of value, we believe that they will not determine our success, which depends principally upon our engineering, manufacturing, marketing and service skills. However, we intend to protect our rights when, in our view, these rights are infringed upon.
We license some software programs from third party developers and incorporate them in our products. Generally, these agreements grant us non-exclusive licenses with respect to the subject program and terminate only upon a material breach by us. We believe that such licenses are generally available on commercial terms from a number of licensors.
The use of patents to protect hardware and software has increased in the test equipment industry. We have at times been notified of claims that we may be infringing patents issued to others. Although there are no pending actions against us regarding any patents, no assurance can be given that infringement claims by third parties will not negatively impact our business and results of operations. As to any claims asserted against us, we 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, we 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 negatively impact our business and results of operations.
Employees
At July 31, 2001, we employed 840 employees and 79 temporary workers. None of our employees are represented by a labor union, and we have experienced no work stoppages. Many of our employees are highly skilled, and we believe our future success will depend in large part on our ability to attract and retain these employees. We consider relations with our employees to be good.
Environmental Affairs
Our manufacturing facilities are subject to numerous laws and regulations designed to protect the environment. We do not anticipate that compliance with these laws and regulations will have a material effect on its capital expenditures, earnings or competitive position.
Item 2.
Item 2. Properties
All of our facilities are leased. We have achieved worldwide ISO 9001 certification at our facilities. We maintain our headquarters in Westwood, Massachusetts, where corporate administration, sales and customer support and manufacturing and engineering are located in a 167,500 square foot facility under a lease which expires in 2009. In May 1995, we subleased to a third party a 208,000 square foot facility in Westwood, Massachusetts for a ten year term. Our lease of this facility expires in 2010. We also maintain an additional development facility in a 71,000 square foot building in San Jose, California. Our lease of this facility expires in 2004. We also lease sales and customer support offices at various locations in the United States totaling approximately 40,000 square feet.
We also maintain sales and support offices at locations in Europe and in Asia. Office space leased in Asia and Europe totals approximately 113,816 square feet.
We believe that our existing facilities are adequate to meet our current and foreseeable future requirements.
Item 3.
Item 3. Legal Proceedings
We have had various commercial relationships with Ando Electric Co., Ltd., a Japanese test equipment manufacturer, since 1993 when Ando was a subsidiary of NEC. In 1994, Ando loaned us $20 million, of which $8 million remains outstanding as of July 31, 2001. This indebtedness matures in July 2003. In 1998, we entered into a six year development, manufacturing and marketing agreement with Ando pursuant to which we granted Ando exclusive rights to manufacture and sell Fusion in Japan, but retained exclusive rights to manufacture and sell Fusion to certain customers in Japan and to manufacture and sell Fusion outside of Japan.
We also granted Ando a license to develop Fusion improvements for certain specific purposes, and, subject to certain conditions, a license to use, manufacture and sell these improvements in Japan. We were granted rights to use, improve and modify these Ando improvements outside Japan. Ando is required to pay quarterly royalties on sales of Fusion in Japan.
In January 2001, Yokogawa Electric Corporation, a Japanese manufacturer of semiconductor test equipment, announced the acquisition of most of NEC's interest in Ando. On May 18, 2001, we served Ando with a Demand for Arbitration pursuant to this agreement. Our demand asserts claims for breach of contract, breach of fiduciary duty, unfair competition and other claims arising out of Ando's conduct. We are seeking damages and equitable relief. Ando has filed an answer and counterclaims to our demand or arbitration. Ando's answer denies fault on its part and asserts breach of contract and breach of fiduciary duty on our part. Ando seeks damages, equitable relief and termination of the agreement. The arbitration will be conducted by the American Arbitration Association in San Jose, California. We do not believe that this legal proceeding will have any material adverse impact on our business and results of operations.
Item 4.
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 2001.
PART II
Item 5.
Item 5. Market Value for the Registrant's Common Stock and Related Security Holder Matters Market Prices for Common Stock
Our common stock is quoted on the Nasdaq National Market under the symbol "LTXX". The following table shows the high and low closing sale prices per share of our common stock, as reported on the Nasdaq National Market, for the periods indicated:
We have never declared or paid any dividends on our common stock. We do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings to fund the development and growth of our business. In addition, our credit agreement with a bank contains certain covenants which prohibit us from paying cash dividends.
As of August 30, 2001, we had approximately 1,012 stockholders of record of our common stock.
Item 6.
Item 6. Selected Consolidated Financial Data
The following table contains our selected consolidated financial data and is qualified by the more detailed consolidated financial statements and notes thereto included elsewhere in this report. The selected consolidated financial data for and as of the end of each of the five fiscal years in the period ended July 31, 2001 are derived from our consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants. Prior period financial statements have been reclassified to conform to the fiscal year 2000 presentation. The reclassification had no impact on earnings for any period.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read together with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this annual report on Form 10-K. This report contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. See "Business Risks".
Results of Operations
The following table sets forth for the periods indicated statement of operations data.
The following table sets forth for the periods indicated the principal items included in the Consolidated Statement of Operations as percentages of total net sales.
Fiscal 2001 Compared to Fiscal 2000.
Net Sales. Net sales consist of both semiconductor test equipment and related hardware and software support and maintenance services, net of returns and allowances. Net sales were $330.0 million in 2001 and $305.5 million in 2000. The net sales of $330.0 million in 2001 reflect the Company's adoption of SAB 101, discussed below in "Recent Accounting Pronouncements". The increase in sales of $24.5 million was the result of stronger sales in the first half of fiscal year 2001. Beginning in the latter half of the second quarter of fiscal 2001, the semiconductor industry experienced a severe industry-wide slow down. Service revenue, consisting of sales of replacement and spare parts and labor charges, totaled $37.3 million, or 11.3% of net sales, in fiscal 2001 and $32.0 million, or 10.5% of net sales, in fiscal 2000. Geographically, sales to customers outside the United States were $157.7 million, or 48% of net sales, in fiscal 2001 and $189.2 million, or 62% of net sales, in fiscal 2000.
Cost of Sales. Cost of sales consists of material, labor, depreciation and associated overhead. Cost of sales increased by $16.0 million to $177.0 million in fiscal 2001 from $161.1 million in fiscal 2000 primarily as a result of higher net sales. As a percentage of net sales, cost of sales was 53.6% of net sales in fiscal 2001 as compared to 52.7% in fiscal 2000. The major reason for the year-to-year 0.9% decline in margin percentage relates to the 33.2% decline in revenue during the latter half of fiscal year 2001 from the first half of the year.
Inventory Related Provision. A $12.8 million inventory related provision was charged to operations in fiscal 2001. The write down consisted of two categories. The first category was a $9.4 million inventory charge to cost of sales relating to non-Fusion components and subassemblies. Included in the $9.4 million write down was a provision for $2.5 million that related to Delta/STE inventory that was transferred to our third party reseller of Delta/STE products. The provision was established due to lack of demand for Delta/STE legacy products. The $6.9 million of the $9.4 million inventory charge was a write down of non-Fusion components included in LTX inventory that will have no usage over the next twelve to twenty-four months. As a result of the transition of the Company's manufacturing operations to Jabil Circuit, the Company will have limited capacity over the next twelve to twenty-four months to convert non-Fusion inventory into finished product for
resale. In addition, due to the current industry wide slowdown in the semiconductor industry, the Company anticipates a significant reduction in demand for non-Fusion products which may become technologically obsolete by our next generation Fusion products.
The second category was a $3.4 million charge, which represented a write down of Fusion product printed circuit boards. These boards will require a substantial amount of reworking to make them useable in active production with Jabil Circuit. We will have limited internal operations and capability to rework these boards during this transition.
