-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N4+B59tKe9FX3tac+GE2eTbPE4t2s6tXce0hUuQZqxi+50ZuFl4iF6LerqwIOZeN g6WHCHmcUopILYtGI7mUaA== 0000927016-99-003196.txt : 19990910 0000927016-99-003196.hdr.sgml : 19990910 ACCESSION NUMBER: 0000927016-99-003196 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990909 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LTX CORP CENTRAL INDEX KEY: 0000357020 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042594045 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-86769 FILM NUMBER: 99708139 BUSINESS ADDRESS: STREET 1: LTX PARK AT UNIVERSITY AVE CITY: WESTWOOD STATE: MA ZIP: 02090 BUSINESS PHONE: 7814611000 MAIL ADDRESS: STREET 1: LTX PARK AT UNIVERSITY AVENUE CITY: WESTWOOD STATE: MA ZIP: 02090 S-3 1 FORM S-3 As filed with the Securities and Exchange Commission on September 9, 1999 File No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- LTX Corporation (Exact name of Registrant as specified in its charter) MASSACHUSETTS 04-2594045 (State or other jurisdiction of (I.R.S. Employer Identification No.) organization) LTX Park University Avenue Westwood, Massachusetts 02090 (781) 461-1000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------- DAVID G. TACELLI Vice President and Chief Financial Officer LTX Corporation LTX Park University Avenue Westwood, Massachusetts 02090 (781) 461-1000 (Address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies of all communications to: MICHAEL P. O'BRIEN, ESQ. GORDON H. HAYES, JR., ESQ. Bingham Dana LLP Testa, Hurwitz & Thibeault, LLP 150 Federal Street 125 High Street Boston, Massachusetts 02110 Boston, Massachusetts 02110 Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
Proposed Proposed Maximum Maximum Aggregate Amount of Title of Securities Amount to Offering Price Offering Registration to be Registered be Registered Per Share* Price* Fee - ------------------------------------------------------------------------------ Common Stock, par value 5,405,000 $.05 per share......... shares $12.75 $68,913,750 $19,158 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------
* Estimated solely for the purpose of determining the registration fee. Calculated in accordance with Rule 457(c), based on the offering of up to 5,405,000 shares, including 705,000 shares that the underwriters have an option to purchase from the Registrant to cover over-allotments, at a purchase price of $12.75 per share, which is the average of the high and low prices reported on the Nasdaq National Market on September 2, 1999. ---------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The Information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities, and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject to Completion) Issued September 9, 1999 4,700,000 Shares [LOGO] COMMON STOCK ----------- LTX Corporation is offering 4,700,000 shares of common stock. ----------- Our shares are traded on the Nasdaq National Market under the symbol "LTXX." On September 8, 1999, the reported last sale price of our common stock on the Nasdaq National Market was $14.69 per share. ----------- Investing in our common stock involves risks. See "Risk Factors" beginning on page 5. ----------- PRICE $ A SHARE -----------
Underwriting Price Discounts to and Proceeds to Public Commissions LTX Corporation ------ ------------ --------------- Per Share................................... $ $ $ Total....................................... $ $ $
The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. LTX Corporation has granted the underwriters the right to purchase up to an additional 705,000 shares of common stock to cover over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the shares of common stock to purchasers on , 1999. ----------- MORGAN STANLEY DEAN WITTER NEEDHAM & COMPANY, INC. GRUNTAL & CO., L.L.C. , 1999 Foldout, Page One [The following is the textual description of the front cover foldout] The following caption appears on the upper left corner of page one of the foldout: "Testing the 21st Century Semiconductor." A close-up photograph of a semiconductor chip on a circuit board appears to the right of this caption. A row of six photographs appears across the page under the caption: "End-User Markets." From left to right, the first photograph depicts a world map above the caption "high speed data communications"; the second photograph depicts an automobile above the caption "automotive electronics"; the third photograph depicts a personal digital assistant above the caption "personal digital assistants"; the fourth photograph depicts a telephone and cables above the caption "telecommunications"; the fifth photograph depicts a satellite dish on top of a television above the caption "broadband communications"; and the sixth photograph depicts a laptop computer, cellular telephone and pager above the caption "wireless communications". As semiconductor device companies seek to create new semiconductor devices, they are differentiating themselves from commodity and microprocessor manufacturers by continually raising the level of chip integration. In many cases, yesterday's device technologies are being integrated into today's system-on-a-chip (SOC). These new generation devices are being designed to power consumer electronic products, networking equipment and wireless communications that require higher performance in smaller packages. Foldout, Page Two The following caption appears on the upper right corner of page two of the foldout: "Fusion can meet the test challenge." A photograph of the Fusion HF tester, including a test head and computer running enVision++. Semiconductor device testing today requires mastery of several test technologies: analog, digital, mixed signal, and embedded memory. The LTX Fusion platform integrates these test technologies to deliver a broad scope of capabilities in a single test platform. A box diagram shows seven multiple test platforms (low-end digital, mid-range digital, high-end digital, SOC, high-end mixed signal, mid-range mixed signal and low-end mixed signal) utilized in the wafer fabrication and chip assembly process under the traditional test model. A box diagram shows a single test platform utilized in the wafer fabrication and chip assembly process under the Fusion test model. By allowing our customers to use a single, integrated hardware and software system to test all their devices, Fusion allows our customers to optimize asset utilization, thereby increasing their manufacturing flexibility and lowering the overall cost of their testing process. [end to textual description of foldout] TABLE OF CONTENTS
Page ---- Prospectus Summary.................. 3 Risk Factors........................ 5 Special Note Regarding Forward- Looking Statements................. 10 Use of Proceeds..................... 11 Price Range of Common Stock......... 11 Dividend Policy..................... 11 Capitalization...................... 12 Selected Consolidated Financial Data............................... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 14
Page ---- Business........................... 26 Management......................... 35 Principal Stockholders............. 38 Description of Capital Stock....... 39 Underwriters....................... 40 Legal Matters...................... 42 Experts............................ 42 Where You Can Find More Information....................... 42 Incorporation of Certain Documents by Reference...................... 42 Index to Consolidated Financial Statements........................ F-1
---------------- You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where the offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the common stock. In this prospectus, the "Company", "we", "us", "our", ""or "LTX" refer to LTX Corporation. PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and our consolidated financial statements and notes thereto appearing elsewhere or incorporated by reference in this prospectus. LTX CORPORATION LTX designs, manufactures, markets and services semiconductor test equipment. We sell our test systems worldwide to designers and manufacturers of semiconductors devices, such as Texas Instruments, STMicroelectronics, Philips Semiconductor, National Semiconductor, Motorola, Lucent Technologies, Infineon Technologies, and Hitachi. These devices are incorporated in a wide range of products, including network equipment such as switches and servers, personal communication devices such as cell phones and personal digital assistants, Internet access products such as modems, cable modems and Ethernet accessories, 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. Today, our products are focused on testing semiconductor devices that incorporate multiple device technologies and functions into a single semiconductor device, referred to as system-on-a-chip, or SOC. SOC provides the benefits of lower cost, smaller size, and higher performance by combining advanced digital, mixed signal (a combination of digital and analog) and embedded memory technologies on a single device. These distinct technologies were, until recently, available only on several separate semiconductor devices, each performing a specific function. SOC enables the development of smaller, cheaper, and more advanced electronic products such as cellular phones, laptop computers, and mobile Internet terminals, as well as sophisticated consumer and automobile electronics. 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. We believe the inability to fully and efficiently test SOC devices has slowed advancements in the design and development of more sophisticated electronic products. With the introduction of the LTX Fusion(R) test platform, we now offer a test system capable of testing SOC devices, as well as more traditional analog, digital, and mixed signal semiconductor devices, on a single, integrated platform. Fusion allows our customers to use a single, integrated hardware and software system to test all of these devices, rather than resorting to 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 provides: . a single test platform; . multi-site test capability; . a full range of mixed signal instrumentation; . state of the art digital test capability; and . easy-to-use software for test program development. We intend to capture a significant share of the semiconductor test equipment market by: . extending our technological lead in single platform testing; . maintaining our focus on the SOC test market; . concentrating our sales and service efforts on key accounts; . further improving the flexibility of our business model; and . building on our strategic alliance in Japan. Our principal executive offices and manufacturing operations are located at LTX Park, University Avenue, Westwood, Massachusetts 02090. Our telephone number is (781) 461-1000. We also have sales and service facilities throughout North America, Europe, and Asia. Our corporate web site is www.ltx.com. The information in our web site is not incorporated by reference in this prospectus. 3 The Offering Common stock offered.................... 4,700,000 shares Common stock to be outstanding after 40,885,040 shares this offering.......................... Over-allotment option................... 705,000 shares Use of proceeds......................... For general corporate purposes, including working capital, capital expenditures, potential acquisitions, and possible repayment of outstanding debt. Nasdaq National Market Symbol........... LTXX
The above information is based on 36,185,040 shares outstanding as of July 31, 1999. This information does not include 5,295,555 shares of common stock exercisable pursuant to outstanding options at a weighted average exercise price of $4.74 per share, under our 1999 Stock Plan, 1990 Stock Option Plan and 1995 LTX (Europe) Ltd. Approved Stock Option Plan as of July 31, 1999. Summary Consolidated Financial Data (In thousands, except per share data) Consolidated Statement of Operations Data:
Fiscal Years ended July 31, --------------------------------------------------- 1995 1996 1997 1998 1999 --------- --------- --------- --------- --------- Net sales................ $ 210,319 $ 266,476 $ 194,343 $ 196,227 $ 157,326 Income (loss) from opera- tions................... 14,840 31,368 (15,926) (77,129) (2,470) --------- --------- --------- --------- --------- Net income (loss)........ $ 10,694 $ 30,270 $ (15,909) $ (78,280) $ 375 ========= ========= ========= ========= ========= Net income (loss) per share: Basic.................. $ .37 $ .89 $ (.45) $ (2.15) $ .01 Diluted................ $ .36 $ .82 $ (.45) $ (2.15) $ .01 Weighted-average common shares used in computing net income (loss) per share: Basic.................. 28,805 34,011 35,476 36,401 35,696 Diluted................ 29,787 36,755 35,476 36,401 36,958
The "as adjusted" column in the summary consolidated balance sheet data below gives effect to the sale of the 4,700,000 shares of common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Consolidated Balance Sheet Data:
As of July 31, 1999 -------------------- Actual As Adjusted -------- ----------- (in thousands) Working capital............................................ $ 47,915 $ Property and equipment, net................................ 31,942 Total assets............................................... 147,993 Long-term debt, less current portion....................... 14,023 Convertible subordinated debentures........................ 7,308 Total stockholders' equity................................. 58,928
Except as set forth in the Consolidated Financial Statements and Notes thereto, or as otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' over-allotment option. LTX(R) and Fusion(R) are our registered trademarks, and enVision(TM), enVision++(TM) and the LTX logo are our trademarks. This prospectus also contains the trademarks and trade names of other companies. 4 RISK FACTORS You should consider carefully the risks described below before you decide to buy our common stock. The risks and uncertainties described below are not the only ones facing us. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In such case the trading price of our common stock could fall, and you may lose all or part of the money you paid to buy our common stock. 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. 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. Most recently, our revenue and operating results declined in fiscal 1998 as a result of a sudden and severe downturn in the semiconductor industry precipitated by the recession in several Asian countries. 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 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 business. Because a high proportion of our costs are fixed, we are limited in our ability to reduce expenses quickly in response to revenue short-falls. 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 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. 5 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 (formerly a division of Hewlett Packard), 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 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. We May Not Be Able to Deliver Custom Hardware Options and Software Applications to Satisfy Specific Customer Needs in a Timely Manner. We must develop and deliver customized 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. 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 6 equipment generally, including our test equipment. Sales to our ten largest customers accounted for 59.7% of revenues in fiscal year 1999, 55.2% of revenues in fiscal year 1998, and 43.5% of revenues in fiscal year 1997. 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. 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. Our layoffs in the last 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. 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. 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 61% of our revenues in fiscal year 1999, 60% of our revenues in fiscal year 1998, and 67% of our revenues in fiscal year 1997. 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. 7 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. 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 45% of our sales in fiscal 1999 were derived from this region. These conditions may continue or worsen. In light of the recent economic downturn in Asia, we may not be able to obtain additional orders and may experience cancellations of orders. If conditions do not continue to improve, our future financial condition, revenues, and operating results could be hurt. 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 8 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 past twelve months, our stock price has ranged from a low of $1.00 to a high of $14.50. 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. Year 2000 Problems May Hurt Our Business. We have established a program to address Year 2000 software failure issues, which is overseen by a senior manager who updates our officers and directors regularly. We are currently assessing the Year 2000 compliance of the products we manufacture, our internal business systems, and the products and internal business systems of our suppliers. We expect to incur costs of approximately $400,000 to make our products Year 2000 compliant, most of which is represented by current engineering staff who have been assigned to the project, and approximately $300,000 in ensuring compliance of our internal business systems and those of our suppliers, most of which is represented by current administrative personnel assigned to the project. Costs related to Year 2000 compliance have been immaterial as of July 31, 1999. Three product-based teams, employing our engineering product development process, are in the process of identifying and contacting affected customers to advise them of non-compliant products. We cannot assure you that our products do not contain undetected Year 2000 problems. Another team is assessing the Year 2000 compliance of our internal business systems, including facilities, and the products and internal business systems of our suppliers. This team has identified all mission-critical systems and third parties and has formulated remediation plans. We are also developing comprehensive contingency plans if our remediation plans do not work, which we expect to complete by October 31, 1999. These contingency plans primarily involve identifying alternative vendors and suppliers. They may not adequately address our potential Year 2000 problems, and alternative sources may not in fact be available. Although responses to a survey of our critical suppliers, vendors and facilities owners indicate that many of them are Year 2000 compliant, we have not received sufficient information from all parties about their Year 2000 readiness to assess the effectiveness of their efforts. We cannot be sure that these entities will adequately address Year 2000 issues. 9 If we fail to detect errors or defects in our systems or those of our suppliers, or if third parties with whom we interact experience Year 2000 problems, reasonable descriptions of most likely worst case scenarios include the following: . power, communication and other utility outages at our facilities, in particular, our Westwood, Massachusetts facility; and . product component shortages as a result of Year 2000 problems at our critical suppliers and vendors. If any of these were to occur, our business and operations would be hurt. SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION This prospectus 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 "Risk Factors," 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. 10 USE OF PROCEEDS The net proceeds to us from the sale of the 4,700,000 shares of common stock offered with this prospectus are estimated to be approximately $64,945,635, assuming a public offering price of $14.69 per share (the closing price of our common stock on September 8, 1999) and after deduction of the estimated underwriting discounts and commissions and estimated offering expenses we must pay. See "Underwriting." We expect to use the net proceeds for general corporate purposes, including working capital and capital expenditures. Although we may use a portion of the net proceeds to repay outstanding debt or to acquire businesses, products or technologies that are complementary to our business, we have no plans to make any such repayment, nor do we have any specific acquisitions planned. Prior to using the proceeds in the manner described above, we plan to invest the net proceeds of this offering in short-term, interest-bearing investment-grade securities. PRICE RANGE OF 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:
High Low --------- --------- Fiscal Year Ended July 31, 1997: First Quarter...................................... $ 5 3/4 $ 3 15/16 Second Quarter..................................... 7 3/8 3 15/16 Third Quarter...................................... 7 4 1/8 Fourth Quarter..................................... 7 3/4 4 7/8 Fiscal Year Ended July 31, 1998: First Quarter...................................... $ 8 1/4 $ 5 1/4 Second Quarter..................................... 6 3/4 4 3/16 Third Quarter...................................... 5 1/2 4 1/4 Fourth Quarter..................................... 5 1/2 3 1/2 Fiscal Year Ended July 31, 1999: First Quarter...................................... $ 3 7/8 $ 1 Second Quarter..................................... 4 7/16 2 Third Quarter...................................... 6 29/32 3 7/16 Fourth Quarter..................................... 14 1/2 6 1/8 Fiscal Year Ending July 31, 2000: First Quarter (through September 8, 1999).......... $14 11/16 $10 3/8
On September 8, 1999, the reported last sale price of the common stock on the Nasdaq National Market was $14.69 per share. As of August 24, 1999, we had approximately 1,217 stockholders of record of our common stock. DIVIDEND POLICY 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. 11 CAPITALIZATION The following table shows our capitalization as of July 31, 1999, and as adjusted to give effect to the sale of the 4,700,000 shares of common stock offered in this offering at a public offering price of $ per share and after deducting the underwriting discount and estimated offering expenses payable by us. The outstanding share information excludes 5,295,555 shares of common stock issuable on exercise of outstanding options as of July 31, 1999 with a weighted average exercise price of $4.74 per share.
