SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECITON 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission File Number 000-10761
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LTX CORPORATION
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(exact Name of Registrant as Specified in Its Chapter)
Massachusetts 04-2594045
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
LTX Park at University Avenue, Westwood, Massachusetts 02090
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (781) 461 1000
---------------------------
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check [X] whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 15, 1999
- --------------------------------------- ----------------------------------
Common Stock, par value $0.05 per share 35,669,601
LTX CORPORATION
Index
Page Number
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet 1
January 31, 1999 and July 31, 1998
Consolidated Statement of Operations 2
Three months and six months ended
January 31, 1999 and January 31, 1998
Consolidated Statement of Cash Flows 3
Six months ended January 31, 1999
and January 31, 1998
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of Financial 7-14
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Part II. OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
LTX CORPORATION
CONSOLIDATED BALANCE SHEET
(unaudited)
(In thousands, except share data)
January 31, July 31,
1999 1998
---------- ---------
ASSETS
Current assets:
Cash and equivalents $ 18,395 $ 25,109
Accounts receivable, less allowances
of $2,127 and $2,200 28,288 33,871
Accounts receivable - other 4,014 2,044
Inventories 36,124 38,264
Other current assets 4,714 3,633
-------- --------
Total current assets 91,535 102,921
Property and equipment, net 31,714 35,427
Other assets 416 2,671
-------- --------
$123,665 $141,019
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ - $ 4,827
Current portion of long-term debt 279 5,106
Accounts payable 21,976 25,020
Deferred revenues and customer advances 13,396 15,045
Other accrued expenses 18,003 18,965
-------- --------
Total current liabilities 53,654 68,963
-------- --------
Long-term debt, less current portion 12,000 8,235
Other long-term liabilities 500 563
Convertible subordinated debentures 7,308 7,308
Stockholders' equity 50,203 55,950
-------- --------
$123,665 $141,019
======== ========
1
LTX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amount)
Three Months Six Months
Ended Ended
January 31, January 31,
----------------------- ------------------------
1999 1998 1999 1998
------- ------- ------- -------
Net sales $ 33,691 $ 55,132 $ 60,709 $109,338
Cost of sales 23,228 35,154 43,075 70,354
------- ----- -------- -------
Gross margin 10,463 19,978 17,634 38,984
Engineering and product development
expenses 5,797 7,928 11,793 14,644
Selling, general and administrative expenses 7,255 11,046 15,124 21,955
------- ----- -------- -------
Income (loss) from operations (2,589) 1,004 (9,283) 2,385
Interest (income) expense, net 58 (4) 256 (84)
Other (income) expense, net (3,786) - (3,786) -
------- ----- -------- -------
Income (loss) before income taxes 1,139 1,008 (5,753) 2,469
Provision for income taxes - 243 - 596
------- ----- -------- -------
Net income (loss) $ 1,139 $ 765 $ (5,753) $ 1,873
======= ===== ======== =======
Net income (loss) per share:
Basic $ 0.03 $ 0.02 $ (0.16) $ 0.05
Diluted $ 0.03 $ 0.02 $ (0.16) $ 0.05
Weighted average shares:
Basic 35,477 36,758 35,477 36,737
Diluted 36,131 37,665 35,477 37,986
2
LTX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months
Ended
January 31,
-------------------------
1999 1998
------- -------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (5,753) $ 1,873
Add (deduct) non-cash items:
Depreciation and amortization 5,811 6,059
Gain on liquidation / sale of business units (3,786) -
Exchange (gain) loss 308 (36)
(Increase) decrease in:
Accounts receivable 5,958 (13,265)
Inventories 2,132 (14,375)
Other current assets (1,064) (139)
Other assets (60) 264
Increase (decrease) in:
Accounts payable (3,854) 8,565
Accrued expenses and restructuring charges (3,493) (307)
Deferred revenues and customer advances (5,499) (2,951)
-------- --------
Net cash used in operating activities (9,300) (14,312)
-------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Expenditures for property and equipment, net (2,699) (7,376)
-------- --------
Net cash used in investing activities (2,699) (7,376)
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from stock purchase and option plans 483 900
Proceeds from sale of business unit 2,000 -
Increase (decrease) in notes payable (767) 3
Payments of long-term debt and other liabilities (895) (2,629)