Engineering and Product Development Expenses. Engineering and product development expenses were $66.0 million, or 20.0% of net sales, in fiscal 2001 as compared to $50.6 million, or 16.6% of net sales in fiscal 2000. The increase in expenditures is principally a result of a higher level of development expenses and key account support costs for our Fusion product line.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $37.0 million or 11.2% of net sales in fiscal 2001 as compared to $38.5 million, or 12.6% of net sales in fiscal 2000. The decrease in the selling, general and administrative expenses of $1.5 million for fiscal 2001 related to the reduction of certain variable costs resulting from the reduced sales in the latter half of the fiscal year.
Reorganization Costs. In fiscal 2001, the Company selected Jabil Circuit, Inc. to build its Fusion test systems. The manufacturing transition plan will be implemented over the next 12 months and will result in approximately a 15 percent reduction in LTX's permanent employee headcount. As a result of this transition plan, the Company recorded $1.2 million of reorganization costs in the fourth quarter of 2001.
Interest Expense. Interest expense for fiscal year 2001 was $1.3 million as compared to $2.1 million for fiscal year 2000. The decrease in expense is a result of a decrease in outstanding bank loan balances with our domestic bank.
Interest Income. Interest income was $9.1 million for fiscal 2001 as compared to $5.2 million for fiscal 2000. The increase in interest income occurred because of the increased earnings resulting from the investment in available for sale securities and the benefit of proceeds from the fiscal 2000 stock offerings for the entire year.
Income Tax. The Company recorded a tax provision of $13.1 million in fiscal 2001 and a tax benefit of $20.2 million in fiscal 2000. The Company's effective tax rate was 30.0% and (34.5%) in fiscal 2001 and fiscal 2000, respectively. The effective tax rate in each period differs from the statutory income tax rate primarily due to the generation of tax credits and the change in the valuation allowance.
Cumulative Effect of Change in Accounting Principle. In fiscal year 2001, a $9.6 million charge representing 2.9% of net sales, was recognized relating to the cumulative effect of an accounting change as related to SAB 101 which is described further in "Recent Accounting Pronouncements" below.
Industry Conditions. Industry conditions weakened significantly during the second half of the fiscal year ended July 31, 2001. Management believes that slow semiconductor equipment industry conditions will continue for the near term. Until there is a substantial improvement in industry conditions, the sluggish industry conditions will continue to adversely affect the Company's results of operations. The Company's results of operations would be further adversely affected if it were to experience lower than anticipated order levels, cancellations of orders in backlog, extended customer delivery requirements or lower than anticipated margins due to unfavorable product mix. The Company has taken steps to reduce discretionary spending and capital expenditures.
Fiscal 2000 Compared to Fiscal 1999.
Net Sales. Net sales consist of both semiconductor test equipment and related hardware and software support and maintenance services, net of returns and allowances. Net sales increased $148.2 million to $305.5
million in fiscal 2000 from $157.3 million in fiscal 1999, an increase of 94.2%. The increase in net sales was principally a result of the STE, or semiconductor test equipment, and semiconductor industries experiencing an increase in demand combined with key new sales account wins with Fusion. Service revenue, consisting of sales of replacement and spare parts and labor charges, totaled $32.0 million, or 10.5% of net sales, in fiscal 2000 and $28.9 million, or 18.4% of net sales, in fiscal 1999. Geographically, sales to customers outside the United States were $189.2 million, or 62% of net sales, in fiscal 2000 and $95.7 million, or 61% of net sales, in fiscal 1999.
Cost of Sales. Cost of sales consists of material, labor, depreciation and associated overhead. Cost of sales increased by $67.6 million to $161.1 million in fiscal 2000 from $93.5 million in fiscal 1999. As a percentage of net sales, cost of sales was 52.7% of net sales in fiscal 2000 as compared to 59.4% in fiscal 1999. The major reason for the year-to-year improvement in margin percentage relates to gaining the full benefits of our consolidation of our manufacturing operations and lower product cost as a percentage of net sales for our Fusion product line. Net sales of our Fusion products increased sequentially in each quarter in fiscal 1999 and fiscal 2000 which resulted in improved profit margins. Effective November 1, 1999, we changed our accounting policy to classify certain applications and engineering development costs previously reported in cost of sales to research and development expenses in our quarter ending January 31, 2000. Financial results for all prior periods have been reclassified to conform to the January 31, 2000 presentation. Under the prior method of classification, cost of sales would have been 57.2% and 65.5% of net sales for the year ended July 31, 2000 and July 31, 1999, respectively.
Engineering and Product Development Expenses. Engineering and product development expenses were $50.6 million, or 16.6% of net sales, in fiscal 2000 as compared to $34.8 million, or 22.1% of net sales in fiscal 1999. The increase in expenditures is principally a result of a higher level of development expenses and key account support costs for our Fusion product line. Engineering and product development expenses include the reclassified applications and engineering development costs described in the previous paragraph. Under the prior method of classification, engineering and product development expenses would have been $36.8 million or 12.0% of net sales, and $25.2 million, or 16.0% of net sales, for fiscal 2000 and fiscal 1999, respectively.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $38.5 million or 12.6% of net sales in fiscal 2000 as compared to $31.5 million, or 20.0% of net sales in fiscal 1999. The increase in the selling, general and administrative expenses of $7.0 million for fiscal 2000 related to the marketing and selling expenses of the Fusion product line and support of key accounts, as well as $3.2 million of employee profit sharing.
Interest Expense. Interest expense for fiscal year 2000 was $2.1 million as compared to $1.5 million for fiscal year 1999. The increase in expense is a result of an increase in outstanding bank loan balances with our domestic bank. The increased borrowings were used to support growth in working capital.
Interest Income. Interest income was $5.2 million for fiscal 2000 as compared to $585,000 for fiscal 1999. The increase in interest income occurred because of the increase in our cash balance.
Other. We recorded gains of $3.8 million during the second quarter of fiscal 1999. These transactions consisted of the liquidation of our majority-owned Japanese subsidiary, a joint venture with Sumitomo Metal Industries, Ltd., which resulted in a gain of $1.7 million and the sale of a portion of our legacy board repair business in Singapore which resulted in a gain of $2.1 million. Both transactions are consistent with our strategic commitment to the Fusion strategy and our focus on reducing costs.
Income Tax. In fiscal year 2000 we recorded a tax benefit of $20.2 million and recorded deferred tax assets. Realization of the net deferred tax assets is dependent on our ability to generate future taxable income. Management believes that it is more likely than not that the assets will be realized, based on forecasted income. However, there can be no assurance that we will meet our expectations of future income. The remaining valuation allowance in fiscal 2000 relates to certain foreign losses and tax credits for which the reliability of future tax benefits is uncertain. No tax provision was recorded in fiscal 1999.
Liquidity and Capital Resources
At July 31, 2001, we had $180.1 million in cash and equivalents and working capital of $294.5 million as compared to $207.0 million in cash and equivalents and $307.9 million of working capital at July 31, 2000. The decrease in the cash balance was primarily a result of cash expenditures for capital assets and our minority interest investment in a semiconductor test equipment company, offset by net cash provided by operating activities. Working capital decreased as a result of those cash expenditures.
Accounts receivable from trade customers were $25.6 million at July 31, 2001, as compared to $74.9 million at July 31, 2000. The decrease in account receivables was the result of cash collecting activities along with lower sales for the latter part of fiscal year 2001. The reserve for sales returns and doubtful accounts was $3.7 million, or 12.5% of gross accounts receivable on July 31, 2001 and $3.6 million, or 4.6% of gross accounts receivable, on July 31, 2000.
Inventory increased by $21.0 million to $96.7 million at July 31, 2001 as compared to $75.7 million at July 31, 2000. The increase is directly attributable to the production ramp in the Fusion product along with a severe drop in demand for semiconductor test equipment in the second half of the fiscal year ended July 31, 2001.