As of July 31, 1999 ---------------------- Actual As Adjusted --------- ----------- (Unaudited) (in thousands, except share amounts) Short-term debt: Notes payable to banks................................ $ 5,472 $ 5,472 Current portion of long-term debt..................... 674 674 --------- ------- Total short-term debt............................... $ 6,146 $ 6,146 ========= ======= Long-term debt: Lease purchase obligations............................ $ 2,697 $ 2,697 Subordinated note payable............................. 12,000 12,000 7 1/4% Convertible Subordinated Debentures Due 2011... 7,308 7,308 --------- ------- Total long-term debt................................ 22,005 22,005 Less current portion................................ (674) (674) --------- ------- Total............................................. 21,331 21,331 --------- ------- Stockholder's equity: Common stock, $0.05 par value: 100,000,000 shares authorized; 36,185,040 shares is- sued and outstanding; 40,885,040 shares issued and outstanding as adjusted.............................. 1,936 Additional paid-in capital.......................... 199,778 Accumulated deficit................................. (131,025) Treasury stock...................................... (11,761) --------- ------- Total stockholder's equity........................ 58,928 --------- ------- Total capitalization............................ $ 80,259 $ ========= =======
12 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 prospectus. The selected consolidated financial data for and as of the end of each of the five fiscal years in the period ended July 31, 1999 are derived from our consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants.
Fiscal Years ended July 31 ----------------------------------------------------------- 1995 1996 1997 1998 1999 ---------- ----------- ---------- ---------- ---------- (in thousands, except per share data and statistics) Consolidated Statement of Operations Data: Sales................... $ 210,319 $266,476 $ 194,343 $ 196,227 $ 157,326 Cost of sales........... 136,748 161,794 131,870 141,274 103,105 Inventory provisions.... -- 3,600 9,250 40,718 -- Engineering and product development expenses... 19,778 22,927 23,350 34,320 25,174 Selling, general and ad- ministrative expenses.. 38,953 46,787 39,049 50,772 31,517 Restructuring charges... -- -- 6,750 6,272 -- ---------- ----------- ---------- ---------- ---------- Income (loss) from oper- ations................. 14,840 31,368 (15,926) (77,129) (2,470) Net interest (expense) income................. (3,774) 297 433 (21) (941) Gain on liquidation/sale of business units...... -- -- -- -- 3,786 Provision for income taxes.................. (372) (1,395) (416) (1,130) -- ---------- ----------- ---------- ---------- ---------- Net income (loss)....... $ 10,694 $ 30,270 $ (15,909) $ (78,280) $ 375 ========== =========== ========== ========== ========== Net income (loss) per share: Basic................. $ 0.37 $ 0.89 $ (0.45) $ (2.15) $ 0.01 Diluted............... $ 0.36 $ 0.82 $ (0.45) $ (2.15) $ 0.01 Weighted-average common shares used in comput- ing net income (loss) per shares: Basic................. 28,805 34,011 35,476 36,401 35,696 Diluted............... 29,787 36,755 35,476 36,401 36,958 Consolidated Balance Sheet Data: Working capital......... $ 62,182 $ 137,619 $ 115,118 $ 33,958 $ 47,915 Property and equipment, net.................... 28,407 37,880 42,958 35,427 31,942 Total assets............ 145,917 235,319 213,546 141,019 147,993 Total debt.............. 37,083 36,348 32,372 25,476 27,477 Stockholders' equity.... 65,407 155,039 140,198 55,950 58,928 Other Information (unau- dited): Current ratio........... 2.20 3.44 3.19 1.49 1.71 Asset turnover.......... 1.44 1.13 0.91 1.39 1.06 Debt as a percentage of total capitalization... 36.2% 19.0% 18.8% 31.3% 31.8% Additions to property and equipment (net).... $ 10,222 $ 20,006 $ 16,116 $ 8,795 $ 9,636 Depreciation and amorti- zation................. 9,701 10,533 11,038 12,510 11,291 Employees............... 944 1,032 950 1,027 686 Sales per employee...... $ 230 $ 270 $ 196 $ 199 $ 184
13 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 prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. Overview We design, manufacture, market and service semiconductor test equipment. We sell our test systems worldwide to customers in the semiconductor industry. Our test systems range in price from $500,000 to over $4,000,000, depending on customer ordered configurations. Our most recently introduced product, Fusion HF, can test a broad range of analog, digital, mixed signal (a combination of analog and digital) and system-on-a-chip, or SOC, devices, all on a single test platform. We design and assemble our test systems in Westwood, Massachusetts and San Jose, California and operate globally with sales, service and support centers in North America, Europe, and Asia. The demand for our equipment is dependent upon growth in the semiconductor industry. Three primary factors ultimately drive this demand: . increases in unit production of semiconductor devices; . increases in the complexity of devices used in electronic products; and . the emergence of next generation device technologies, such as SOC. Strategic Realignment. In September 1996, we changed our strategic focus to develop a solution for the testing needs of the then emerging SOC market. At that time, we realigned our separate digital and mixed signal research and development organizations to work together to develop a single test platform incorporating our mixed signal test expertise with our extensive digital test technology and embedded memory test capability. We restructured our operations and reorganized our management consistent with our new strategic focus on the SOC market. For the remainder of fiscal 1997 and into fiscal 1998, we implemented the transition to Fusion, our SOC test platform, to meet the requirements of the SOC market. During the second half of fiscal 1998, the semiconductor and semiconductor test equipment industries experienced a significant decline in demand. This was due to overcapacity and also to the Asia currency revaluations and the economic slowdown in Asia. As a result of this steep decline and our product transition to Fusion, we had lower than expected revenues and consequently experienced losses from operations. In fiscal 1999, we completed a number of initiatives to maximize benefits from our strategic realignment. During the year, we consolidated our test equipment assembly functions from our San Jose, California facility into our Westwood, Massachusetts facility, liquidated our majority-owned Japanese subsidiary, completed the restructuring of our sales channels in Japan and other parts of Asia, developed strategic service and repair alliances with business partners and initiated several key outsourcing programs. In fiscal 1999, we accomplished three major objectives: . completed our restructuring plan centered around our Fusion product strategy; . reduced operating costs and implemented a more flexible business model; and . focused our Fusion sales efforts on key accounts. Restructuring. Semiconductor test equipment manufacturing operations are capital intensive. Because a high proportion of a semiconductor test equipment manufacturer's operating costs are fixed and remain relatively constant, operating profit increases or decreases, as sales volume increases or decreases. In each of fiscal 1997 and 1998, we restructured our operations to better align them with our business strategy and to minimize the impact of downturns in the test equipment market. 14 We recorded charges totaling $16.0 million in the first quarter of fiscal 1997 related to our efforts to enhance our manufacturing efficiency with respect to existing products, and to the overall downturn in the test equipment market that began in the third quarter of fiscal 1996. These charges included $6.7 million of restructuring charges and $9.3 million of inventory provisions. We also reorganized our management team and initiated a new marketing and product development strategy that produced a reduction in the realizable value of inventories relating to non-strategic products. The bulk of our inventory provisions of $9.3 million in the first quarter of fiscal 1997 was a direct result of product obsolescence in our Delta 50 and Delta 100 products. In fiscal 1998, the Asian financial crisis, which had begun in January 1998, created a major impact on the global economy, precipitating a further drop in demand for semiconductor test equipment. At the same time, we were developing Fusion to meet the requirements of the SOC market. We implemented a restructuring plan in the fourth quarter of fiscal 1998 to align our sales, marketing and support operations with our Fusion product strategy, to lower our fixed costs to adjust to the downturn in the semiconductor industry and to position us for stronger financial performance when the industry recovered. We recorded restructuring and other charges totaling $47.0 million during fiscal 1998. These charges included $6.3 million for restructuring charges, including $3.1 million of severance and $2.9 million related to the impairment of fixed assets, and inventory provisions of $40.7 million. The $6.3 million restructuring charge included the costs of consolidating our San Jose, California, manufacturing operations with our Westwood, Massachusetts operations, restructuring our sales channels in Japan and other parts of Asia and the estimated costs of our planned divestiture of our iPTest division in the U.K. These actions reduced our workforce by approximately 30%, which affected all functions of our business. The inventory provisions of $40.7 million were due to significant excess and obsolete inventory related to the drop in demand for our products and the introduction of our Fusion product line. In anticipation of a higher level of demand for our existing products, inventory purchases in the second and third quarters of fiscal 1998 included a large amount of custom and semi-custom inventory that became obsolete or difficult to sell due to the declining business conditions within the industry in the third and fourth quarter of fiscal 1998. The inventory provisions of $40.7 million taken in the fourth quarter of 1998 consisted of a write-down of the Delta Series product line for $25.3 million, the Synchro and 77/90 product lines for $11.8 million, and $3.6 million for service parts deemed excess or obsolete. Ando Alliance. We have had a strategic alliance with Ando Electric Co., Ltd., a subsidiary of NEC Corporation, for over six years. In 1993, we entered into commercial agreements with Ando relating to our prior generation of digital test products. In 1994, Ando loaned us $20.0 million, and in connection with this loan, we issued Ando a common stock purchase warrant for 2.0 million shares of our common stock. We expanded our alliance with Ando in 1998 with a new six year agreement, providing Ando with rights to manufacture, market and develop our Fusion products for Japanese customers. In exchange for these rights, Ando paid us $10.0 million and assigned back to us 1.6 million of the 2.0 million shares of our common stock that had been issued to Ando upon the exercise of the warrant. These shares were valued at $7.4 million, the market value of our stock at the time the agreement was executed. Relying on a percentage of completion method based on the development of the Fusion product line, we recognized as revenue in fiscal 1998 $7.4 million of the $17.4 million in aggregate consideration relating to this transaction and deferred the remaining $10.0 million of revenue. This $10.0 million in revenue will be recognized ratably over the period in which we complete the transfer of the manufacturing and technology rights. We recognized $8.5 million of the deferred revenue in fiscal 1999 and expect the remaining $1.5 million to be recognized in the first quarter of fiscal 2000. Ando has also agreed to pay royalties to us on future sales of Fusion in Japan and reduced the interest rate from 8.0% to 5.5% on the outstanding balance of the loan, effective March 30, 1998. At July 31, 1999, the outstanding balance on the Ando debt was $12.0 million. 15 Results of Operations 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.