Deferred tax assets decreased by $4.9 million to $33.9 million at July 31, 2001 as compared to $38.8 million at July 31, 2000. The decrease is attributed to the recognition of certain deferred tax assets. Prepaid expense increased by $48.8 million to $59.0 million at July 31, 2001 as compared to $10.2 million at July 31, 2000. The increase is attributed to inventory related prepayments to secure production capacity with vendors.
Capital expenditures totaled $47.3 million in fiscal 2001 as compared to $17.9 million for fiscal year 2000. The principal reason for the $29.4 million increase in expenditures relates to the addition of board test equipment, increased system test cell capacity, the addition of spare parts and investments in new application development equipment supporting the growth of the Fusion product line.
Other assets increased by $9.1 million to $14.0 million at July 31, 2001 as compared to $4.9 million at July 31, 2000. The increase is attributed to a minority investment in a semiconductor test equipment company, which is accounted for using the cost method.
During the quarter ended April 30, 2001, the Company renegotiated its domestic credit facility with our existing lender. The facility of $15.0 million is secured by all assets and bears interest at the bank's prime rate. Borrowing availability under this facility is based on a formula of eligible domestic and foreign accounts receivable. Outstanding borrowings at July 31, 2001 were $12.9 million under this credit facility. A second credit facility with another lender was established on April 30, 2001 as a revolving credit line for $30.0 million. This facility is secured by cash and bears interest (at our option) at either: (i) the greater of the federal funds rate plus 0.5% or the bank's prime rate, in each case, minus 1.0% or (ii) LIBOR plus 0.4%.
On August 8, 2001, the Company received net proceeds of $145.5 million from a private placement of 4.25% Convertible Subordinated Notes due 2006. The private placement was effected through a Rule 144A offering to qualified institutional buyers.
The Company anticipates that cash flow from operations combined with available cash balance and credit facility enhancements will be adequate to fund our currently proposed operating activities for the next twelve months.
Recent Accounting Pronouncements
In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation--An Interpretation of APB Opinion No. 25 ("FIN
44")". FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The application of FIN 44 did not have a material impact on our financial position or results of operations.
The Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), on December 3, 1999. On June 26, 2000, the SEC staff announced that they were delaying the required implementation date for SAB No. 101 with the issuance of SAB No. 101B. The SAB provides additional guidance on the accounting for revenue recognition, including both broad conceptual discussions as well as certain industry-specific guidance. The new guidance concerns the timing of revenue recognition for sales that involve contractual customer acceptance provisions and installation of the product if these events occur after shipment and transfer of title. The Company's previous revenue recognition policy was to recognize revenue at the time the customer takes title to the product, generally at the time of shipment.
The Company derives revenues from three sources--equipment sales, spare parts and service contracts. SAB 101 has no effect on the Company's revenue recognition policy for spare parts or service contracts. For equipment sales there are different revenue recognition points under SAB 101, which are described as follows:
Acceptance: For equipment sales to a new customer, existing products with new specifications and/or a new product, revenue is recognized upon customer acceptance.
Shipment and acceptance: Equipment sales to existing customers, who have purchased the same equipment with the same customer-specified provisions in the past, are accounted for as multiple-element arrangement sales. If a portion of the payment is linked to product acceptance which is 20% or less holdback, the revenue is deferred on only the percentage holdback until payment is received or written evidence of acceptance is delivered to the Company. If the portion of the holdback is greater than 20%, the full value of the equipment is deferred until payment is received or written evidence of acceptance is delivered to the Company.
Revenue related to spare parts is recognized on shipment. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts.
As a result of SAB 101, we changed our method of accounting for revenue recognition. We reported this change in accounting principle in accordance with APB Opinion No. 20, "Accounting Changes", by a cumulative effect adjustment. This change was adopted in the fourth quarter. No cumulative effect of the change is included in net income in the fourth quarter. Instead, APB 20 requires that the change be made as of the beginning of the fiscal year (August 1, 2000) and that financial information for interim periods reported prior to the change, in this case the first three quarters of fiscal 2001, be restated by applying SAB 101 to those periods. No restatement of fiscal year 2000 information is necessary.
In accordance with guidance provided in SAB 101, we recorded a non-cash charge of $9.6 million (after reduction for income taxes of $4.1 million), or ($0.19) per diluted share, to reflect the cumulative effect of the accounting change as of the beginning of the fiscal year.
In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually.
SFAS 141 is effective immediately, except with regard to business combinations initiated prior to July 1, 2001 and SFAS 142 is effective January 1, 2002. Furthermore, any goodwill and intangible assets determined to have indefinite useful lives that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized until the adoption of SFAS 142.
SFAS 141 will require upon adoption of SFAS 142 that goodwill acquired in a prior purchase business combination be evaluated and any necessary reclassifications be made in order to conform to the new criteria in SFAS 141 for recognition apart from goodwill. Any impairment loss will be measured as of the date of the adoption and recognized as a cumulative effect of a change in accounting principles in the first interim period. The Company does not expect that the adoption of these statements will result in any material impact on the financial statements at this time. The Company will adopt these statements effective August 1, 2002.
BUSINESS RISKS
This report includes or incorporates forward-looking statements that involve substantial risks and uncertainties and fall within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by our use of the words "believes," "anticipates," "plans," "expects," "may," "will," "would," "intends," "estimates," and similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements, particularly under the heading "Business Risks," that we believe could cause our actual results to differ materially from the forward-looking statements that we make. We do not assume any obligation to update any forward- looking statement we make.
Our sole market is the highly cyclical semiconductor industry, which causes a cyclical impact on our financial results.
We sell capital equipment to companies that design, manufacture, assemble, and test semiconductor devices. The semiconductor industry is highly cyclical, causing in turn a cyclical impact on our financial results. Our recent operating results have been negatively impacted by an industry-wide slowdown in the semiconductor industry which began to impact us in the latter half of the second quarter of fiscal 2001. Any failure to expand in cycle upturns to meet customer demand and delivery requirements or contract in cycle downturns at a pace consistent with cycles in the industry could have an adverse effect on our business.
Any significant downturn in the markets for our customers' semiconductor devices or in general economic conditions would likely result in a reduction in demand for our products and would hurt our business. Our revenue and operating results are currently being negatively impacted by a sudden and severe downturn that the semiconductor industry is currently experiencing. Downturns in the semiconductor test equipment industry have been characterized by diminished product demand, excess production capacity and accelerated erosion of selling prices. We believe the markets for newer generations of devices, including system-on-a-chip ("SOC"), will also experience similar characteristics. In the past, we have experienced delays in commitments, delays in collecting accounts receivable and significant declines in demand for our products during these downturns, and we cannot be certain that we will be able to maintain or exceed our current level of sales.
Additionally, as a capital equipment provider, our revenue is driven by the capital expenditure budgets and spending patterns of our customers who often delay or accelerate purchases in reaction to variations in their businesses. Because a high proportion of our costs are fixed, we are limited in our ability to reduce expenses quickly in response to revenue shortfalls. In a contraction, we may not be able to reduce our significant fixed costs, such as continued investment in research and development and capital equipment requirements.
Our sales and operating results have fluctuated significantly from period to period, including from one quarter to another, and they may continue to do so.
Our quarterly and annual operating results are affected by a wide variety of factors that could adversely affect sales or profitability or lead to significant variability in our operating results or our stock price. This may be caused by a combination of factors, including the following:
. sales of a limited number of test systems account for a substantial portion of our net sales in any particular fiscal quarter, and a small number of transactions could therefore have a significant impact;
. order cancellations by customers;
. lower gross margins in any particular period due to changes in:
-- our product mix,
-- the configurations of test systems sold, or
-- the customers to whom we sell these systems;
. the high selling prices of our test systems (which typically result in a long selling process); and
. changes in the timing of product orders due to:
-- unexpected delays in the introduction of products by our customers,
-- shorter than expected lifecycles of our customers' semiconductor devices, or
-- uncertain market acceptance of products developed by our customers.
We cannot predict the impact of these and other factors on our sales and operating results in any future period. Results of operations in any period, therefore, should not be considered indicative of the results to be expected for any future period. Because of this difficulty in predicting future performance, our operating results may fall below expectations of securities analysts or investors in some future quarter or quarters. Our failure to meet these expectations would likely adversely affect the market price of our common stock. A substantial amount of the shipments of our test systems for a particular quarter occur late in the quarter. Our shipment pattern exposes us to significant risks in the event of problems during the complex process of final integration, test and acceptance prior to shipment. If we were to experience problems of this type late in our quarter, shipments could be delayed and our operating results could fall below expectations.
The market for semiconductor test equipment is highly concentrated, and we have limited opportunities to sell our products.
The semiconductor industry is highly concentrated, and a small number of semiconductor device manufacturers and contract assemblers account for a substantial portion of the purchases of semiconductor test equipment generally, including our test equipment. Sales to our ten largest customers accounted for 87.4% of revenues in fiscal year 2001 and 74.0% of revenues in fiscal year 2000. Our customers may cancel orders with few or no penalties. If a major customer reduces orders for any reason, our revenues, operating results, and financial condition will be hurt. In addition, our ability to increase our sales will depend in part upon our ability to obtain orders from new customers. Semiconductor manufacturers select a particular vendor's test system for testing the manufacturer's new generations of devices and make substantial investments to develop related test program software and interfaces. Once a manufacturer has selected one test system vendor for a generation of devices, that manufacturer is more likely to purchase test systems from that vendor for that generation of devices, and, possibly, subsequent generations of devices as well.
We may not be able to deliver hardware options and software applications to satisfy specific customer needs in a timely manner.
We must develop and deliver hardware and software to meet our customers' specific test requirements. Our test equipment may fail to meet our customers' technical or cost requirements and may be replaced by competitive equipment or an alternative technology solution. Our inability to provide a test system that meets requested performance criteria when required by a device manufacturer would severely damage our reputation with that customer. This loss of reputation may make it substantially more difficult for us to sell test systems to that manufacturer for a number of years. We have, in the past, experienced delays in introducing some of our products and enhancements.
Our dependence on international sales and non-U.S. suppliers involves significant risk.
International sales have constituted a significant portion of our revenues in recent years, and we expect that this composition will continue. International sales accounted for 48% of our revenues for fiscal year 2001 and 62% for fiscal year 2000. In addition, we rely on non-U.S. suppliers for several components of the equipment we sell. As a result, a major part of our revenues and the ability to manufacture our products are
subject to the risks associated with international commerce. A reduction in revenues or a disruption or increase in the cost of our manufacturing materials could hurt our operating results. These international relationships make us particularly sensitive to changes in the countries from which we derive sales and obtain supplies. International sales and our relationships with suppliers may be hurt by many factors, including:
. changes in law or policy resulting in burdensome government controls, tariffs, restrictions, embargoes or export license requirements;
. political and economic instability in our target international markets;
. longer payment cycles common in foreign markets;
. difficulties of staffing and managing our international operations;
. less favorable foreign intellectual property laws making it harder to protect our technology from appropriation by competitors; and
. difficulties collecting our accounts receivable because of the distance and different legal rules.
In the past, we have incurred expenses to meet new regulatory requirements in Europe, experienced periodic difficulties in obtaining timely payment from non- U.S. customers, and been affected by the recession in several Asian countries. Our foreign sales are typically invoiced and collected in U.S. dollars. A strengthening in the dollar relative to the currencies of those countries where we do business would increase the prices of our products as stated in those currencies and could hurt our sales in those countries. Significant fluctuations in the exchange rates between the U.S. dollar and foreign currencies could cause us to lower our prices and thus reduce our profitability. These fluctuations could also cause prospective customers to push out or delay orders because of the increased relative cost of our products. In the past, there have been significant fluctuations in the exchange rates between the dollar and the currencies of countries in which we do business.
Our future rate of growth is highly dependent on the growth of the SOC market.
In 1996, we refocused our business strategy on the development of our Fusion HF product, which is primarily targeted towards addressing the needs of the SOC market. If the SOC market fails to grow as we expect, our ability to sell our Fusion HF product will be hampered.
Our market is highly competitive, and we have limited resources to compete.
The test equipment industry is highly competitive in all areas of the world. Many other domestic and foreign companies participate in the markets for each of our products, and the industry is highly competitive. Our principal competitors in the market for semiconductor test equipment are Agilent Technologies, Credence Systems, Schlumberger Limited, and Teradyne. Most of these major competitors have substantially greater financial resources and more extensive engineering, manufacturing, marketing, and customer support capabilities.
We expect our competitors to enhance their current products and to introduce new products with comparable or better price and performance. The introduction of competing products could hurt sales of our current and future products. In addition, new competitors, including semiconductor manufacturers themselves, may offer new testing technologies, which may in turn reduce the value of our product lines. Increased competition could lead to intensified price-based competition, which would hurt our business and results of operations. Unless we are able to invest significant financial resources in developing products and maintaining customer support centers worldwide, we may not be able to compete.
Development of our products requires significant lead-time, and we may fail to correctly anticipate the technical needs of our customers.
Our customers make decisions regarding purchases of our test equipment while their devices are still in development. Our test systems are used by our customers to develop, test and manufacture their new devices. We therefore must anticipate industry trends and develop products in advance of the commercialization of our customers' devices, requiring us to make significant capital investments to develop new test equipment for our customers well before their devices are introduced. If our customers fail to introduce their devices in a timely manner or the market does not accept their devices, we may not recover our capital investment through sales in significant volume. In addition, even if we are able to successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not generate revenue in excess of the costs of development, and they may be quickly rendered obsolete by changing customer preferences or the introduction of products embodying new technologies or features by our competitors. Furthermore, if we were to make announcements of product delays, or if our competitors were to make announcements of new test systems, these announcements could cause our customers to defer or forego purchases of our existing test systems, which would also hurt our business.
Our success depends on attracting and retaining key personnel.
Our success will depend on our ability to attract and retain highly qualified managers and technical personnel. Competition for such specialized personnel is intense, and it may become more difficult for us to hire or retain them. Our volatile business cycles only aggravate this problem. Any significant layoffs in an industry downturn could make it more difficult for us to hire or retain qualified personnel.
Our dependence on subcontractors and sole source suppliers may prevent us from delivering an acceptable product on a timely basis.
We rely on subcontractors to manufacture many of the components and subassemblies for our products, and we rely on sole source suppliers for certain components. We may be required to qualify new or additional subcontractors and suppliers due to capacity constraints, competitive or quality concerns or other risks that may arise, including a result of a change in control of, or a deterioration in the financial condition of, a supplier or subcontractor. The process of qualifying subcontractors and suppliers is a lengthy process. Our reliance on subcontractors gives us less control over the manufacturing process and exposes us to significant risks, especially inadequate capacity, late delivery, substandard quality, and high costs. In addition, the manufacture of certain of these components and subassemblies is an extremely complex process. If a supplier became unable to provide parts in the volumes needed or at an acceptable price, we would have to identify and qualify acceptable replacements from alternative sources of supply, or manufacture such components internally. The process of qualifying subcontractors and suppliers is a lengthy process. We are dependent on two semiconductor device manufacturers, Vitesse Semiconductor and Maxtech Components. Each is a sole source supplier of components manufactured in accordance with our proprietary design and specifications. We have no written supply agreements with these sole source suppliers and purchase our custom components through individual purchase orders. Vitesse Semiconductor is also a Fusion customer.