Percentage of Net Sales Year Ended July 31 ------------------------- 1997 1998 1999 ------- ------- ------- Net Sales:........................................... 100.0% 100.0% 100.0% Cost of sales:..................................... 67.9 72.0 65.5 Inventory provisions............................. 4.8 20.8 0.0 Gross profit..................................... 27.4 7.3 34.5 Engineering and product development expenses......... 12.0 17.5 16.0 Selling, general and administrative expenses......... 20.1 25.9 20.0 Restructuring charges................................ 3.5 3.2 0.0 Income (loss) from operations........................ NM NM NM Interest expense..................................... NM NM NM Interest income...................................... 1.5 1.0 0.4 Gain on liquidation/sale of business units........... 0.0 0.0 2.4 Income (loss) before income taxes.................... NM NM 0.2 Provision for income taxes........................... 0.2 0.6 0.0 Net income (loss).................................... NM NM 0.2
Fiscal 1999 Compared to Fiscal 1998. 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 decreased $38.9 million to $157.3 million in fiscal 1999 from $196.2 million in fiscal 1998. The decrease in net sales was principally due to the industry-wide slowdown in the semiconductor industry which began in the latter half of fiscal 1998 and carried over to the first half of fiscal 1999. Net sales increased each quarter in fiscal 1999, as conditions in the semiconductor industry began to improve and as we began shipping Fusion products in increasing volumes to customers. Net sales in the four quarters of fiscal 1999 were $27.0 million, $33.7 million, $43.2 million, and $53.4 million. The last two quarters of fiscal 1999 reflected an industry- wide increase in demand for test equipment in general and an increase in demand for Fusion in particular. Net sales from our strategic alliance with Ando were $8.5 million of revenue in fiscal 1999 and $7.4 million in fiscal 1998, relating to the transfer of technology. Service revenue, consisting of sales of replacement and spare parts and labor charges, totaled $28.9 million, or 18.4% of net sales, in fiscal 1999 and $32.2 million, or 16.4% of net sales, in fiscal 1998. Geographically, sales to customers outside the United States were $95.7 million, or 61% of net sales, in fiscal 1999 and $118.3 million, or 60% of net sales, in fiscal 1998. Cost of Sales. Cost of sales consists of material, labor, depreciation and associated overhead. Cost of sales decreased by $78.9 million to $103.1 million in fiscal 1999 from $182.0 million in fiscal 1998. As a percentage of net sales, cost of sales was 65.5% of net sales in fiscal 1999 as compared to 92.7% in fiscal 1998. The major reason for the year-to-year improvement in margin percentage on lower sales volume relates to consolidations of operations and workforce reductions, which resulted in a reduction in fixed overhead expenses and improved product margins as we began to ship Fusion products in increasing volumes starting in the second quarter of fiscal 1999. Excluding inventory provisions of $40.7 million in fiscal 1998, cost of sales as a percentage of net sales for fiscal 1998 was 72.0% of net sales, compared to 65.5% in fiscal 1999. Engineering and Product Development Expenses. Engineering and product development expenses decreased by $9.1 million to $25.2 million, or 16.0% of net sales, in fiscal 1999 from $34.3 million, or 17.5% of net sales, in fiscal 1998. During fiscal 1998, we invested resources in the development of our Fusion single test 16 platform for testing SOC devices. The level of development expenditures decreased year to year as important Fusion-related projects were completed. We intend to maintain and enhance our SOC test position by continuing to concentrate our future engineering and product development expenses on advanced functions and options for Fusion. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $19.3 million to $31.5 million, or 20.0% of net sales, in fiscal 1999 from $50.8 million, or 25.9% of net sales, in fiscal 1998. In fiscal 1999, we continued our focus on reducing expense levels, which included reduction of 48 employees in our sales and administration organization, elimination of major trade show expenditures, and decreased travel expenses and sales commissions. During fiscal 1998, there was also a higher level of expenses, such as travel, promotional activities, and trade show expenditures, related to the marketing of Fusion. 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. We did not record a tax provision in fiscal 1999. The fiscal 1998 provision related to the write-off of a deferred asset previously recorded by us, net of certain tax adjustments. Fiscal 1998 Compared to Fiscal 1997 Net Sales. Our net sales increased by $1.9 million to $196.2 million in fiscal 1998, from $194.3 million in fiscal 1997. This increase included $7.4 million of revenue relating to our alliance with Ando. Excluding this $7.4 million, revenues for fiscal 1998 decreased by $5.5 million, or 2.8%. The decrease in revenue occurred during the latter half of fiscal 1998 as the test equipment and semiconductor industries experienced significant decline in activity due to overcapacity and currency revaluations and economic slowdowns in Asia. Geographically, sales to customers outside of the United States were $118.3 million, or 60% of total net sales, in fiscal 1998, and $130.2 million, or 67% of total net sales, in fiscal 1997. Cost of Sales. Cost of sales increased by $40.9 million to $182.0 million, or 92.7% of net sales in fiscal 1998 from $141.1 million, or 72.6% of net sales, in fiscal 1997. The increase in cost of sales as a percentage of net sales is a result of the change in our product mix combined with lower sales prices due to the slowdown in the semiconductor test equipment industry and costs associated with our transition to our Fusion product line. This increase also results from a lower level of sales relative to fixed manufacturing costs. In fiscal 1998, the Asian financial crisis (which began in January 1998), created a major impact on the global economy, precipitating a further drop in demand than LTX and the industry had been previously experiencing. As a result, our net sales dropped to $33 million in the fourth quarter of fiscal 1998, compared to $54 million in the third quarter of fiscal 1998. Simultaneously, our development and introduction of the Fusion product line was occurring. The sudden drop in demand for our products, combined with the introduction of the Fusion product line, resulted in significant excess and obsolete inventory. Management determined to restructure our operations during the fourth quarter of fiscal 1998, in line with our strategy of focusing on the Fusion product line. As a result of the combined rapid and sudden decline in global demand for semiconducter testing equipment and the transition to the Fusion product line, we recorded a $40.7 million inventory charge in the fourth quarter of fiscal 1998. Inventory purchases in the second and third quarters of fiscal 1998 in anticipation of a higher level of demand for our existing products consisted of a large amount of custom and semi-custom inventory that would become obsolete or difficult to sell due to the declining business conditions within the industry in the third and fourth quarter of that same fiscal year. The $40.7 million inventory charge taken in fiscal 1998 consisted of a write-down of the Delta Series product line for $25.3 million, the Synchro and 77/90 product lines for $11.8 million, and $3.6 million for service parts deemed excess or obsolete. 17 Our inventory provision of $9.3 million in the first quarter of fiscal 1997 was a result of our new strategy for our Digital product line. During the first quarter of fiscal 1997, we restructured our 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 inventory charge of $9.3 million related to product obsolescence in our Delta 50 and Delta 100 Test Systems, which were replaced with the Delta STE line. Excluding inventory provisions of $40.7 million and $9.3 million in fiscal 1998 and fiscal 1997, respectively, and the $7.4 million of revenue relating to our alliance with Ando in fiscal 1998, cost of sales increased by $9.4 million to $141.3 million, or 74.8% of net sales, in fiscal 1998 from $131.8 million, or 67.8% of net sales, in fiscal 1997. Engineering and Product Development Expenses. Engineering and product development expenses increased by $10.9 million to $34.3 million, or 17.5% of net sales, in fiscal 1998 from $23.4 million, or 12.0% of net sales, in fiscal 1997. During fiscal 1998, we invested resources in the development of our Fusion SOC testing platform. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $11.8 million, or 25.9% of net sales, to $50.8 million in fiscal 1998, from $39.0 million, or 20.1% of net sales, in fiscal 1997. This increase relates primarily to the expansion of our sales organization, increased advertising and promotion costs and the consolidation of our operations. The majority of these costs are associated with the product introduction of Fusion and the downturn in the semiconductor test equipment and semiconductor industries. Restructuring Charge. The $6.3 million restructuring charge recorded in the fourth quarter of fiscal 1998 included: $3.2 million in employee separation costs, $2.9 million in asset impairment write-offs and $200,000 in lease terminations and other contractual obligations. The workforce reduction impacted 259 employees, of which 211 were in production and engineering, 33 in sales and marketing and 15 in administration. asset impairment write-offs of $2.9 million related to the write off of capitalized Master and Delta Series testers and test equipment at its San Jose and Korean facilities. We no longer manufacture the Master series line, and this equipment was written down to zero value and depreciation expense permanently ceased. These assets were disposed of or sold in fiscal 1999. The remaining balance of $3.3 million at July 31, 1998 includes $3.2 million related to employee separation costs, which were all paid by February 1999. In fiscal 1997, we redirected our product strategy to focus primarily on SOC. As a result, we restructured our Digital Products Division and began emphasizing sales of our Delta/STE mixed technology test systems. In fiscal 1997, we recorded a restructuring charge of $6.8 million, consisting of $4.0 million for cancelled non-strategic development projects and technology upgrades to customers, $1.8 million in severance costs relating to workforce reductions, $600,000 of asset impairments and $300,000 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. The remaining accrued balance as of July 31, 1998 of $2.0 million relates to the estimated cost to replace certain board modules. In fiscal 1999, approximately $500,000 of cash expenditures were made on this project. Income Tax. Our tax provision in fiscal 1998 was $1.1 million as compared to $416,000 in fiscal 1997. The 1998 provision relates to the write-off of a deferred tax asset we previously recorded, net of certain tax adjustments. Fiscal 1997 Compared to Fiscal 1996 Net Sales. Our net sales decreased by $72.2 million to $194.3 million in fiscal 1997 from $266.5 million in fiscal 1996. The decline in orders in fiscal 1997 reflected a significant decline in demand for semiconductor 18 test equipment, which began in the third quarter of fiscal 1996 and was the result of over-capacity of test equipment in the semiconductor device industry. Net sales of both our mixed signal and digital test systems were down significantly, while remaining at approximately the same proportion of total sales year-to-year. Geographically, net sales to customers outside North America were $130.2 million, or 67% of total net sales, in fiscal 1997, as compared to $170.6 million, or 64% of net sales, in fiscal 1996. While net sales in all geographic regions were lower year-to-year, we experienced a substantial improvement in orders from Japan in the fourth quarter of fiscal 1997. Cost of Sales. Cost of sales sold decreased by $24.3 million to $141.1 million, or 72.6% of net sales, in fiscal 1997 from $165.4 million, or 62.1% of net sales, in fiscal 1996. In fiscal 1997, the increase in cost of sales as a percentage of net sales was primarily due to the lower level of sales relative to fixed manufacturing costs and relative to the cost of our software applications assistance and customer support organizations. Our inventory provision of $9.3 million in the first quarter of fiscal 1997 was a result of our new strategy for our Digital product line. During the first quarter of fiscal 1997, we restructured our 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 inventory charge of $9.3 million related to product obsolescence in our Delta 50 and Delta 100 Test Systems, which were replaced with the Delta STE line. Our charge for excess inventory of $3.6 million in fiscal 1996 was the direct result of our new strategy for our digital product line, which produced an anticipated reduction in the realizable value of existing inventories relating to non-strategic products. Excluding inventory provisions of $9.3 million in fiscal 1997 and $3.6 million in fiscal 1996, cost of sales decreased by $30.0 million to $131.9 million, or 67.8% of net sales, in fiscal 1997, from $161.8 million, or 60.7% of net sales, in fiscal 1996. Engineering and Product Development Expenses. Engineering and product development expenses increased by approximately $500,000 to $23.4 million, or 12.0% of net sales, in fiscal 1997, from $22.9 million, or 8.6% of net sales, in fiscal 1996. Engineering expenditures remained at essentially the same level year-to-year, which reflected our commitment to maintaining our investment in developing products required to fully test SOC devices. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $7.7 million to $39.0 million, or 20.1% of net sales, in fiscal 1997 as compared to $46.8 million, or 17.5% of net sales, in fiscal 1996. The lower level of expenses is a result of a combination of lower variable selling costs and variable compensation, and reduced discretionary spending, as well as a workforce reduction and the required use of vacation during a holiday shutdown, which occurred in the first half of fiscal 1997. Restructuring Charge. In fiscal 1997, we redirected our product strategy to focus primarily on SOC. As a result, we restructured our Digital Products Division and began emphasizing sales of its Delta/STE mixed technology test systems. In fiscal 1997, we recorded a restructuring charge of $6.8 million, consisting of $4.0 million for cancelled non-strategic development projects and technology upgrades to customers, $1.8 million in severance costs relating to workforce reductions, $600,000 of asset impairments and $300,000 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. The remaining accrued balance as of July 31, 1998 of $2.0 million relates to the estimated cost to replace certain board modules. 19 Income Tax. Our tax provision in fiscal 1997 was $400,000, as compared to $1.4 million in fiscal 1996. The fiscal 1997 provision primarily reflects only certain state and foreign provisions. Net Income (Loss). Including the provision for excess inventory of $9.3 million and product line restructuring charges of $6.7 million in the first quarter of fiscal 1997, we had a net loss of $15.9 million, or $0.45 per share. On a quarterly basis, we improved our financial performance each subsequent quarter in fiscal 1997, beginning with net income of $400,000, or $0.01 per share, in the second quarter and ending with net income of $1.8 million, or $0.05 per share, in the fourth quarter. Quarterly Results The following table presents our unaudited quarterly operating results for each of the eight quarters ended July 31, 1999 both in absolute dollars and as a percentage of our total revenue for each quarter. This information has been derived from our unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements contained in this prospectus and include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of such information. You should read this information in conjunction with our Consolidated Financial Statements and Notes thereto appearing elsewhere in this prospectus. You should not draw any conclusions about our future results from the results of operations for any quarter. 20
Quarter Ended --------------------------------------------------------------------------------- Oct. 31, Jan. 31, Apr. 30, Jul. 31, Oct. 31, Jan. 31, Apr. 30, Jul. 31, 1997 1998 1998 1998 1998 1999 1999 1999 -------- -------- -------- -------- -------- -------- -------- -------- (in thousands except per share amounts) Consolidated Statement of Operations Data: Net sales............... $54,206 $55,132 $54,130 $ 32,759 $27,018 $33,691 $43,210 $53,407 Cost of sales........... 35,200 35,154 39,766 31,154 19,847 23,228 27,154 32,876 Charge for excess inventory.............. -- -- -- 40,718 -- -- -- -- ------- ------- ------- -------- ------- ------- ------- ------- Gross profit............ 19,006 19,978 14,364 (39,113) 7,171 10,463 16,056 20,531 Engineering and product development expenses... 6,716 7,928 8,350 11,326 5,996 5,797 6,308 7,073 Selling, general and administrative expenses............... 10,909 11,046 12,812 16,005 7,869 7,255 7,781 8,612 Restructuring charges... -- -- -- 6,272 -- -- -- -- ------- ------- ------- -------- ------- ------- ------- ------- Income (loss) from operations............. 1,381 1,004 (6,798) (72,716) (6,694) (2,589) 1,967 4,846 Interest (income) expense, net........... (80) (4) 132 (27) 198 58 173 512 Gain on liquidation/sale of business units...... -- -- -- -- -- (3,786) -- -- ------- ------- ------- -------- ------- ------- ------- ------- Income (loss) before income taxes........... 1,461 1,008 (6,930) (72,689) (6,892) 1,139 1,794 4,334 Provision (Benefit) for income taxes........... 353 243 (596) 1,130 -- -- -- -- ------- ------- ------- -------- ------- ------- ------- ------- Net income (loss)....... $ 1,108 $ 765 $(6,334) $(73,819) $(6,892) $ 1,139 $ 1,794 $ 4,334 ======= ======= ======= ======== ======= ======= ======= ======= Earnings (loss) per share: Basic.................. $ 0.03 $ 0.02 $ (0.17) $ (2.09) $ (0.19) $ 0.03 $ 0.05 $ 0.12 Diluted................ $ 0.03 $ 0.02 $ (0.17) $ (2.09) $ (0.19) $ 0.03 $ 0.05 $ 0.11 Weighted average shares: Basic.................. 36,758 36,758 36,797 35,334 35,477 35,477 35,643 36,185 Diluted................ 38,265 37,665 36,797 35,334 35,477 36,131 37,195 39,029 As a Percentage of Total Revenue: Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales........... 64.9 63.9 73.6 94.8 73.3 68.8 62.7 61.8 Charge for excess inventory.............. -- -- -- 124.1 -- -- -- -- ------- ------- ------- -------- ------- ------- ------- ------- Gross profit............ 35.1 36.1 26.6 (118.9) 26.7 31.2 37.3 38.2 Engineering and product development expenses... 12.4 14.3 15.5 34.8 22.2 17.2 14.6 13.3 Selling, general and administrative expenses............... 20.1 20.0 23.7 49.1 29.3 21.7 18.1 15.9 Restructuring charges... -- -- -- 18.9 -- -- -- -- ------- ------- ------- -------- ------- ------- ------- ------- Income (loss) from operations............. 2.6 1.8 (12.8) (221.6) (24.8) (7.7) 4.6 9.0 Interest (income) expense, net........... (0.2) -- 0.2 -- 0.7 -- 0.5 0.9 Gain on liquidation/sale of business units...... -- -- -- -- -- (11.3) -- -- ------- ------- ------- -------- ------- ------- ------- ------- Income (loss) before income taxes........... 2.8 1.8 (12.8) (221.6) (25.6) 3.6 4.2 8.1 Provision for income taxes.................. 0.7 0.4 (1.1) 3.4 -- -- -- -- ------- ------- ------- -------- ------- ------- ------- ------- Net income (loss)....... 2.0% 1.5% (11.6)% (225.0)% (25.6)% 3.6% 4.2% 8.1% ======= ======= ======= ======== ======= ======= ======= =======