We will depend on Jabil Circuit to produce and test our family of Fusion products, and any failures or other problems at or with Jabil could cause us to lose customers and revenues.
We have selected Jabil Circuit, Inc. to manufacture our Fusion HF test systems. We are in the process of negotiating the definitive terms and conditions of this arrangement and upon reaching a final binding agreement, we will transfer all of our assembly, system integration and testing operations to Jabil. If we are unable to finalize the terms of this arrangement, or if, after the execution of a final agreement, Jabil cannot provide us with these products and services in a timely fashion, or at all, whether due to labor shortage, slow down or stoppage, deteriorating financial or business conditions or any other reason, we would not be able, at least temporarily, to sell or ship our Fusion family of products to our customers. We also may be unable to engage alternative production and testing services on a timely basis or upon terms favorable to us, if at all.
We have begun the transition of our assembly, system integration and testing operations of the Fusion products to Jabil. We may encounter unforeseen expenses as well as difficulties in transferring these responsibilities to Jabil due to technology and personnel compatibility. We cannot assure you that this relationship with Jabil will result in a reduction of our fixed expenses while allowing us to provide our customers with seamless service and customer support.
Economic conditions in Asia may hurt our sales.
Asia is an important region for our customers in the semiconductor industry, and many of them have operations there. In recent years, Asian economies have been highly volatile and recessionary, resulting in significant fluctuations in local currencies and other instabilities. These instabilities may continue or worsen, which could have a material adverse impact on our financial position and results of operations, as approximately 36.9% and 48.3% of our sales for fiscal years 2001 and 2000, respectively, were derived from this region. In light of the historical economic downturns in Asia, we may not be able to obtain additional orders and may experience cancellations of orders.
We may not be able to protect our intellectual property rights.
Our success depends in part on our ability to obtain intellectual property rights and licenses and to preserve other intellectual property rights covering our products and development and testing tools. To that end, we have obtained certain domestic patents and may continue to seek patents on our inventions when appropriate. We have also obtained certain trademark registrations. To date, we have not sought patent protection in any countries other than the United States, which may impair our ability to protect our intellectual property in foreign jurisdictions. The process of seeking intellectual property protection can be time consuming and expensive. We cannot ensure that:
. patents will issue from currently pending or future applications;
. our existing patents or any new patents will be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us;
. foreign intellectual property laws will protect our intellectual property rights; or
. others will not independently develop similar products, duplicate our products or design around our technology.
If we do not successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating results. We also rely on trade secrets, proprietary know-how and confidentiality provisions in agreements with employees and consultants to protect our intellectual property. Other parties may not comply with the terms of their agreements with us, and we may not be able to adequately enforce our rights against these people.
Third parties may claim we are infringing their intellectual property, and we could suffer significant litigation costs, licensing expenses or be prevented from selling our products.
Intellectual property rights are uncertain and involve complex legal and factual questions. We may be unknowingly infringing on the intellectual property rights of others and may be liable for that infringement, which could result in significant liability for us. If we do infringe the intellectual property rights of others, we could be forced to either seek a license to intellectual property rights of others or alter our products so that they no longer infringe the intellectual property rights of others. A license could be very expensive to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical.
We are responsible for any patent litigation costs. If we were to become involved in a dispute regarding intellectual property, whether ours or that of another company, we may have to participate in legal proceedings.
These types of proceedings may be costly and time consuming for us, even if we eventually prevail. If we do not prevail, we might be forced to pay significant damages, obtain licenses, modify our products or processes, stop making products or stop using processes.
Our stock price is volatile.
In the twelve-month period ending on July 31, 2001, our stock price ranged from a low of $10.19 to a high of $31.82. The price of our common stock has been and likely will continue to be subject to wide fluctuations in response to a number of events and factors, such as:
. quarterly variations in operating results;
. variances of our quarterly results of operations from securities analyst estimates;
. changes in financial estimates and recommendations by securities analysts;
. announcements of technological innovations, new products, or strategic alliances; and
. news reports relating to trends in our markets.
In addition, the stock market in general, and the market prices for semiconductor-related companies in particular, have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of the companies affected by these fluctuations. These broad market fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial instruments that potentially subject us to concentrations of credit-risk consist principally of investments in cash equivalents, short-term investments and trade receivables. We place our investments with high-quality financial institutions, limit the amount of credit exposure to any one institution and have established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity.
Our primary exposures to market risks include fluctuations in interest rates on our short-term and long-term debt of approximately $24.2 million as of July 31, 2001 and in foreign currency exchange rates. We do not use derivative financial instruments. We are subject to interest rate risk on our short-term borrowings under our credit facilities. Our short term bank debt bears interest at prime. Long term debt interest rates are fixed for the term of the notes.
Foreign Exchange Risk
Operating in international markets involves exposure to movements in currency exchange rates. Currency exchange rate movements typically also reflect economic growth, inflation, interest rates, government actions and other factors. We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. As currency exchange rates fluctuate, translation of the statements of operations of our international businesses into U.S. dollars may affect year- over-year comparability and could cause us to adjust our financing and operating strategies. To date, the effect of changes in foreign currency exchange rates on revenues and operating expenses have not been material. Substantially all of our revenues are invoiced and collected in U.S. dollars. Our trade receivables result primarily from sales to semiconductor manufacturers located in North America, Japan, the Pacific Rim and Europe. In fiscal 2001, our revenues derived from sales outside the United States constituted 48% of our total revenues. Accounts receivable in currencies other than U.S. dollars comprise 21% of the outstanding accounts receivable balance at July 31, 2001. Receivables are from major corporations or are supported by letters of credit. We maintain reserves for potential credit losses and such losses have been immaterial.
Based on a hypothetical ten percent adverse movement in interest rates and foreign currency exchange rates, the potential losses in future earnings, fair value of risk-sensitive financial instruments, and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis.
We do not use derivative financial instruments for speculative trading purposes, nor do we currently hedge our foreign currency exposure to offset the effects of changes in foreign exchange rates. We intend to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.
Interest Rate Risk
Historically, we have had no material interest rate risk associated with debt used to finance our operations due to limited borrowings. We manage our interest rate exposure using a mix of fixed and floating interest rate debt and, if appropriate, financial derivative instruments.
During the quarter ended April 30, 2001, the Company renegotiated its domestic credit facility with our existing lender. The facility of $15.0 million is secured by all assets and bears interest at the bank's prime rate. Borrowing availability under this facility is based on a formula of eligible domestic and foreign accounts receivable. Outstanding borrowings at July 31, 2001 were $12.9 million under this credit facility and the interest rate was 6.75%. Based on this balance, an immediate change of 1% in the interest rate would cause a change in interest expense of approximately $129,000 on an annual basis. A second credit facility with another lender was established on April 30, 2001 as a revolving credit line for $30.0 million. This facility is secured by cash and bears interest (at our option) at either: (i) the greater of the federal funds rate plus 0.5% or the bank's prime rate, in each case, minus 1.0% or (ii) LIBOR plus 0.4%. On August 8, 2001, the Company received $145.5 million in net proceeds from a convertible debenture offering. Our objective in maintaining these variable rate borrowings is the flexibility obtained regarding early repayment without penalties and lower overall cost as compared with fixed-rate borrowings. The Company anticipates the cash flow from operations combined with available cash balance and credit facility enhancements will be adequate to fund currently proposed operating activities for the next twelve months.
Item 8.
Item 8. Financial Statements and Supplementary Data
LTX CORPORATION
CONSOLIDATED BALANCE SHEET (In thousands, except share and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
LTX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except share and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
LTX CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands, except share data)
The accompanying notes are an integral part of these consolidated financial statements.
LTX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands except share data)
The accompanying notes are an integral part of these consolidated financial statements.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
LTX Corporation ("LTX" or the "Company") designs, manufactures, and markets automatic test equipment for the semiconductor industry that is used to test system-on-a-chip, digital, analog, and mixed signal (a combination of digital and analog) integrated circuits ("ICs"). The Company's newly introduced Fusion product is a single test platform that can be configured to test system-on-a- chip devices, digital VLSI devices including microprocessors and microcontrollers, and analog/mixed signal devices. The Company also sells hardware and software support and maintenance services 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 manufacturers of system-on-a-chip, digital, analog and mixed signal ICs. The Company is headquartered, and has development and manufacturing facilities, in Westwood, Massachusetts, a development facility in 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.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts 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. Actual results could differ from these estimates.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are translated in accordance with Statement of Financial Accounting Standards No. 52, Foreign Currency Translation. 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 non-monetary 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 were a loss of $777,000, a gain of $239,000, and a loss of $737,000 in fiscal 2001, 2000 and 1999 respectively. The loss of $777,000 in fiscal 2001 was principally due to transaction losses relating to fluctuations in the Japanese yen. Transaction gains and losses are included in the consolidated results of operations.
Revenue Recognition
The Company changed its revenue recognition policy effective August 1, 2000, based on guidance provided in SEC Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price is fixed or determinable and collectibility is reasonably assured.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company derives revenues from three sources--equipment sales, spare parts and service contracts. SAB 101 has no effect on the Company's revenue recognition policy for spare parts or service contracts. For equipment sales there are different revenue recognition points under SAB 101, which are described as follows:
Acceptance: For equipment sales to a new customer, existing products with new specifications and/or a new product, revenue is recognized upon customer acceptance.
Shipment and acceptance: Equipment sales to existing customers, who have purchased the same equipment with the same customer-specified provisions in the past, are accounted for as multiple-element arrangement sales. If a portion of the payment is linked to product acceptance and is 20% or less, the revenue is deferred on only the percentage holdback until payment is received or written evidence of acceptance is delivered to the Company. If the portion of the holdback is greater than 20%, the full value of the equipment is deferred until payment is received or written evidence of acceptance is delivered to the Company.
Revenue related to spare parts is recognized on shipment. Revenue related to maintenance and service contracts is recognized ratably over the duration of the contracts. Service revenue totaled $37.3 million or 11.3% of net sales, in fiscal 2001, $32.0 million, or 10.5% of net sales, in fiscal 2000, and $28.9 million, or 18.4% of net sales, in fiscal 1999. Revenue from engineering contracts are recognized over the contract period on a percentage of completion basis.
In accordance with guidance provided in SAB 101, we recorded a non-cash charge of $9.6 million (after reduction for income taxes of $4.1 million), or ($0.19) per diluted share, to reflect the cumulative effect of the accounting change as of the beginning of the fiscal year.
Prior to fiscal 2001, the revenue recognition policy was to recognize revenue at the time the customer takes title to the product, generally at the time of shipment. The Company has no proforma data for fiscal years 2000 and 1999 as the amounts are not readily determinable based on the nature of the revenue adjustments required by SAB 101. The Company's quarterly fiscal 2001 results have been restated in Note 12. Revenue related to maintenance and service contracts was recognized ratably over the duration of the contracts.
During April 1998, Ando Electric Co., Ltd. (Ando) paid the Company $17.4 million in cash and LTX Common Stock for the rights to manufacture, market and develop LTX's Fusion product for Japanese customers. The Company recognized $7.4 million of revenue during fiscal 1998 for the sale of its marketing and development rights. The Company deferred $10.0 million of revenue related to the manufacturing rights and transfer of technology knowledge. The $10.0 million was being recognized on a percentage of completion basis over the period in which the Company completed the transfer of the manufacturing and technology rights. The Company recognized $8.5 million of the deferred revenue in fiscal 1999 and recognized the remaining $1.5 million in the first quarter of fiscal 2000. In addition, the Company may receive future royalty payments which will be recognized as revenue in the period earned.
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, Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise Marketed, relating to certain software development costs, were insignificant.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income Taxes
In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Research and development tax credits are recognized for financial reporting purposes to the extent that they can be used to reduce the tax provision.
Net Income Per Share
Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per common share reflects the maximum dilution that would have resulted from the assumed exercise and share repurchase related to dilutive stock options and is computed by dividing net income by the weighted average number of common shares and all dilutive securities outstanding.
A reconciliation between basic and diluted earnings per share is as follows:
Options to purchase 498,125 shares of common stock in 2001, 30,125 shares of common stock in 2000, and 15,000 shares in 1999 were outstanding during the years then ended, but were not included in the year to date calculation of diluted net income per share because either the options' exercise price was greater than the average market price of the common shares during those periods, or the effect of including the options would have been anti-dilutive.
Financial Instruments
Cash and Equivalents
The Company considers all highly liquid investments that are readily convertible to cash and that have original maturity dates of three months or less to be cash equivalents. Cash equivalents consist primarily of repurchase agreements, commercial paper and available for sale investments. In accordance with the Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, 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. The Company has no investments that are classified as held-to-maturity.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. The Company did recognize other comprehensive income of $553,000 for the year ended July 31, 2001 for unrealized gain from available for sale securities.
Fair Value
Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, 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, 2001 and 2000, the carrying value of $12,900,000 and $9,725,000, respectively, for short-term bank debt and $11,277,000 and $16,383,000, respectively, for long-term debt, including current portion, approximates fair value. During fiscal year 2000, the Company called the $7,308,000 of its 7 1/4% Convertible Subordinated Debentures due 2011 for redemption. These debentures had a conversion price of $18.00 and all of these outstanding debentures were converted into 405,984 shares of common stock of the Company. For all other balance sheet financial instruments, the carrying amount approximates fair value.
Inventories
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:
Prepaid Expense
Certain amounts in the prepaid expense balance relate to inventory capacity purchases and payments for projects not completed. The completion of these projects along with the receipt of inventory is expected to occur during fiscal 2002. As of July 31, 2001, no work has begun on these projects and all amounts are refundable.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment is recorded at cost. The Company provides for depreciation and amortization on the straight-line method. Charges are made to operating expenses in amounts that are sufficient to amortize the cost of the assets over their estimated useful lives. Property and equipment are summarized as follows:
Deferred Gain on Leased Equipment
The deferred gain from the sale and lease back of equipment is recognized ratably over the term of the lease.
Reclassifications
Prior year financial statements have been reclassified to conform to the fiscal 2001 presentation. The reclassification had no impact on earnings for the prior period.
Recent Accounting Pronouncements
In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation--An interpretation of APB Opinion No. 25 ("FIN 44")". FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 was effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The application of FIN44 did not have a material impact on our financial position or results of operations.
The Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," on December 3, 1999. On June 26, 2000 the SEC staff announced that they were delaying the required implementation date for SAB No. 101 with the issuance of SAB No. 101B. The SAB provides additional guidance on the accounting for revenue recognition, including both broad conceptual discussions as well as certain industry-specific guidance. The new guidance concerns the timing of revenue recognition for sales that involve contractual customer acceptance provisions and installation of the product if these events occur after shipment and transfer of title. The Company's previous revenue recognition policy was to recognize revenue at the time the customer takes title to the product, generally at the time of shipment.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As a result of SAB 101, the Company changed its method of accounting for revenue recognition. The Company reported this change in accounting principle in accordance with APB Opinion No. 20, "Accounting Changes", by a cumulative effect adjustment. This change was adopted in the fourth quarter. No cumulative effect of the change is included in net income in the fourth quarter. Instead, APB 20 requires that the change be made as of the beginning of the fiscal year (August 1, 2000) and that financial information for interim periods reported prior to the change, in this case the first three quarters of fiscal 2001, be restated by applying SAB 101 to those periods. No restatement of 2000 information is necessary.