21 Net sales dropped significantly in the quarter ended July 31, 1998 to $32.8 million from $54.1 million in the prior quarter ended April 30, 1998. The decrease in net sales reflected a significant decline in demand for semiconductor devices and semiconductor test equipment that began during the second half of fiscal 1998. This was due to industry-wide overcapacity and also to the currency revaluations and economic slowdowns in Asia. During the same periods, we were in the early production phase of our new Fusion test systems. Net sales increased sequentially each quarter in fiscal 1999 as industry conditions improved and we began recording new orders for our Fusion test platforms. Sales in the quarter ended July 31, 1999 were $53.4 million, as compared to $32.8 million for the quarter ended July 31, 1998. The increase in quarterly net sales from one year ago is principally due to increased revenue from sales of our new Fusion HF testers to SOC manufacturers and greater demand for our Fusion HT test platforms from the telecommunications and computer peripherals sectors of the semiconductor industry. Cost of sales before inventory provisions increased from 64.9% of net sales in the quarter ended October 31, 1997 to a peak of 94.8% in the quarter ended July 31, 1998. The increase over this period was primarily attributable to the lower levels of net sales relative to our fixed manufacturing costs. Cost of sales as a percentage of net sales began to decrease in fiscal 1999 as a result of the consolidation and restructuring of operations and increasing sales volume in each quarter of fiscal 1999. Cost of sales as a percentage of net sales decreased each quarter in fiscal 1999 from 73.3% in the quarter ended October 31, 1998 to 61.8% in the quarter ended July 31, 1999. Engineering and product development expenses increased in every quarter during fiscal 1998 and reached a high of $11.4 million, or 34.8 % of net sales, in the quarter ended July 31, 1998. The absolute dollar amounts of research and development spending in fiscal 1998 were greater than in fiscal 1999 as we were at an earlier stage of development of our Fusion test platform. The spending levels decreased in fiscal 1999 as compared to fiscal 1998 as we began the production phase of the Fusion line during late fiscal 1998 and early fiscal 1999. Selling, general and administrative expenses peaked at $16.1 million, or 49.1% of net sales, in the quarter ended July 31, 1998, from $10.9 million, or 20.1% of net sales, in the quarter ended October 31, 1997, before decreasing to lower levels in fiscal 1999. Spending for travel, trade shows, marketing development and promotion relating to the Fusion product line were higher in fiscal 1998 than in fiscal 1999. A higher level of Fusion related expenses, combined with lower operating expenses resulting from our restructuring strategy, were the major reasons for the decrease in selling, general and administrative expense throughout fiscal 1999 from the levels of the prior year. Net income decreased in each quarter of fiscal 1998, as we suffered the full effect of the semiconductor industry slowdown, while developing the Fusion product platform. In fiscal 1999, we continued our strategic realignment to Fusion. Our net income decreased in fiscal 1998, primarily due to inventory provisions of $40.7 million. Net income increased in each quarter of fiscal 1999, as industry conditions improved and as we began selling Fusion in higher volume. Liquidity and Capital Resources At July 31, 1999, we had $19.9 million in cash and equivalents as compared to $25.1 million at July 31, 1998. The $5.2 million decrease in the year-to- year cash balance reflects our use of $14.0 million to fund increases in inventory and accounts receivable and payments of accrued charges, including $3.5 million in cash payments for restructuring charges. This was partially offset by an increase in trade accounts payable. Working capital increased by $13.9 million, or 41%, to $47.9 million at July 31, 1999, from $34.0 million at July 31, 1998. This increase resulted from the increase in sales volume in the fourth quarter of fiscal 1999. Sales in the fourth quarter of fiscal 1999 were $53.4 million as compared to $32.8 million in the fourth quarter of fiscal 1998, an increase of $20.6 million, or 62.8%. Inventory and accounts receivable increased $15.7 million on a year-to-year basis, evidencing our growth in sales volume in the second half of fiscal 1999. The increase in working capital is also due to a negotiated extension of $4.0 million of principal payments due on our loan to Ando until 2001, which payments would otherwise have been due in fiscal 1999. 22 Capital expenditures were $9.6 million in fiscal 1999, $8.8 million in fiscal 1998, and $16.1 million in fiscal 1997. In fiscal 1998 and 1999, we limited capital expenditures to those projects essential to the development of the Fusion product line and critical replacement assets needed to sustain ongoing business activities. Expenditures in fiscal 1999 were mostly Fusion related and included new and upgraded Fusion test systems for use by us for research and development purposes. In fiscal 1998 and fiscal 1997 capital expenditures relating to Fusion products were $4.8 million and $2.4 million, respectively. The present budget allowance for capital expenditures over the twelve months of fiscal 2000 is $12.1 million, primarily for equipment used to manufacture and develop the Fusion product line, and may increase or decrease over the course of the year. Our Japanese subsidiary, which was liquidated in the second quarter of fiscal 1999, had no outstanding borrowings at July 31, 1999. It had $4.8 million of outstanding borrowings at July 31, 1998 under demand lines of credit. Borrowings of $4.5 million, at the local prime rate plus 0.25% were guaranteed by our minority partner in Japan, and borrowings of $300,000, at the local prime rate of prime plus 0.75%, under a $1.4 million demand bank line, were guaranteed by LTX. The outstanding bank debt that was guaranteed by the minority partner was paid in full by our minority partner as part of the liquidation process. The $300,000 guaranteed by LTX was paid in full and there are no outstanding borrowings as of July 31, 1999. On October 26, 1998, we obtained a $10 million domestic credit facility from a bank. The facility is secured by all of our assets and bears interest at the bank's prime rate plus 1.0% as of July 31, 1999. The borrowing base of the facility is based on a formula of eligible accounts receivable. The agreement requires us to maintain a certain minimum net worth. On August 19, 1999, we signed a letter of intent that will extend our $10.0 million credit facility by one year at a reduced interest rate of prime plus 0.5%. Borrowings under this line were $5.5 million at July 31, 1999 and there were no outstanding borrowings at July 31, 1998. Additionally, the bank has agreed to a $5.0 million foreign accounts receivable credit line backed by foreign accounts receivable at an interest rate of prime plus 0.5%. In fiscal 1999, we paid off certain operating and capital leases totaling $2.6 million and entered into six new operating leases and one new capital lease with a combined total of $10.6 million in new debt. These leases are secured by specific LTX test equipment. We renegotiated the terms of our $12.0 million subordinated note payable to Ando in December 1998. Principal payments that were originally due in semi- annual installments of $2.0 million were deferred until January 2001. This debt has been reclassified to long term debt and the next principal payment of $2.0 million is due in January 2001. We believe that our net proceeds from the sale of the common stock in this offering, together with our working capital and existing credit facilities, will be adequate to fund our currently proposed operating activities for the next twelve months. However, a significant shortfall from plan as a result of deterioration in the industry or delayed acceptance or delivery of our new Fusion products would unfavorably impact our cash flow. In that event, we would need to seek additional debt or equity financing. We cannot assure you that we could obtain the necessary financing on acceptable terms or at all. Year 2000 Many computer systems will experience problems handling dates beyond the year 1999 because the systems are coded to accept only two-digit entries in the date code field. We have established a program to address Year 2000 issues, which is overseen by a senior manager who updates our officers and directors regularly. We are currently assessing the Year 2000 compliance of the products we manufacture, our internal business systems, and the products and internal business systems of our suppliers. We expect to incur costs of approximately $400,000 to make our products Year 2000 compliant, most of which is represented by current engineering staff who have been assigned to the project, and approximately $300,000 in ensuring compliance of our internal business systems and those of our suppliers, most of which is represented by current administrative personnel assigned to the project. Costs related to Year 2000 compliance have been immaterial as of July 31, 1999. 23 Three product-based teams, employing our engineering product development process, are in the process of identifying and contacting affected customers to advise them of non-compliant products. Because our products are not functionally "date-dependent," we do not believe that making them Year 2000 compliant will create significant problems for which we would be responsible. Although we believe we have taken adequate measures to prepare for the Year 2000, there can be no assurances that our products do not contain undetected Year 2000 problems. Another team is assessing the Year 2000 compliance of our internal business systems, including facilities, and the products and internal business systems of our suppliers. This team has identified all mission-critical systems and third parties and has formulated remediation plans. We are also developing comprehensive contingency plans if our remediation plans do not work, which we expect to complete by October 31, 1999. These contingency plans primarily involve identifying alternative vendors and suppliers. They may not adequately address our potential Year 2000 problems, and alternative sources may not in fact be available. Although responses to a survey of our critical suppliers, vendors and facilities owners indicate that many of them are Year 2000 compliant, we have not received sufficient information from all parties about their Year 2000 readiness to assess the effectiveness of their efforts. We cannot be sure that these entities will adequately address Year 2000 issues. If we fail to detect errors or defects in our systems or those of our suppliers, or if third parties with whom we interact experience Year 2000 problems, reasonable descriptions of most likely worst case scenarios include the following: . power, communication and other utility outages at our facilities, in particular, our Westwood, Massachusetts facility; and . product component shortages as a result of Year 2000 problems at our critical suppliers and vendors. If any of these were to occur, our business and operations would be hurt. 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 $27.5 million as of July 31, 1999 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 a variable rate of prime plus 1%. 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 1999, our revenues derived from sales outside the United States constituted 60.8% of our total revenues. Revenues invoiced and collected in currencies other than U.S. dollars comprises 60.8% of our fiscal 1999 revenues. 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. 24 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. Subsequent to this offering, we intend to manage our interest rate exposure using a mix of fixed and floating interest rate debt and, if appropriate, financial derivative instruments. Our $10.0 million domestic credit facility bears an interest rate of prime plus 1%. As of July 31, 1999, $5.5 million was outstanding under this facility and the interest rate was 9.0%. Based on this balance, an immediate change of 1% in the interest rate would cause a change in interest expense of approximately $55,000 on an annual basis. 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. 25 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. STMicroelectronics, Philips Semiconductor, National Semiconductor, Motorola, Lucent Technologies, 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 network equipment such as switches and servers, personal communication devices such as cell phones and Personal Digital Assistants, internet access products such as modems, cable modems and Ethernet accessories, 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 platform, which combines our enVision++ software with either our Fusion HF or Fusion HT/AC products. We believe that the 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. Our test systems range in price from $500,000 to over $4,000,000, depending on customer-ordered configurations. 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. We design and assemble our test systems in Westwood, Massachusetts and in San Jose, California. 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. [Textual description of graphic depicting test process] 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." [End of textual description] 26 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. According to Prime Research Group, in 1997 device manufacturers spent over $3 billion on test equipment. Prime Research Group expects such spending to grow to over $5 billion in 2001. 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 standalone 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 a circuit board containing several separate 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. According to Gartner Group's DataQuest, SOC market size was $9.1 billion in 1998 and is expected to grow to $32.0 billion by 2003 (August, 1999). The demand for SOC test equipment is projected to experience comparable growth rates. In 1997, SOC test equipment accounted for approximately 30% of the greater than $3 billion semiconductor test equipment market, according to Prime Research Group. In 2001, SOC test equipment is expected to account for greater than 40% of this market, which Prime Research Group forecasts to be greater than $5 billion. 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. 27 This increases their costs of ownership due to increased working hours, greater floor space, decreased utilization and slower throughput. Furthermore, manufacturers cannot fully test new SOC designs because their current testing equipment cannot test 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 timeor multi-site testing. These problems are exacerbated when volume production of devices increases. Fusion(R) 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 testing engineers to write specific software programs to run tests in parallel. Our enVision++ software allows testing 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. State of the art digital test capability. SOC devices require the advanced digital testing performance, including embedded memory testing, found in traditional high-end, standalone digital testers. Fusion delivers this capability in an integrated platform. 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 28 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. 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 recently 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 revenues. We have also developed collaborative relationships with key customers and vendors that help guide us in developing future applications and system options. 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. In the past year, we consolidated our manufacturing operations to our Westwood, Massachusetts facility and transformed it into an assembly, system integration, and test operation, with most other manufacturing functions 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 alliance in Japan. Ando Electric Company, Ltd., a subsidiary of NEC Corporation, Japan's largest semiconductor manufacturer, is a leading test equipment manufacturer in Japan. We entered into a strategic alliance with Ando in April 1998 to expand the market in Japan for the Fusion testing platform, increase our research and development capacity, and obtain the benefits of their research and development activities. With Ando, Fusion became, we believe, the first and only test platform that will be produced by two suppliers, reducing the risk to our customers that their production requirements would not be met. 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 the highly reliable test performance and cost-efficiency in their efforts to accelerate their time-to-market for SOC, mixed signal, and digital devices. 29 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 range in price from approximately $500,000 to over $4,000,000 each, depending primarily on the complexity of the device to be tested. 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 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 30 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. iPTest Division Our iPTest division manufactures systems that are 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 3.0%, or $5.1 million, for the fiscal year ended July 31, 1999, 2.9%, or $5.6 million, for the fiscal year ended July 31, 1998 and 3.1%, or $6.1 million, for the fiscal year ended July 31, 1997. Consistent with our business strategy to focus on the Fusion product family, we are exploring the possible disposition of the iPTest product line. 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 $28.9 million, or 18.4% of net sales, in fiscal 1999, $32.2 million, or 16.4% of net sales, in fiscal 1998, and $27.4 million, or 14.1% of net sales, in fiscal 1997. 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 $25.2, $34.3 million, and $23.4 million during fiscal 1999, 1998, and 1997, respectively. In addition, through our alliance with Ando, we benefit from the engineering and product development resources that Ando is applying to the development of new options for Fusion at no incremental expense to us. Our engineering strategy is to focus on development of the Fusion HF 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 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 35 people. In Japan, we sell, service and support Fusion and digital products through our alliance with Ando. We use a small number of independent sales representatives and distributors in certain other regions of the world. 31 Our sales to customers outside the United States are primarily denominated in United States dollars. Sales outside North America were 61%, 60%, and 67% of total sales in fiscal 1999, 1998, and 1997, respectively. Ando Alliance We entered into a development, manufacturing and marketing agreement with Ando, a Japanese test equipment manufacturer and subsidiary of NEC Corporation, in April 1998. The agreement has an initial term of six years. 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 or modify these Ando improvements outside Japan. Under the terms of the Agreement, Ando paid us $10 million, delivered 1,600,000 shares of LTX common stock owned by Ando and reduced the interest rate on our loan from 8.0% to 5.5%. Ando is also required to pay quarterly royalties on sales of Fusion in Japan. Ando has established a new SOC division, charged with marketing, sales, applications, engineering and customer support for the Fusion product line in Japan. The division employs over 65 people who are developing digital test options for Fusion HF and software enhancements for enVision++, without additional expense to us. Other benefits of the alliance include a united research and development effort to develop jointly new options and capabilities for Fusion and a joint-marketing plan for Fusion in Japan. In addition, we each represent a second supply source for the other's customers. Customers Our customers include many of the world's leading semiconductor device manufacturers. No single customer accounted for 10% or more of net sales in fiscal 1999 or 1998. In fiscal 1997, Intel accounted for 13% and National Semiconductor accounted for 12% of net sales. Customers that have ordered Fusion products include the following: Acer Labs Amkor AMS International ASE Hitachi Hyundai Infineon Technologies Lucent Technologies Motorola Multitech National Semiconductor Philips Semiconductor Qlogic Siliconware STATS STMicroelectronics Texas Instruments
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. During times of peak demand, we anticipate that the alliance with Ando will enable us to satisfy customers requirements as a second supply source for Fusion. We outsource certain components and subassemblies to 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 32 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 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, 1999, our backlog of unfilled orders for all products and services was $116.6 million, compared with $62.9 million at July 31, 1998. In current business conditions, test systems generally ship within six months of receipt of a customer's purchase order. Accordingly, we expect to deliver nearly all of our July 31, 1999 backlog in fiscal 2000. Included in the 1999 backlog is $1.5 million, and in the 1998 backlog is $10 million, of deferred revenue relating to the transaction with Ando. 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 for any succeeding period. 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 U.S. 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 market 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. 33 Employees At July 31, 1999, we employed 686 employees. 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 have not experienced any work stoppages and consider relations with our employees to be good. Facilities 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 2007. 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. Our European headquarters is located in Woking, United Kingdom. We also maintain sales and support offices at other locations in Europe. The manufacturing and engineering facilities for our iPTest systems are located in Guildford, United Kingdom. We also maintain sales and support offices in locations 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. 34 MANAGEMENT The following table lists our executive officers, directors and key employees (who are not executive officers) as of August 31, 1999.