In accordance with guidance provided in SAB 101, the Company recorded a non- cash charge of $9.6 million (after reduction for income taxes of $4.1 million), or ($0.19) per diluted share, to reflect the cumulative effect of the accounting change as of the beginning of the fiscal year.
In July 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated and completed after June 30, 2001. SFAS 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually.
SFAS 141 is effective immediately, except with regard to business combinations initiated prior to July 1, 2001 and SFAS 142 is effective January 1, 2002. Furthermore, any goodwill and intangible assets determined to have indefinite useful lives that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized until the adoption of SFAS 142.
SFAS 141 will require upon adoption of SFAS 142 that goodwill acquired in a prior purchase business combination be evaluated and any necessary reclassifications be made in order to conform to the new criteria in SFAS 141 for recognition apart from goodwill. Any impairment loss will be measured as of the date of the adoption and recognized as a cumulative effect of a change in accounting principles in the first interim period. The Company does not expect that the adoption of these statements will result in any material impact on financial statements at this time.
3. NOTES PAYABLE
During the quarter ended April 30, 2001, we renegotiated our domestic credit facility with our existing lender. The facility of $15.0 million is secured by all assets and bears interest at the bank's prime rate. Borrowing availability under this facility is based on a formula of eligible domestic and foreign accounts receivable. Outstanding borrowings at July 31, 2001 were $12.9 million under this credit facility and the interest rate was 6.75%. A second credit facility with another lender was established on April 30, 2001 as a revolving credit line for $30.0 million. This facility is secured by cash and bears interest (at our option) at either: (I) the greater of the federal funds rate plus 0.5% or the bank's prime rate, in each case, minus 1.0% or (ii) LIBOR plus 0.4%. On August 8, 2001, the Company received $145.5 million from a convertible debenture offering (see Note 13).
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT
Long-term debt consist of the following:
The subordinated note payable bears interest at 5.5% at July 31, 2001 and at July 31, 2000, which is payable semi-annually and has semi-annual principal payments of $2,000,000, which began in January 1997. The Company renegotiated the terms of the note in fiscal 1999 and principal payments were deferred until January 2001 at which time semi-annual installments in the amount of $2,000,000 began and will continue until the note's maturity date of July 2003. The note is unsecured and is subordinated in right of payment to senior indebtedness of the Company. Lease purchase obligations of $3,277,000 and $4,383,000 at July 31, 2001 and July 31, 2000 represent capital leases on equipment.
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. As of March 24, 2000 the Company called the remaining $7,308,000 of the original issue of $35,000,000 Convertible Subordinated Debentures. These debentures had a conversion price of $18.00 and all of these outstanding debentures were converted into 405,984 shares of common stock of the Company. Interest was payable semi-annually on April 15 and October 15. Since the debentures were called in March, 2000 only one interest payment was paid in fiscal year 2000.
On August 8, 2001, the Company issued and sold at par $150,000,000 of 4 1/4% Convertible Subordinated Debentures due 2006. These debentures have a conversion price of $29.04. Interest is payable semi-annually on February 15 and August 15.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. INCOME TAXES
The components of the provision (benefit) for income taxes consist of the following:
Reconciliations of the U.S. federal statutory rate to the Company's effective tax rate are as follows:
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The temporary differences and carryforwards that created the deferred tax assets and liabilities as of July 31, 2001, and 2000 are as follows:
The Company has not provided additional federal income taxes on the cumulative undistributed earnings of its foreign subsidiaries, since such earnings are considered to be permanently invested abroad. In fiscal year 2001, a tax benefit of $20.2 million for certain deferred tax assets was recorded. The Company maintains a valuation allowance against a portion of their deferred tax assets because the realization of those future tax benefits is uncertain. The valuation allowance in 2000 and 2001 relates primarily to certain foreign losses and various state tax attributes.
7. STOCKHOLDERS' EQUITY
Rights Agreement
The Board of Directors of the Company adopted a Rights Agreement, dated as of April 30, 1999, between the Company and Bank Boston, N.A., as rights agent, to replace its 1989 rights plan. In connection therewith, the Board distributed one common share purchase right for each share of common stock then or thereafter outstanding. The rights will become exercisable only if a person or group acquires 15% or more of the Company's common stock or announces a tender offer that would result in ownership of 15% 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 $45.00 per share, subject to significant adjustment depending on the occurrence thereafter of certain events. Before any person or group has acquired 15% or more of the common stock of the Company, the rights are redeemable by the Board of Directors at $0.001 per right. The rights expire on April 30, 2009 unless redeemed by the Company prior to that date.
8. EMPLOYEE BENEFIT PLANS
Stock Option Plans
The Company has two stock option plans: the 1999 Stock Plan (1999 Plan) and the 1995 LTX (Europe) Ltd. Approved Stock Option Plan (U.K. Plan). The 1999 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 of the
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
date of grant. The 1999 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 the plans are exercisable over vesting periods, which typically have been three years. Options granted during fiscal 2001 are exercisable over 4 year vesting periods. At July 31, 2001, 1,023,100 shares were subject to future grant under the 1999 Plan and 7,826 shares were subject to future grant under the U.K. Plan.
On December 14, 1998, the Company repriced stock options representing 1,580,510 shares with an average exercise price of $4.57 to $2.81, the market price at December 14. A total of 1,051,857 options of common stock granted to the directors and executive officers of the Company were not repriced. On December 5, 2000, stockholders approved the addition of 2,325,000 shares of common stock reserved for issuance under the 1999 Plan.
Compensation Expense
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation (SFAS 123)," which requires employee stock-based compensation to be either recorded or disclosed at its fair value. As permitted by SFAS 123, the Company has elected to continue to account for employee stock-based compensation under Accounting Principles Board Opinion No. 25. Had compensation costs for awards in fiscal 2001, 2000, and 1999 to the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS 123, the effect on the Company's net income (loss) and net income (loss) per share would have been as follows:
Since the method prescribed by SFAS 123 has not been applied to options granted prior to August 1, 1997, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
Stock Option Activity
As of July 31, 2001, the status of the Company's outstanding and exercisable options is as follows:
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employees' Stock Purchase Plan
In December 1993, the stockholders of the Company approved the adoption of the 1993 Employees' Stock Purchase Plan, which replaced the 1983 Employees' Stock Purchase Plan, which expired in December 1993. Under this plan, eligible employees may contribute up to 15% of their annual compensation for the purchase of common stock of the Company up to $25,000 of fair market value of the stock per calendar year. The plan limited the number of shares which can be issued for any semi-annual plan period to 150,000 shares. In 1999, the shareholders of the Company increased the number of shares which can be issued over the term of the plan to 3,000,000 shares. At July 31, 2001, 1,031,901 shares were available for future issuance under this plan.
Other Compensation 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. The Company based on this Profit Sharing Bonus Plan distributed to all eligible employees approximately $3,019,000, $3,227,000, and $0, for fiscal years 2001, 2000, and 1999, respectively.
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 Company resumed matching contributions in October of fiscal 2000 after suspending the matching of contributions in October of fiscal 1999. The Company suspended the match as of June of fiscal year 2001. The total charge to expense under this plan was approximately $2,057,000, $1,780,000, and $152,000 for fiscal 2001, 2000, and 1999, respectively.
9. INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company operates predominantly in one industry segment: the design, manufacture and marketing of automated test equipment for the semiconductor industry that is used to test system-on-a-chip, digital, analog and mixed signal (a combination of digital and analog) integrated circuits ("ICs").
In fiscal year 2001, sales to three customers accounted for 26%, 22% and 12% of net sales, respectively. In fiscal year 2000, sales to three customers accounted for 19%, 13% and 11% of net sales, respectively. No single customer accounted for greater than 10% of total sales revenue in fiscal 1999. Sales to the top ten customers were 87%, 74%, and 60%, of net sales in fiscal 2001, 2000, and 1999, respectively.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's operations by geographic segment for the three years ended July 31, 2001 are summarized as follows:
Transfer prices on products sold to foreign subsidiaries are intended to produce profit margins that correspond to the subsidiary's sale and support efforts. Sales to customers in North America are 100% within the United States.