Name Age Position ---- --- -------- Roger W. Blethen........ 48 President, Chief Executive Officer and Director David G. Tacelli........ 40 Vice President, Chief Financial Officer and Treasurer Edward J. Terrenzi...... 50 Vice President, Fusion Products Division Tommie Berry............ 47 Vice President, San Jose Engineering Richard L. Bove......... 46 Vice President, Human Resources Kenneth E. Daub......... 63 Senior Vice President, Business Development Joseph A. Hedal......... 41 General Counsel Mukesh Mowji............ 41 Vice President, North America Sales and Support Thomas J. Young......... 43 Vice President of Operations Neil Kelly.............. 41 Vice President of Marketing and Chief Technologist Samuel Rubinovitz....... 69 Chairman of the Board Robert J. Boehlke....... 58 Director Jacques Bouyer.......... 71 Director Stephen M. Jennings..... 38 Director Roger J. Maggs.......... 53 Director Robert E. Moore......... 61 Director
Roger W. Blethen was appointed our Chief Executive Officer in September 1996. Mr. Blethen was a President of LTX from 1994 to 1996. Mr. Blethen has been a Director since 1980 and was a Senior Vice President from 1985 until February 1994. Mr. Blethen was a founder of LTX and has served in a number of senior management positions since its formation in 1976. David G. Tacelli was appointed Chief Financial Officer and Treasurer of LTX in December 1998. Prior to that, Mr. Tacelli was Vice President, Operations from October 1996 to December 1998. Mr. Tacelli's previous responsibilities at LTX included Director of Manufacturing of the Mixed Signal Division, a position he held from 1994 to 1996. From 1992 to 1994, he was Director of Customer Service. He served as Controller and Business Manager for Operations from 1990 to 1992 and was Controller for Sales and Support from 1989 to 1990. Prior to joining LTX, Mr. Tacelli was employed by Texas Instruments for seven years in various management positions. Edward J. Terrenzi was appointed Vice President, Fusion Products Division in June 1998. Mr. Terrenzi joined LTX in 1984, and has held a variety of management positions in Marketing, Engineering and Applications. In 1994 he was promoted to General Manager of the Mixed Signal Division and became Vice President of that Division in 1996. Before joining LTX, he spent five years at Digital Equipment Corporation as a Senior Engineering Manager in the LSI Group, and eight years at Raytheon Company Equipment Division in various engineering positions. Tommie Berry was appointed Vice President for our San Jose Engineering activities in June 1998. Mr. Berry joined LTX in 1991 as Technical Director of North America Strategic Sales in Texas. In November 1994, he relocated to California to assume the position of Director of Systems Development Engineering. Mr. Berry has been a General Manager and Director of Engineering of the Digital Products Division since 1996. Previously, he worked for twelve years for Schlumberger Limited's automatic test equipment business. Richard L. Bove was appointed Vice President of Human Resources in September 1997. Mr. Bove joined LTX in 1988 as the Director of Compensation and Benefits and became the Director of Human Resources in 1990. Before joining LTX, he spent five years with Data General and five years with M/A Com in a variety of Human Resources positions. 35 Kenneth E. Daub was appointed a Senior Vice President of LTX in 1997 and is responsible for our business in Japan, our agreements with Ando and other business development opportunities. From 1991 until 1997, Mr. Daub was responsible for North America and Pacific Rim sales. From the time he joined LTX in 1987 until 1991, Mr. Daub served as Vice President responsible for North American sales. Prior to joining LTX, Mr. Daub held various senior positions with Schlumberger Limited. Joseph A. Hedal has been General Counsel of LTX since 1996. He served as Assistant General Counsel of LTX from 1991 through 1996. Prior to joining LTX, Mr. Hedal was an associate with Foley, Hoag & Eliot, LLP from 1990 to 1991 and an associate with Bingham Dana LLP from 1986 through 1990. Mukesh Mowji was appointed Vice President of North America and Asia/Pacific Sales and Support in February 1999. In addition to North America and Asia/Pacific sales activities, Mr. Mowji is responsible for field applications and service resources in those regions. He joined LTX in 1988 as a Sales Engineer and has held a variety of sales and marketing management positions since that time. Prior to joining LTX, he worked for seven years in Schlumberger Limited's automatic test equipment business. Thomas J. Young was appointed Vice President of Operations in February 1999. He has also been Vice President and General Manager for the Asia/Pacific Region, responsible for all sales and operations activities in that area. Mr. Young has held a variety of field service and technical support management positions in our Westwood, Massachusetts facility since 1981. Mr. Young joined LTX in February 1979 as our first Customer Training Manager in San Jose, California. Prior to joining LTX, Mr. Young was employed by the Fairchild Test Systems Group. Neil Kelly is Vice President of Marketing and Chief Technologist, responsible for marketing our Fusion product, long-term planning of test platform strategy and tracking technology trends in the semiconductor industry, particularly as they relate to testing and SOC development. Previously, Mr. Kelly led LTX's introduction of the Synchro mixed signal platform. He has also served as Worldwide Telecom Product Manager, leading a group of application engineers in developing innovative test solutions for advanced new telecom devices. Mr. Kelly joined LTX in 1980 as an applications engineer. Prior to joining LTX, Mr. Kelly worked for SAFT (UK) Ltd., where he designed standby power systems and emergency lighting units. Samuel Rubinovitz has been Chairman of the Board of LTX since December 1997. He was elected a Director of LTX in 1994. He was Executive Vice President of EG&G, responsible for the aerospace, optoelectronics and instrument product groups from 1989 until his retirement in 1994. He is a director of Richardson Electronics, KLA-Tencor and Kronos. Robert J. Boehlke was elected a Director of LTX in June 1997. Mr. Boehlke is currently Executive Vice President and Chief Financial Officer of KLA-Tencor Corporation, a position he has held since 1990. Between 1983 and 1990, he held a variety of management positions with that company. Prior to his employment by KLA-Tencor, Mr. Boehlke was a partner at the investment banking firm of Kidder, Peabody & Company from 1971 until 1983. Jacques Bouyer was elected a Director of LTX in 1991. Mr. Bouyer has been a management consultant since 1990. Mr. Bouyer was Chairman of the Board and Chief Executive Officer of Philips Composants S.A., an electronics company which is a wholly-owned subsidiary of Philips Electronics from 1986 until his retirement from that company in 1990. He is also a director of Richardson Electronics. Stephen M. Jennings was elected a Director of LTX in September 1997. Mr. Jennings has been a Director of Monitor Company, a strategy consulting firm, since 1996. From 1992 to 1996, he was a consultant to that company. Roger J. Maggs was elected a Director of LTX in June 1994. Mr. Maggs is currently President of Celtic House Investment Partners, a private investment firm. Mr. Maggs was a Vice President of Alcan Aluminum from 1986 until June 1994. 36 Robert E. Moore has been a Director of LTX since 1989. Mr. Moore is currently President and Chairman of the Board of Reliable Power Meters, a company he founded in 1992 which manufactures and sells power measurement instruments. He also was a founder of Basic Measuring Instruments, Inc. which manufactures and sells power measurement instruments, and served as a director of that company from 1982 until 1990 and as a Senior Vice President responsible for marketing and sales from 1985 until 1990. 37 PRINCIPAL SHAREHOLDERS The following table shows information known to LTX about the beneficial ownership of its common stock as of July 31 1999, and as adjusted to reflect the sale of common stock offered hereby by each stockholder known by LTX to own beneficially more than 5% of the common stock, each named executive officer of LTX, each director of LTX and all directors and executive officers as a group. As of July 31, 1999, there were 36,185,040 shares of common stock outstanding. The following table assumes that the underwriters do not exercise their option to purchase additional shares in the offering. Beneficial ownership is determined by the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after July 31, 1999 are considered outstanding, while these shares are not considered outstanding for purposes of computing percentage ownership of any other person. Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting and investment power as to all shares beneficially owned, subject to community property laws where applicable.
Percentage Beneficially Owned ---------------------- Shares Beneficially Owned Before After Name and Address (1) Number Offering Offering -------------------- ------------ --------- --------- 5% Stockholders State of Wisconsin Investment Board..... 3,895,000 10.8% 9.5% Merrill Lynch & Co., Inc. (on behalf of Merrill Lynch Asset Man- agement Group)......................... 3,310,000 9.1 8.1% Greenway Partners L.P................... 1,984,800 5.5 4.9% Mellon Bank Corporation................. 1,882,216 5.2 4.6% Directors and Executive Officers Roger W. Blethen........................ 402,947 1.1 1.0% Samuel Rubinovitz....................... 69,200 * * Robert J. Boehlke....................... 39,850 * * Jacques Bouyer.......................... 40,000 * * Stephen M. Jennings..................... 14,512 * * Roger J. Maggs.......................... 56,000 * * Robert E. Moore......................... 76,500 * * David G. Tacelli........................ 56,350 * * Edward J. Terrenzi...................... 76,471 * * All directors and executive officers as a group (9 persons).................... 856,330 2.3% 2.1%
- -------- * Represents beneficial ownership of less than one person of the outstanding Common Stock. (1) The address of State of Wisconsin Investment Board is P.O. Box 7842, Madison, Wisconsin 53707. The address of Merrill Lynch & Co. is World Financial Center, North Tower, 250 Vesey Street, New York, New York 10301. The address of Greenway Partners L.P. is 277 Park Avenue, New York, New York 10172. The address of Mellon Bank Corporation is One Mellon Bank Center, Pittsburgh, Pennsylvania 15258. (2) Shares owned by Messrs. Blethen, Rubinovitz, Bouyer, Jennings, Maggs, Moore, Tacelli, Terrenzi and by all executive officers and directors as a group include 310,129 shares, 47,200 shares, 15,350 shares, 34,000 shares, 13,512 shares, 56,000 shares, 69,000 shares, 48,850 shares, 50,750 shares and 644,791 shares, respectively, under stock options which are presently exercisable or become so within sixty days. 38 DESCRIPTION OF COMMON STOCK Our By-laws provide that holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Stockholders are not entitled to cumulative voting in the election of directors. Holders of common stock are entitled to receive any dividends as may be declared from time to time by the Board of Directors out of legally available funds. In the event of the liquidation, dissolution or winding up of LTX, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities. The common stock has no preemptive or conversion rights and is not subject to further calls or assessments by LTX. There are no redemption or sinking fund provisions that apply to the common stock. The common stock currently outstanding is, and the common stock to be issued upon closing of this offering will be, validly issued, fully paid and non- assessable. Under our By-laws, a special meeting of stockholders may be called by stockholders only if called by one or more stockholders who hold at least 40% in interest of our capital stock entitled to vote at such meeting. Our By- laws also require approval of a super-majority of our stockholders for any transaction between us and any stockholder who owns 10% or more of our outstanding common stock. The transfer agent and registrar for the common stock is EquiServe. We furnish to our stockholders annual reports containing financial statements that have been examined and reported upon, with an opinion expressed, by our independent public accountants and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. Rights Agreement Our Board of Directors adopted a Rights Agreement on April 30, 1999 with BankBoston, N.A as rights agent. The Board issued 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 our common stock or announces a tender offer that would result in ownership of 15% or more of our common stock. Initially, each right will entitle a stockholder to buy one share of our common stock at a purchase price of $45.00 per share, subject to adjustment depending upon the occurrence of certain events. Generally, in the event that a person or group becomes the beneficial owner of 15% or more of our common stock, each right, other than rights owned by that person or group, will thereafter entitle the holder to receive, upon exercise of the right, shares of our common stock having a value equal to two times the exercise price of the right. In the event that, at any time after the rights become exercisable, we are (1) acquired in a merger or other business combination transaction or (2) more than 50% of our assets or earning power is sold or transferred, each right, other than rights owned by that person or group, will thereafter entitle the holder to receive, upon the exercise of the right, shares of common stock of the acquirer having a value equal to two times the exercise price of the right. Before any person or group has acquired 15% or more of our common stock, we may redeem these rights at $0.001 per right. The rights will expire on April 30, 2009, unless we make such a redemption before that date. Classified Board Our Board of Directors is divided into three classes, with one class consisting of three directors and two classes consisting of two directors. Each class serves three years, with the terms of office of the respective classes expiring in successive years. Certain Effects The above described provisions regarding our By-laws, the Rights Agreement and the classified board may discourage potential takeover attempts. Our Rights Agreement, in particular, may discourage a future acquisition of us not approved by the Board of Directors in which our stockholders might otherwise receive a higher value for their shares or which a substantial number, and perhaps even a majority, of our stockholders believes to be in the best interests of all stockholders. As a result, stockholders who might desire to participate in such a transaction may not have the opportunity to do so. These provisions could have an adverse effect on the market price of the common stock. 39 UNDERWRITING Under the terms and subject to the conditions contained in the underwriting agreement, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, Needham & Company, Inc. and Gruntal & Co., L.L.C. are acting as representatives, have severally agreed to purchase, and LTX has agreed to sell to the underwriters, the respective number of shares of common stock set forth opposite the names of the underwriters below:
Underwriters Number of Shares ------------ ---------------- Morgan Stanley & Co. Incorporated........................... Needham & Company, Inc...................................... Gruntal & Co., L.L.C........................................ ------ Total..................................................... ======