10. COMMITMENTS
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 noncancelable leases at July 31, 2001, are as follows:
Total rental expense for fiscal 2001, 2000, and 1999 was $12,666,722, $8,879,000, and $6,832,000, respectively.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. RESTRUCTURING AND INVENTORY CHARGES
In fiscal 2001, the Company selected Jabil Circuit, Inc to build its Fusion test systems. The manufacturing transition plan will be implemented over the next 12 months and will result in approximately a 15 percent reduction in permanent LTX employee headcount. In connection with this transition plan the Company recorded a $12.8 million inventory related provision and $1.2 million of reorganization costs in the fourth quarter of fiscal 2001.
A $12.8 million inventory related provision consisted of two categories. The first category was a $9.4 million inventory charge to cost of sales relating to non-Fusion components and subassemblies. Included in the $9.4 million write down was a provision for $2.5 million that related to Delta/STE inventory that was transferred to the Company's third party reseller of Delta/STE products. The provision was established due to lack of demand for Delta/STE legacy products. The $6.9 million of the $9.4 million inventory charge was a write down of non-Fusion components included in LTX inventory that will have no usage over the next twelve to twenty-four months. As a result of the transition of the Company's manufacturing operations to Jabil Circuit, the Company will have limited capacity over the next twelve to twenty-four months to convert non- Fusion inventory into finished product for resale. In addition, due to the current industry wide slowdown in the semiconductor industry, the Company anticipates a significant reduction in demand for non-Fusion products which may become technological obsolete by the Company's next generation Fusion products.
The second category was a $3.4 million charge, which represented a write down of Fusion product printed circuit boards. These boards will require a substantial reworking to make them useable in active production with Jabil Circuit. We will have limited internal operations and capability to rework these boards during this transition.
The $1.2 million of reorganization costs represented employee separation costs. The workforce reduction impacted 123 employees, of which 117 were in Production & Engineering and 6 in Administration.
Fiscal 1997 Restructuring
The Company's charge for excess inventory of $9.3 million in the first quarter of fiscal 1997 was a result of management's new strategy for its Digital product line. During the first quarter of fiscal 1997, the Company restructured its Digital Products Division management team and initiated a new marketing and product development strategy that produced an anticipated reduction in the realizable value of existing inventories relating to non- strategic products.
The bulk of this charge for excess inventory of $9.3 million related to product obsolescence in the Company's Delta 50 and Delta 100 Test Systems, which were replaced with the Delta /STE line.
In fiscal 1997, the Company redirected its product strategy to focus primarily on functionally complex devices known as "systems-on-a chip". As a result, the Company restructured its Digital Products Division and began emphasizing sales of its Delta/STE mixed technology test systems. In fiscal 1997, the Company recorded a restructuring charge of $6.8 million consisting of $4.0 million for cancelled non-strategic development projects and technology upgrades to the customers, $1.7 million in severance costs relating to workforce reductions, $.6 million of asset impairments and $.3 million in equipment lease cancellations. The workforce reduction totaled 180 employees, of which 166 were in production and engineering, 10 in administration and 4 in sales and marketing.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
There is no remaining accrued liability balance to be paid that related to the fiscal 1997 restructuring plan as of July 31, 2001. In the first quarter of fiscal 2001, the remaining accrued balance of $1.7 million was used in order to replace certain board modules.
Restructuring Cost (in thousands)
Charges: (See Note)
-------- Note: Charges represent cash items except for the fixed asset write-downs which is a non-cash item.
Headcount Reduction
12. QUARTERLY RESULTS OF OPERATIONS (unaudited)
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." The SEC Staff addresses several issues in SAB No. 101, including the timing for recognizing revenue derived from selling arrangements involve contractual customer acceptance provisions and installation of the product if these events occur after shipment and transfer of title. The Company's previous revenue recognition policy was to recognize revenue at the time the customer takes title to the product, generally at the time of shipment, because the Company has always met its installation obligations and obtained customer acceptance. On October 9, 2000, the SEC issued Staff Accounting Bulletin No. 101: Revenue Recognition in Financial Statements--Frequently Asked Questions and Answers ("SAB 101 FAQ"). The SAB 101 FAQ was issued to clarify many of the implementation questions surrounding SAB No. 101. As a result of this guidance, the Company recorded a non-cash charge of $9.6 million (after reduction for income taxes of $4.1 million), or $0.19 per diluted share, to reflect the cumulative effect of the accounting change as of the beginning of the fiscal year. The Company's revenue recognition policies are disclosed in Note 2.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has included the following information below to demonstrate the effect on Q1 through Q3, 2001 as if the provisions of SAB 101 has been applied as of the beginning of fiscal year 2001.
QUARTERLY RESULTS OF OPERATIONS (unaudited) (In thousands, except per share data)
-------- (1) The Company recorded a benefit of $20.3 million for certain deferred tax assets in its fourth quarter results of operations for fiscal 2000.
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Subsequent Event
On August 8, 2001, the Company received net proceeds of $145.5 million from a private placement of 4.25% Convertible Subordinated Notes due 2006. The private placement was effected through a Rule 144A offering to qualified institutional buyers.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To LTX Corporation:
We have audited the accompanying consolidated balance sheets of LTX Corporation and subsidiaries as of July 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended July 31, 2001. These financial statements and the schedule referred to below 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 auditing standards generally accepted in the United States. 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 consolidated financial position of LTX Corporation and subsidiaries as of July 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2001, in conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14 (a) (2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
As explained in Notes 2 and 12 to the consolidated financial statements, effective August 1, 2000, the Company changed its method of accounting for revenue recognition on certain product shipments through the adoption of Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements".
Arthur Andersen LLP
Boston, Massachusetts August 27, 2001
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, File No. 33-65247, File No. 333- 48363, File No. 333-4834, File No. 333-71455, File No. 333-30972 and File No. 333-54230).
Arthur Andersen LLP
Boston, Massachusetts October 23, 2001
Item 9.
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 and Certain Relationships and Related Transactions
Information required under these Items is included in the Proxy Statement for the Annual Meeting of Stockholders to be held on December 3, 2001, 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, 2001.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(A) 1. Financial Statements
The following consolidated financial statements of the Company included in the Company's Annual Report to Stockholders for the fiscal year ended July 31, 2001, are included in Item 8, herein.
Report of Independent Public Accountants
Consolidated Balance Sheet--July 31, 2001 and 2000
Consolidated Statement of Operations and Comprehensive Income for the years ended July 31, 2001, 2000 and 1999
Consolidated Statement of Stockholders' Equity for the years ended July 31, 2001, 2000 and 1999
Consolidated Statement of Cash Flows for the years ended July 31, 2001, 2000 and 1999
Notes to the Consolidated Financial Statements
(A) 2. Schedules
SCHEDULE II
LTX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS For Years Ended July 31, 2001, 2000 and 1999 (in thousands)
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; the Company's Annual Reports on Form 10-K for one of the years ended July 31, 1998, 1997, 1996, 1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987, 1986, 1985, 1984 and 1983; or the Company's Quarterly Reports on 10- Q for one of the quarters ended October 31, 1997, January 31, 1998, April 30, 1998, January 31, 1999, October 31, 1999, January 31, 2000 and April 30, 2001 and are hereby incorporated by reference. The location of each document so incorporated by reference is noted parenthetically.
(A) Listing of Exhibits
-------- + 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.
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 2001.
Item 14(c). Exhibits
Exhibit 22--Subsidiaries of Registrant
The subsidiaries listed are all included in the consolidated financial statements of the Company.
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 23, 2001
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.