The underwriters are offering the shares of common stock subject to their acceptance of the shares from LTX and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered in this offering, other than those covered by the over-allotment option described below, if any such shares are taken. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and part to dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other underwriters or to dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives of the underwriters. LTX has granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with the offering of the shares of common stock offered in this offering. To the extent such option is exercised, each underwriter will become obligated to purchase approximately the same percentage of such additional shares of common stock as the number set forth next to such underwriter's name in the preceding table bears to the total number of shares of common stock set forth next to the names of all underwriters in the preceding table. If the underwriters' option is exercised in full, the total price to the public would be $ , the total underwriters' discounts and commissions would be $ and total proceeds to us would be $ . LTX and each of our directors and executive officers have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, during the period ending 90 days after the date of this prospectus he, she or it will not directly or indirectly: . offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or 40 . enter into any swap, hedging or arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Pricing of the Offering The public offering price will be determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the public offering price will be: . the market price of LTX's common stock, . our future prospects and the semiconductor industry in general, . sales, earnings and certain other financial operating information of LTX in recent periods, and . the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of LTX. The estimated public offering price set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors. 41 LEGAL MATTERS The validity of the shares of common stock we are offering will be passed upon for us by Bingham Dana LLP. Richard M. Harter, a senior partner of Bingham Dana LLP, owns 5,000 shares of our common stock. Certain legal matters in connection with this offering will be passed upon for the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. EXPERTS The financial statements and schedules of LTX as of July 31, 1999 and for each of the years in the three-year period ended July 31, 1999 incorporated by reference in this prospectus and in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report, and are incorporated by reference herein in reliance upon the authority of that firm as experts in giving these reports. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a Registration Statement on Form S-3 under the Securities Act with respect to the common stock we propose to sell in this offering. This prospectus, which is a part of the registration statement, does not contain all of the information set forth in the registration statement. For further information about us and the common stock we propose to sell in this offering, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed. The registration statement, including exhibits, may be inspected without charge at the principal office of the Securities and Exchange Commission in Washington, D.C. and copies of all or any part of which may be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the Commission's regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can also be obtained at prescribed rates by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the Commission at 1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. 42 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows us to incorporate into this prospectus information we file with the SEC in other documents. The information incorporated by reference is considered to be part of this prospectus and information we later file with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 until all of the shares of common stock that are part of this offering have been sold. The documents we have incorporated by reference are: . our Annual Report on Form 10-K for the year ended July 31, 1998; . our Quarterly Reports on Form 10-Q for the quarters ended Oct 31, 1998, Jan 31, 1999 and April 30 1999; . our Current Report on Form 8-K filed with the SEC on May 3, 1999; . our Proxy Statement, dated November 10, 1998; and . the description of our common stock contained in our Registration Statement on Form 8-A filed on November 24, 1982 as amended on September 20, 1993 You may request a copy of these filings at no cost by writing or telephoning LTX Corporation, LTX Park, University Avenue, Westwood, Massachusetts 02090, Attention: Investor Relations; Telephone: (781) 461-1000. This prospectus is part of a registration statement that we filed with the SEC. You should rely only on the information incorporated by reference in or provided in this prospectus and the registration statement. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of this document. 43 LTX CORPORATION INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants................................. F-2 Consolidated Balance Sheet at July 31, 1998 and 1999..................... F-3 Consolidated Statements of Operations for the three years ended July 31, 1999.................................................................... F-4 Consolidated Statement of Stockholder's Equity........................... F-5 Consolidated Statement of Cash Flows for the three years ended July 31, 1999.................................................................... F-6 Notes to Consolidated Financial Statements............................... F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of LTX Corporation: We have audited the accompanying consolidated balance sheets of LTX Corporation and subsidiaries as of July 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended July 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of LTX Corporation and subsidiaries as of July 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 1999, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts August 24, 1999 F-2 LTX CORPORATION CONSOLIDATED BALANCE SHEET (In thousands, except share data)
July 31, -------------------- 1998 1999 --------- --------- ASSETS Current assets: Cash and equivalents................................... $ 25,109 $ 19,936 Accounts receivable, net of allowances of $2,200 and $2,027................................................ 33,871 37,043 Accounts receivable--other............................. 2,044 4,324 Inventories............................................ 38,264 48,551 Other current assets................................... 3,633 5,795 --------- --------- Total current assets................................. 102,921 115,649 Property and equipment, net.............................. 35,427 31,942 Other assets............................................. 2,671 402 --------- --------- Total assets......................................... $ 141,019 $ 147,993 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable.......................................... $ 4,827 $ 5,472 Current portion of long-term debt...................... 5,106 674 Accounts payable....................................... 25,020 37,439 Deferred revenues and customer advances................ 15,045 11,391 Accrued restructuring charges.......................... 5,786 2,263 Other accrued expenses................................. 13,179 10,495 --------- --------- Total current liabilities............................ 68,963 67,734 Long-term debt, less current portion..................... 8,235 14,023 Other long-term liabilities.............................. 563 -- Convertible subordinated debentures...................... 7,308 7,308 Stockholders' equity: Common stock, $0.05 par value: 100,000,000 shares authorized; 38,024,440 and 38,732,540 shares issued; 35,476,940 and 36,185,040 shares outstanding.................................... 1,902 1,936 Additional paid-in capital............................... 197,209 199,778 Accumulated deficit...................................... (131,400) (131,025) Less--Treasury stock (2,547,500 shares), at cost......... (11,761) (11,761) --------- --------- Total stockholders' equity............................... 55,950 58,928 --------- --------- Total liabilities and stockholders' equity........... $ 141,019 $ 147,993 ========= =========
The accompanying notes are an integral part of these consolidated financial statements F-3 LTX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Year ended July 31, ---------------------------- 1997 1998 1999 -------- -------- -------- Net sales....................................... $194,343 $196,227 $157,326 Cost of sales................................... 131,870 141,274 103,105 Inventory provisions............................ 9,250 40,718 -- -------- -------- -------- Gross profit.................................... 53,223 14,235 54,221 Engineering and product development expenses.... 23,350 34,320 25,174 Selling, general and administrative expenses.... 39,049 50,772 31,517 Restructuring charges........................... 6,750 6,272 -- -------- -------- -------- Income (loss) from operations................... (15,926) (77,129) (2,470) Other income (expense): Interest expense.............................. (2,443) (1,898) (1,526) Interest income............................... 2,876 1,877 585 Gain on liquidation/sale of business units.... -- -- 3,786 -------- -------- -------- Income (loss) before income taxes............... (15,493) (77,150) 375 Provision for income taxes...................... 416 1,130 -- -------- -------- -------- Net income (loss)............................... $(15,909) $(78,280) $ 375 ======== ======== ======== Net income (loss) per share: Basic......................................... $ (0.45) $ (2.15) $ 0.01 ======== ======== ======== Diluted....................................... $ (0.45) $ (2.15) $ 0.01 ======== ======== ======== Weighted-average common shares used in computing net income (loss) per share: Basic......................................... 35,476 36,401 35,696 ======== ======== ======== Diluted....................................... 35,476 36,401 36,958 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements F-4 LTX CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands, except share data)
Common Stock Additional Total ------------------ Paid-In Accumulated Treasury Stockholders' Shares Amount Capital Deficit Stock Equity ---------- ------ ---------- ----------- -------- ------------- Balance at July 31, 1996................... 35,795,796 $1,800 $191,455 $ (37,211) $ (1,005) $155,039 ---------- ------ -------- --------- -------- -------- Exercise of stock options................ 333,955 16 764 -- -- 780 Exercise of stock warrant................ 1,000,000 50 2,260 -- -- 2,310 Issuance of shares under employees' stock purchase plan.......... 294,917 15 1,319 -- -- 1,334 Purchase of treasury stock.................. (747,500) -- -- -- (3,356) (3,356) Net loss................ -- -- -- (15,909) -- (15,909) ---------- ------ -------- --------- -------- -------- Balance at July 31, 1997................... 36,677,168 1,881 195,798 (53,120) (4,361) 140,198 Exercise of stock options................ 108,515 6 301 -- -- 307 Issuance of shares under employees' stock Purchase plan.......... 291,257 15 1,110 -- -- 1,125 Purchase of treasury stock.................. (1,600,000) -- -- -- (7,400) (7,400) Net loss................ -- -- -- (78,280) -- (78,280) ---------- ------ -------- --------- -------- -------- Balance at July 31, 1998................... 35,476,940 1,902 197,209 (131,400) (11,761) 55,950 Exercise of stock options................ 411,854 20 975 -- -- 995 Issuance of shares under employees' stock Purchase plan.......... 296,246 14 969 -- -- 983 Amortization of deferred compensation........... -- -- 625 -- -- 625 Net profit.............. -- -- -- 375 -- 375 ---------- ------ -------- --------- -------- -------- Balance at July 31, 1999................... 36,185,040 $1,936 $199,778 $(131,025) $(11,761) $ 58,928
The accompanying notes are an integral part of these consolidated financial statements F-5 LTX CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands except share data)
Year ended July 31, ---------------------------- 1997 1998 1999 -------- -------- -------- Cash Flows from Operating Activities: Net income (loss)............................... $(15,909) $(78,280) $ 375 Add (deduct) non-cash items: Depreciation and amortization................. 11,038 12,510 11,291 Gain on liquidation/sale of business units.... -- -- (3,786) Charge for excess inventory................... 9,250 40,718 -- Translation loss (gain)....................... (100) (47) 737 (Increase) decrease in: Accounts receivable............................ 4,762 2,842 (2,983) Inventories.................................... 2,299 (21,529) (11,204) Other current assets........................... 1,191 383 (2,154) Other assets................................... 530 313 (51) Increase (decrease) in: Accounts payable............................... (4,533) 1,753 11,560 Accrued expenses and restructuring charges..... 2,985 1,124 (8,322) Deferred revenues and customer advances........ (1,273) 9,889 (9,449) -------- -------- -------- Net cash (used in) provided by operating activities.................................... 10,240 (30,324) (13,986) -------- -------- -------- Cash Flows from Financing Activities: Proceeds from sale of business unit............. -- -- 2,000 Maturities of held-to-maturity securities, net.. 9,941 -- -- Expenditures for property and equipment......... (16,116) (8,795) (9,636) -------- -------- -------- Net cash used in investing activities........... (6,175) (8,795) (7,636) -------- -------- -------- Cash Flows from Financing Activities: Proceeds from stock plans: Employees' stock purchase plan................. 1,334 1,124 983 Exercise of stock options...................... 780 308 995 Exercise of stock warrant....................... 2,310 -- -- Purchase of treasury stock...................... (3,356) -- -- Advances of short-term notes payable............ -- -- 33,204 Payment of short-term notes payable............. (993) (520) (28,499) Proceeds from lease financing................... 2,975 1,451 10,615 Payments of long-term debt...................... (5,090) (5,253) (1,174) -------- -------- -------- Net cash provided by (used in) financing activities..................................... (2,040) (2,890) 16,124 -------- -------- -------- Effect of exchange rate changes on cash.......... (294) (682) 325 -------- -------- -------- Net (decrease) increase in cash and equivalents.................................... 1,731 (42,691) (5,173) Cash and equivalents at beginning of year........ 66,069 67,800 25,109 -------- -------- -------- Cash and equivalents at end of year.............. $ 67,800 $ 25,109 $ 19,936 ======== ======== ======== Supplemental Disclosures of Cash Flow Information: Cash paid (received) during the year for: Interest....................................... $ 2,451 $ 2,062 $ 1,263 ======== ======== ======== Income taxes................................... $ 725 $ 716 $ 757 ======== ======== ======== Supplemental Disclosure of Non-Cash Financing Activities: 1,600,000 shares of LTX Common Stock received by LTX as consideration for certain marketing, sales and manufacturing rights and held in treasury....................................... $ -- $ 7,400 $ -- ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements F-6 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 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. Operating results in the future could vary from the amounts derived from management's estimates and assumptions. Foreign Currency Translation The financial statements of the Company's foreign subsidiaries are translated in accordance with Statement of Financial Accounting Standards No. 52, "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 $737,000 and gains of $47,000 and $100,000 in fiscal 1999, 1998, and 1997 respectively. The loss of $737,000 in fiscal 1999 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 Revenue from product sales and related warranty costs are recognized at the time of shipment. Service revenues are recognized over the applicable contractual periods or as services are performed. Service revenue totaled $28.9 million, or 18.4% of net sales, in fiscal 1999, $32.2 million, or 16.4% of net sales, in fiscal 1998, and $27.4 million, or 14.1% of net sales, in fiscal 1997. Revenue from engineering contracts are recognized over the contract period on a percentage of completion basis. 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. F-7 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 is being recognized on a percentage of completion basis over the period in which the Company completes the transfer of the manufacturing and technology rights. The Company recognized $8.5 million of the deferred revenue in fiscal 1999 and expects the remaining $1.5 million to be recognized in the first quarter of fiscal 2000. In addition, the Company will 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. Income Taxes Deferred income taxes are recorded for temporary differences between the financial reporting and tax basis of assets and liabilities. Research and development tax credits are recognized for financial reporting purposes to the extent that they can be used to reduce the tax provision. The Company has not provided for federal income taxes on the cumulative undistributed earnings of its foreign subsidiaries, which were not significant, in the past since it reinvested those earnings. At July 31, 1999, most of the Company's foreign subsidiaries had accumulated deficits. Net Income (Loss) per Share In July 1998, the Company adopted Statement of Financial Accounting Standards, "Earnings Per Share," (SFAS 128). All previously reported earnings per share information presented has been restated to reflect the impact of adopting SFAS 128. Under SFAS 128, basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income (loss) 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 (loss) 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:
Fiscal Year Ended July 31, --------------------------- 1997 1998 1999 -------- -------- ------- Net income (loss)............................... $(15,909) $(78,280) $ 375 Basic EPS Basic common shares........................... 35,476 36,401 35,696 Basic EPS..................................... $ (0.45) $ (2.15) $ .01 Diluted EPS Basic common shares........................... 35,476 36,401 35,696 Plus: impact of stock options and warrants.... -- -- 1,262 -------- -------- ------- Diluted common shares........................... 35,476 36,401 36,958 Diluted EPS................................... $ (0.45) $ (2.15) $ .01
Options to purchase 60,000 shares of common stock in 1999, 3,966,793 shares in 1998, and 3,260,283 in 1997 were outstanding during the years then ended, but were not included in the year to date calculation of F-8 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 in effect. Financial Instruments Cash and Short-Term Investments 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 and commercial paper. 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 short-term investments as of July 31, 1999 and July 31, 1998. The fair market value of cash equivalents and short-term investments is substantially equal to the amortized cost, due to the short period of time to maturity, which is less than one year. Fair Value Statement of Financial Accounting Standards No. 107, "Disclosures About 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, 1999 and 1998, the carrying value of $5,472,000 and $4,827,000, respectively, for short-term bank debt and $14,697,000 and $13,904,000, respectively, for long-term liabilities, including current portion, approximates fair value. At July 31, 1999, and 1998, the Company's 7 1/4% Convertible Subordinated Debentures due 2011 had a carrying value of $7,308,000 and the estimated fair value of approximately $4,092,000. 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:
As of July 31, ----------------------- 1998 1999 ----------- ----------- Raw materials...................................... $14,400,000 $22,380,000 Work-in-process.................................... 19,419,000 18,107,000 Finished goods..................................... 4,445,000 8,064,000 ----------- ----------- $38,264,000 $48,551,000 =========== ===========
F-9 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:
As of July 31, -------------------------- Depreciable 1998 1999 Life in Years ------------ ------------ ------------------- Machinery and equipment....... $100,519,000 $ 97,670,000 3-5 Office furniture and equipment.................... 9,219,000 11,395,000 3-7 Leasehold improvements........ 8,783,000 7,638,000 10 or term of lease ------------ ------------ 118,521,000 116,703,000 Less: Accumulated depreciation and amortization............. (83,094,000) (84,761,000) ------------ ------------ $ 35,427,000 $ 31,942,000 ============ ============
Reclassifications Prior year financial statements have been reclassified to conform to the 1999 presentation. The reclassification had no impact on earnings for the prior period. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The statement is effective for fiscal 1999 and requires comprehensive income to be reported with the same prominence as other financial statements. Comprehensive income would include any unrealized gains or losses on available-for-sale securities, foreign currency translation adjustments and minimum pension liability adjustments. The adoption of FASB 130 did not have a material effect on the consolidated financial statements. In June 1997, the Financial Accounting Standards Board also issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS 131). The statement is effective for fiscal 1999. SFAS 131 changes the definition and reporting of segments and requires disclosure by operating segment of information such as profit and loss, assets and capital expenditures, major customers and types of products from which revenues are derived, (see Note 9). In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. A company may also implement the statement as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). This statement could increase volatility in earnings and other comprehensive income for companies with applicable contracts. LTX does not have any derivative instruments at this time. F-10 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. NOTES PAYABLE The Company's Japanese subsidiary had borrowings outstanding of $4.8 million at July 31, 1998, under demand lines of credit. Borrowings of $4.5 million, at the local prime rate plus 0.25%, were guaranteed by the Company's minority partner in Japan, and borrowings of $0.3 million, at the local prime rate of prime plus 0.75% under a $1.4 million demand bank line, were guaranteed by the Company. The Company recorded two transactions as other income aggregating to $3.8 million in the second quarter of fiscal 1999. The Japanese prime rate of interest was 2.5% at July 31, 1998. These transactions consisted of the liquidation of a joint venture with Sumitomo Metal Industries, Ltd. in Japan, which resulted in a gain of $1.7 million and the sale of a portion of the Company's legacy board repair business in Singapore, which resulted in a gain of $2.1 million. The Company's Japanese subsidiary was liquidated during the second quarter of fiscal 1999 and the outstanding bank debt that was guaranteed by the minority partner was paid in full by the Company's minority partner as part of the liquidation process. The $0.3 million guaranteed by the Company was paid in full and there are no outstanding borrowings in Japan at July 31, 1999. On October 26, 1998, the Company obtained a $10.0 million domestic credit facility from a bank, which expires on October 26, 1999. The facility is secured by all assets of the Company and bears interest at the bank's prime rate plus 1% as of July 31, 1999. The borrowing base of the facility is based on a formula of eligible accounts receivable. The agreement requires the Company to maintain a certain minimum net worth. On August 19, 1999, the Company has signed a letter of intent that will extend its $10.0 million credit facility by one year at a reduced interest rate of prime plus 0.5%. Amounts outstanding under this line of credit were $5.5 million at July 31, 1999. Additionally, the Bank has agreed to open a $5.0 million foreign accounts receivable credit line backed by foreign accounts receivables at an interest rate of prime plus 0.5%. During fiscal 1998, the Company had a $20.0 million domestic credit facility and a $5.0 million equipment lease line. The $20.0 million credit facility has no outstanding borrowings and expired in July 1998. The effective rate of interest on the equipment lease facility was 8.3% at July 31, 1998. The facility was terminated on October 31, 1998. The $5.0 million equipment lease line was repaid in full in November 1998. 4. LONG-TERM LIABILITIES Long-term liabilities consist of the following:
As of July 31, ------------------------ 1998 1999 ----------- ----------- Subordinated note payable........................ $12,000,000 $12,000,000 Lease purchase obligations at various interest rates, net of deferred interest................. 1,341,000 2,697,000 ----------- ----------- 13,341,000 14,697,000 Less: current portion............................ (5,106,000) (674,000) ----------- ----------- $ 8,235,000 $14,023,000 =========== ===========
The subordinated note payable bears interest at 5.5% at July 31, 1999 and at July 31, 1998, 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 $2.0 million will begin 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. In connection with this note, the Company issued a warrant to purchase up to 2,000,000 shares of common stock during the term of the note (see Note 7). Lease purchase obligations of $2,697,000 and $1,341,000 at July 31, 1999 and July 31, 1998 represent capital leases on LTX equipment. F-11 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. CONVERTIBLE SUBORDINATED DEBENTURES On April 25, 1986, the Company issued and sold at par $35,000,000 of 7 1/4% Convertible Subordinated Debentures due 2011. A total of $7,308,000 of the original issue of $35,000,000 remains outstanding at July 31, 1999 and 1998. The debentures are subordinated in right of payment to senior indebtedness and are convertible by the holders into common stock at $18.00 per share at any time prior to redemption or maturity. The debentures are redeemable at the Company's option at any time, in whole or in part, at 100% of the principal amount. No sinking fund payments are required before the maturity date of the debentures in 2011. Interest is payable semi-annually on April 15 and October 15. 6. INCOME TAXES The components of the provision for income taxes consist of the following:
Year ended July 31, ------------------------------ 1997 1998 1999 ----------- ----------- ---- Currently payable: Federal..................................... $ 1,000,000 $ (818,000) -- State....................................... 200,000 (526,000) -- Foreign..................................... 216,000 274,000 -- ----------- ----------- ---- Total current................................. $ 1,416,000 $(1,070,000) -- ----------- ----------- ---- Deferred: Federal..................................... $(1,000,000) $ 2,200,000 -- State....................................... -- -- -- Foreign..................................... -- -- -- ----------- ----------- ---- Total deferred................................ $(1,000,000) $ 2,200,000 -- ----------- ----------- ---- Total tax provision........................... $ 416,000 $ 1,130,000 -- =========== =========== ====
Reconciliations of the U.S. federal statutory rate to the Company's effective tax rate are as follows:
Year ended July 31, ------------------------ 1997 1998 1999 ----- ----- -------- U.S. Federal statutory rate...................... (35.0)% (35.0)% 35.0% State income taxes, net of Federal income tax effect.......................................... 0.8 (0.7) 6.0 Foreign income taxes............................. -- 0.4 1.3 Change in valuation allowance.................... 17.9 31.5 2,490.0 Net foreign losses not benefited/(gains) not provided........................................ 17.4 4.5 (2,532.3) Tax credits...................................... (2.1) -- -- Other, net....................................... 3.7 0.8 -- Effective tax rate............................... 2.7% 1.5% 0.0%
F-12 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The temporary differences and carryfowards that created the deferred tax assets and liabilities as of July 31, 1999, and 1998 are as follows:
As of July 31, -------------------------- 1998 1999 ------------ ------------ Deferred tax assets: Net operating loss carryforward................ $ 13,616,000 $ 24,655,000 Tax credits.................................... 2,388,000 2,400,000 Inventory valuation reserves................... 10,329,000 5,654,000 Restructuring charges.......................... 3,144,000 774,000 Spares amortization............................ 3,228,000 2,446,000 Net capital loss carryforward.................. -- 6,621,000 Unearned service revenues...................... 3,500,000 2,364,000 Other.......................................... 2,186,000 2,495,000 ------------ ------------ Total deferred tax assets.................... 38,391,000 47,409,000 Valuation allowance............................ (37,997,000) (47,335,000) ------------ ------------ Net deferred tax assets.......................... 394,000 74,000 Deferred tax liabilities: Depreciation................................... (394,000) (74,000) Other.......................................... -- -- ------------ ------------ Total deferred tax liabilities............... (394,000) (74,000) ------------ ------------ Net deferred taxes recorded...................... $ -- $ -- ============ ============
The valuation allowance relates to uncertainty surrounding the realization of the deferred tax assets. 7. STOCKHOLDERS' EQUITY Stock Repurchase Program In June 1996, the Board of Directors authorized a stock repurchase program under which the Company could acquire up to 3,500,000 shares of its common stock over a 12-month period. Under this program, the Company purchased 747,500 shares during fiscal 1997 which are held in treasury at a cost of $3,356,000. The stock repurchase program expired in June 1997. In April 1998, the Company entered into an agreement with the subordinated note holder to market and develop the Company's Fusion product line. As part of this agreement, the subordinated note holder delivered to the Company 1,600,000 shares of the Company's common stock. The Company recorded this stock in treasury at its then fair market value of $7,400,000. Warrants In July 1994, in connection with the issuance of a subordinated note, the Company issued a warrant to purchase up to 2,000,000 shares of common stock at the then fair market value of $2.31 per share during the term of the note (see Note 4). In June 1996, 1,000,000 shares of common stock were exercised under this warrant. In July 1997, the remaining 1,000,000 shares under this warrant were exercised. 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, F-13 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 three stock option plans: the 1999 Stock Plan (1999 Plan), the 1990 Stock Option Plan (1990 Plan) and the 1995 LTX (Europe) Ltd. Approved Stock Option Plan (U.K. Plan). The 1999 Plan, 1990 Plan and the U.K. Plan provide for the granting of options to employees to purchase shares of common stock at not less than 100% of the fair market value of the date of grant. The 1999 Plan and the 1990 Plan also provide 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 are typically three years beginning one year from the date of grant. In December 1997, the stockholders of the Company approved an increase to the number of shares of common stock that may be granted under the 1990 Plan, through October 2000, from 3,700,000 shares to 5,225,000 shares. At July 31, 1999, 445,500 shares were subject to future grant under the 1999 Plan, 239,136 shares were subject to future grant under the 1990 Plan and 35,626 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 representing 1,051,857 shares of common stock granted to the directors and executive officers of the Company were not repriced. F-14 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 1999 and 1998 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:
Year ended July 31, --------------------------- 1997 1998 1999 -------- -------- ------- Net gain (loss): As reported................................... $(15,909) $(78,280) $ 375 Pro forma..................................... (17,535) (81,154) (8,735) Net gain (loss) per share: Basic As reported.................................. (0.45) (2.15) .01 Pro forma.................................... (0.49) (2.23) (.25) Diluted As reported.................................. (0.45) (2.15) .01 Pro forma.................................... $ (0.49) $ (2.23) $ (.24)
Since the method prescribed by SFAS 123 has not been applied to options granted prior to August 1, 1995, 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. 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.
Year ended July 31, -------------------------------- 1997 1998 1999 ---------- ---------- ---------- Volatility.................................. 83% 79% 80% Dividend yield.............................. 0% 0% 0% Risk-free interest rate..................... 5.88% 4.44% 6.18% Expected life of options.................... 5.02 years 7.95 years 7.36 years
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. F-15 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock Option Activity
1997 1998 1999 ------------------- -------------------- -------------------- Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Shares Price Shares Price Shares Price --------- -------- ---------- -------- ---------- -------- Options outstanding, beginning of year...... 2,025,227 $ 3.35 3,260,283 $ 3.94 4,186,793 $ 4.26 Granted/repriced........ 1,753,750 4.82 1,178,250 4.57 3,683,967 4.88 Exercised............... (333,955) 2.51 (108,515) 2.83 (411,854) 2.49 Forfeited/repriced...... (184,739) 7.15 (143,225) 4.96 (2,163,351) 4.51 Options outstanding, end of year................ 3,260,283 3.94 4,186,793 4.26 5,295,555 4.74 Options exercisable..... 1,707,496 2.88 1,612,478 3.46 1,492,123 3.38 Options available for grant.................. 636,846 1,105,626 720,262 Weighted average fair value of options granted during year.... $ 3.38 $ 3.55 $ 3.81
As of July 31, 1999, the status of the Company's outstanding and exercisable options is as follows:
Options Outstanding Options Exercisable ----------------------------------------------- ------------------------------ Weighted Average Range of Number Remaining Weighted Average Number Weighted Average Exercise Price ($) Outstanding Contractual Life Exercise Price ($) Exercisable Exercise Price ($) ------------------ ----------- ---------------- ------------------ ----------- ------------------ 0.00- 1.26 134,000 5.7 0.96 134,000 0.96 1.26- 2.53 373,998 3.2 1.94 371,998 1.94 2.53- 3.79 2,202,557 8.7 2.89 603,450 3.06 3.79- 5.05 984,500 8.0 4.58 149,000 4.43 5.05- 6.31 265,250 7.1 5.71 161,525 5.74 6.31- 7.58 20,750 8.1 7.38 4,150 7.38 7.58- 8.84 1,254,500 9.8 8.79 8,000 8.06 8.84-10.10 -- -- -- -- -- 10.10-12.63 60,000 6.2 11.44 60,000 11.44 --------- --- ----- --------- ----- 5,295,555 8.3 4.74 1,492,123 3.38 ========= === ===== ========= =====
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, 1999, 1,288,972 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. 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 F-16 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) employees' voluntary contributions to the plan, up to certain prescribed limits. These Company contributions vest at a rate of 20% per year. The Company ceased matching contributions in October of fiscal 1999 and there was a charge to expense in fiscal 1999 for $151,979 for August through September 1998. The total charge to expense under these plans was $1,056,000 in fiscal 1998 and $1,035,000 in fiscal 1997. 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"). No single customer accounted for greater than 10% of total sales revenue in fiscal 1999 and fiscal 1998. In fiscal 1997, sales to two customers accounted for 13% and 12% of net sales, respectively. Sales to the top ten customers were 60%, 55%, and 44% of net sales in fiscal 1999, fiscal 1998 and fiscal 1997, respectively. The Company's operations by geographic segment for the three years ended July 31, 1999 are summarized as follows:
Year ended July 31, -------------------------------------- 1997 1998 1999 ------------ ------------ ------------ Sales to unaffiliated customers: United States......................... $ 64,183,000 $ 77,905,000 $ 61,603,000 Taiwan................................ 46,008,000 37,070,000 27,799,000 Japan................................. 13,285,000 26,655,000 11,645,000 Singapore............................. 27,826,000 20,270,000 18,156,000 All other countries................... 43,041,000 34,327,000 38,123,000 ------------ ------------ ------------ Total sales to unaffiliated customers... 194,343,000 196,227,000 157,326,000 ------------ ------------ ------------ Long-lived assets: United States......................... 31,905,000 24,342,000 24,965,000 Taiwan................................ 591,000 1,300,000 1,175,000 Japan................................. 2,465,000 2,116,000 59,000 Singapore............................. 4,540,000 4,702,000 3,695,000 All other countries................... 3,457,000 2,967,000 2,048,000 ------------ ------------ ------------ Total long-lived assets................. $ 42,958,000 $ 35,427,000 $ 31,942,000 ============ ============ ============
Transfer prices on products sold to foreign subsidiaries are intended to produce profit margins that correspond to the subsidiary's sale and support efforts. Sales to customers in North America are 99% within the United States. F-17 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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, 1999, are as follows:
Total Total Operating Capital Year ended July 31, Real Estate Equipment Leases Leases ------------------- ----------- ----------- ----------- ---------- 2000...................... $ 3,756,000 $ 5,042,000 $ 8,798,000 $ 897,000 2001...................... 2,836,000 3,938,000 6,774,000 897,000 2002...................... 2,617,000 1,564,000 4,181,000 897,000 2003...................... 2,501,000 429,000 2,930,000 897,000 2004...................... 2,175,000 417,000 2,592,000 -- 2005 and thereafter......... 5,158,000 1,465,000 6,623,000 -- ----------- ----------- ----------- ---------- Total minimum lease payments................... $19,043,000 $12,855,000 $31,898,000 $3,588,000 Less: amount representing interest................... $ 893,000 ---------- Present value of total capital leases............. $2,695,000
Total rental expense for fiscal 1999, 1998 and 1997 was $6,832,000, $6,713,000, and $7,257,000 respectively. 11. RESTRUCTURING AND INVENTORY CHARGES Fiscal 1998 Restructuring In fiscal 1998, the Asian financial crisis (which began in January 1998) created a major impact on the global economy, precipitating a further drop in demand than the Company and the industry had been previously experiencing. As a result, the Company's sales dropped to $33 million in the fourth quarter of fiscal 1998, compared to $54 million in the third quarter of fiscal 1998. Simultaneously, the Company's development and introduction of the Fusion product line was occurring. The sudden drop in demand for the Company's products, combined with the introduction of the Fusion product line, resulted in significant excess and obsolete inventory. Management determined to restructure the Company's operations during the fourth quarter of fiscal 1998, in line with its strategy of focusing on the Fusion product line. As a result of the combined rapid and sudden decline in global demand for Semiconductor Test Equipment and the transition to the Fusion product line, the Company recorded a $40.7 million inventory charge in the fourth quarter of fiscal 1998. Inventory purchases in the second and third quarters of fiscal 1998 in anticipation of a higher level of demand for its existing products consisted of a large amount of custom and semi-custom inventory that would become obsolete or difficult to sell due to the declining business conditions within the industry in the third and fourth quarter of that same fiscal year. The $40.7 million inventory charge taken in fiscal 1998 consisted of a write-down of the Delta Series product line for $25.3 million, the Synchro and 77/90 product lines for $11.8 million, and $3.6 million for service parts deemed excess or obsolete. The $6.3 million restructuring charge recorded in the fourth quarter of fiscal 1998 included: $3.2 million in employee separation costs, $2.9 million in asset impairment write-offs and $.2 million in lease terminations and other contractual obligations. The workforce reduction impacted 259 employees, of which 211 were in Production & Engineering, 33 in Sales & Marketing and 15 in Administration. Asset impairment write-offs of $2.9 million related to the write off of capitalized Master and Delta Series testers and test equipment at its facilities in San Jose and Korea. The Company no longer manufactures the Master series line and this equipment was written down to zero value and depreciation expense permanently ceased. The assets were disposed of or sold in fiscal 1999. The company received $.3 million in cash and short term notes for the sale of these assets. There is no remaining accrued liability balance to be paid that relates to the fiscal 1998 restructuring plan as of July 31, 1999. F-18 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. The remaining accrued balance as of July 31, 1999 of $1.7 million relates to the estimated cost to replace certain board modules. In fiscal 1999, approximately $.2 million of cash expenditures were made on this project. Restructuring Cost ($000's) Charges: (See Note)
From the From the From the Pre-Fiscal 1996 Plan Fiscal 1997 Plan Fiscal 1998 Plan -------------------- ---------------- ---------------- Employee separation cost................... $ 1,900 $1,750 $3,145 Cancelled engineering projects............... -- 1,250 -- New system board modules................ -- 2,850 -- Fixed asset write- downs.................. -- 600 2,908 Termination of leases and other contractual obligations............ 12,500 300 219 ------- ------ ------ Total................. 14,400 6,750 6,272 ======= ====== ====== Incurred through July 31, 1999............... 13,887 5,000 6,272 Ending accrual at July 31, 1999............... 513 1,750 -- Actual cash payments in fiscal 1999............ -- 228 3,295
- -------- Note: Charges represent cash items except for the fixed asset write-downs which is a non-cash item. Headcount Reduction
From the From the Fiscal 1997 Plan Fiscal 1998 Plan ---------------- ---------------- Sales and marketing...................... 4 33 Administration........................... 10 15 Production and engineering............... 166 211 --- --- Total reduction........................ 180 259
F-19 LTX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 12. QUARTERLY RESULTS OF OPERATIONS (unaudited) QUARTERLY RESULTS OF OPERATIONS (unaudited) (In thousands, except per share data)
Year Ended July 31, 1999 ------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ---------- Net sales.................................. $27,018 $33,691 $43,210 $ 53,407 Gross profit............................... 7,171 10,463 16,056 20,531 Net income (loss).......................... (6,892) 1,139 1,794 4,334 Net income (loss) per share: Basic.................................... (.19) .03 .05 .12 Diluted.................................. (.19) .03 .05 .11 Year Ended July 31, 1998 ------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter(1) ------- ------- ------- ---------- Net sales.................................. $54,206 $55,132 $54,130 $ 32,759 Gross profit............................... 19,006 19,978 14,364 (39,113) Net income (loss).......................... 1,108 765 (6,334) (73,819) Net income (loss) per share: Basic.................................... 0.03 0.02 (0.17) (2.09) Diluted.................................. 0.03 0.02 (0.17) (2.09)
- -------- (1) The Company recorded a charge for excess inventory of $40.7 million and a restructuring charge of $6.3 million in its fourth quarter results of operations. F-20 [textual description of the inside back cover] Inside Back Cover The following caption appears on the center of the inside back cover: "Our customers build their semiconductors without compromises -- Fusion allows them to test it that way." The background reflects a magnified image of a semiconductor chip. [end of textual description of the inside back cover] [LTX LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution The following table sets forth a reasonably itemized statement of all expenses in connection with the issuance and distribution of the shares of Common Stock being registered hereby, other than underwriting discounts and commissions. All amounts shown are estimates except the Securities and Exchange Commission registration fee and the National Association of Securities Dealers, Inc. fees. SEC registration fee............................................ $ 19,158 NASD filing fee................................................. 30,500 Nasdaq National Market fee...................................... 17,500 Blue sky fees and expenses...................................... 10,000 Transfer agent and registrar fees............................... 4,000 Legal fees and expenses......................................... 80,000 Accounting fees and expenses.................................... 40,000 Printing and engraving expenses................................. 80,000 Miscellaneous................................................... 18,842 -------- Total....................................................... $300,000 ========
Item 15. Indemnification of Directors and Officers Chapter 156B of the Massachusetts General Laws, under which LTX is organized, permits a Massachusetts corporation to adopt a provision in its Articles of Organization eliminating or limiting the liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such liability does not arise from certain proscribed conduct (including intentional misconduct and breach of duty of loyalty). On December 8, 1987, the stockholders approved an amendment to the Company's Articles of Organization. The amendment to the Articles of Organization, which became effective on April 8, 1988, is as follows: "No director shall be personally liable to the corporation or any of its stockholders for monetary damages for any breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability; provided, however, that this provision shall not eliminate or limit the liability of a director for (i) any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) authorizing distributions to stockholders in violation of the corporation's Articles of Organization or which render the corporation insolvent or bankrupt, and approving loans to officers or directors of the corporation which are not repaid and which were not approved or ratified by a majority of disinterested directors or stockholders, or (iv) any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to the effective date of such amendment." The By-laws of the registrant provide for indemnification of officers and directors as follows: Section 6.5 Indemnification. The Corporation shall indemnify each director and officer against all judgments, fines, settlement payments and expenses, including reasonable attorneys' fees, paid or incurred in connection with any claim, action, suit or proceeding, civil or criminal, to which he may be made a party or with which he may be threatened by reason of his being or having been a director or officer of the corporation, or, at its request, a director, officer, stockholder or member of any other corporation, firm, association or other organization or by reason of his serving or having II-1 served, at its request, in any capacity with respect to any employee benefit plan, or by reason of any action or omission by him in such capacity, whether or not he continues to be a director or officer at the time of incurring such expenses or at the time the indemnification is made. No indemnification shall be made hereunder (i) with respect to payments and expenses incurred in relation to matters as to which he shall be finally adjudged in such action, suit or proceeding not to have acted in good faith and in the reasonable belief that his action was in the best interests of the corporation (or, to the extent that such matter relates to service with respect to an employee benefit plan, in the best interest of the participants or beneficiaries of such employee benefit plan), or (ii) otherwise prohibited by law. The foregoing right of indemnification shall not be exclusive of other rights to which any director or officer may otherwise be entitled and shall inure to the benefit of the executor or administrator of such director or officer. The Corporation may pay the expenses incurred by any such person in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by such person to repay such payment if it is determined that such person is not entitled to indemnification hereunder. The Board of Directors may, without stockholder approval, authorize the Corporation to enter into agreements, including any amendments or modification thereto, with any of its directors, officers or other persons described in paragraph (a) above providing for indemnification of such persons to the maximum extent permitted under applicable law and the Corporation's Articles of Organization and By-laws. No amendment to or repeal of this section shall have any adverse effect on (i) the right of any director or officer under any agreement entered into prior thereto, or (ii) the rights of any director or officer hereunder relating to his service, for which he would otherwise be entitled to indemnity hereunder, during any period prior to such amendment or repeal. Item 16. Exhibits 1.1 Form of Underwriting Agreement (to be filed by amendment) 3.1 Articles of Organization, as amended (Exhibit 3.1 to the Company's Amendment No. 1 to Registration Statement No. 33-62125 on Form S-3 filed September 11, 1995) 3.3 By-laws, as amended (Exhibit 3-B to the Quarterly Report on Form 10-Q for the quarter ended October 31, 1997). 4.1 Indenture dated April 15, 1986 between the Company and The First National Bank of Boston (Exhibit 4-A to the Company's Registration Statement No. 33-35401 on Form S-4 filed June 26, 1990) 4.2 Indenture dated June 15, 1990 between the Company and The First National Bank of Boston (Exhibit 4 (A) (ii) to the Company's Annual Report on Form 10-K for the year ended July 31, 1990) 4.3 Rights Agreement dated as of April 30, 1999 between the Company and BankBoston, N.A. (Exhibit 4.1 to the Company's Current Report on Form 8-K, filed May 3, 1999) 5.1 Opinion of Bingham Dana LLP (to be filed by amendment) 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Bingham Dana LLP (included in Exhibit 5.1) 24.1 Power of Attorney (included on page II-4) 27.1 Financial Data Schedules Item 17. Undertakings The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 The undersigned registrant hereby undertakes that: For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions described in Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Westwood and Commonwealth of Massachusetts on the 9th day of September, 1999. LTX Corporation /s/ Roger W. Blethen By: _________________________________ Roger W. Blethen Chief Executive Officer, President and Director KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Roger W. Blethen and David G. Tacelli, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any amendments or post-effective amendments to this Registration Statement, and any and all registration statements (including any amendments thereto) relating to the offering covered hereby which may be filed with the Securities and Exchange Commission pursuant to Rule 462(b) under the Securities Act of 1933, and to file any of the foregoing with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto each of said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in- fact and agents, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Roger W. Blethen Chief Executive Officer, September 9, 1999 ______________________________________ President and Director Roger W. Blethen (Principal Executive Officer) /s/ David G. Tacelli Chief Financial Officer September 9, 1999 ______________________________________ (Principal Financial & David G. Tacelli Accounting Officer) /s/ Samuel Rubinovitz Chairman of the Board September 9, 1999 ______________________________________ Samuel Rubinovitz /s/ Robert J. Boehlke Director September 9, 1999 ______________________________________ Robert J. Boehlke /s/ Jacques Bouyer Director September 9, 1999 ______________________________________ Jacques Bouyer /s/ Stephen M. Jennings Director September 9, 1999 ______________________________________ Stephen M. Jennings /s/ Robert J. Maggs Director September 9, 1999 ______________________________________ Robert J. Maggs /s/ Robert E. Moore Director September 9, 1999 ______________________________________ Robert E. Moore
II-4 EXHIBIT INDEX 1.1 Form of Underwriting Agreement (to be filed by amendment) 3.1 Articles of Organization, as amended (Exhibit 3.1 to the Company's Amendment No. 1 to Registration Statement No. 33-62125 on Form S-3 filed September 11, 1995) 3.3 By-laws, as amended (Exhibit 3-B to the Quarterly Report on Form 10-Q for the quarter ended October 31, 1997). 4.1 Indenture dated April 15, 1986 between the Company and The First National Bank of Boston (Exhibit 4-A to the Company's Registration Statement No. 33-35401 on Form S-4 filed June 26, 1990) 4.2 Indenture dated June 15, 1990 between the Company and The First National Bank of Boston (Exhibit 4 (A) (ii) to the Company's Annual Report on Form 10-K for the year ended July 31, 1990) 4.3 Rights Agreement dated as of April 30, 1999 between the Company and BankBoston, N.A. (Exhibit 4.1 to the Company's Current Report on Form 8-K, filed May 3, 1999) 5.1 Opinion of Bingham Dana LLP (to be filed by amendment) 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Bingham Dana LLP (included in Exhibit 5.1) 24.1 Power of Attorney (included on page II-4) 27.1 Financial Data Schedules EX-23.1 2 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.1 Consent of Independent Public Accountants To the Board of Directors and Stockholders of LTX Corporation: As independent public accountants, we hereby consent to the use of our report dated August 24, 1999 included in or made part of this Registration Statement and to all references to our Firm included in this Registration Statement. Arthur Andersen LLP Boston, Massachusetts September 8, 1999 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUL-31-1999 AUG-01-1998 JUL-31-1999 19,936 0 43,394 (2,027) 48,551 115,649 116,703 (84,761) 147,993 67,734 21,331 0 0 1,936 56,992 147,993 0 157,326 0 103,105 0 0 941 375 0 375 0 0 0 375 .01 .01
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