Proceeds from lease financing 3,850 141
-------- --------
Net cash provided by (used in) financing activities 4,671 (1,585)
-------- --------
Effect of exchange rate changes on cash 614 (206)
-------- --------
Net decrease in cash and equivalents (6,714) (23,479)
Cash and equivalents at beginning of period 25,109 67,800
-------- --------
Cash and equivalents at end of period $ 18,395 $ 44,321
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) during the period for:
Interest $ 702 $ 1,128
Income taxes $ (786) $ 979
3
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company
-----------
LTX Corporation (the "Company") designs, manufactures, and markets automated
test equipment for the semiconductor industry that is used to test systems-
on-a-chip, digital, analog, and mixed signal (a combination of digital and
analog) integrated circuits (ICs). The Company is headquartered in Westwood,
Massachusetts, has additional development facilities 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 accompanying financial statements have been prepared by the Company,
without audit, and reflect all adjustments which, in the opinion of
management, are necessary for a fair statement of the results of the interim
periods presented. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of income and
expenses during the reporting periods.
Certain information and footnote disclosures normally included in the annual
financial statements which are prepared in accordance with generally
accepted accounting principles have been condensed or omitted. Accordingly,
although the Company believes that the disclosures are adequate to make the
information presented not misleading the financial statements should be read
in conjunction with the footnotes contained in the Company's Annual Report
on 10-K.
4
Revenue Recognition
Revenues from product sales and related warranty costs are recognized at the
time of shipment. Service revenues are recognized over the applicable
contractual periods or as services are performed. Revenues from engineering
contracts are recognized over the contract period on a percentage of
completion basis.
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 net
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:
Three Months Six Months
Ended Ended
January 31, January 31,
------------------------- ---------------------------
1999 1998 1999 1998
------- ------- ------- -------
(In thousands, except per share amount)
Net income (loss) $ 1,139 $ 765 $(5,753) $ 1,873
Basic EPS
Basic commons shares 35,477 36,758 35,477 36,737
Basic EPS $ 0.03 $ 0.02 $ (0.16) $ 0.05
Diluted EPS
Basic common shares 35,477 36,758 35,477 36,737
Plus: Impact of stock options 654 884 - 1,223
Plus: Impact of stock warrants - 23 - 26
Diluted common shares 36,131 37,665 35,477 37,986
------- ------- ------- -------
Diluted EPS $ 0.03 $ 0.02 $ (0.16) $ 0.05
Options to purchase 4,612,217 shares of common stock in 1999 and 4,159,893
shares in 1998 were outstanding during the periods then ended. Options to
purchase 1,116,805 shares of Common Stock at January 31, 1999 at prices
ranging from $3.77 to $5.28, were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than the
average market price of the common shares and, therefore, their inclusion
would be antidilutive.
5
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include material, labor and manufacturing overhead. Inventories consisted
of the following at:
January 31, July 31,
1999 1998
------- -------
(In thousands)
Raw materials $15,298 $14,400
Work-in-progress 17,970 19,419
Finished goods 2,856 4,445
$36,124 $38,264
======= =======
3. Comprehensive Income
----------------------
In August 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income". The statement 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 effect of SFAS 130 is immaterial to the Company's financial
results.
4. Recent Accounting Pronouncements
--------------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
Disclosures About Segments of an Enterprise and Related Information. 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.
5. Interest Expense and Income
---------------------------
Interest expense and income were as follows:
Three Months Six Months
Ended Ended
January 31, January 31,
--------------- ------------------
1999 1998 1999 1998
------ ----- ------ -------
(In thousands) (In thousands)
-------------------------------------
Expense $ 310 $ 547 $ 707 $ 1,129
Income (252) (551) (451) (1,213)
Interest (income) expense, net $ 58 $ (4) $256 ($84)
===== ===== ===== =======
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND 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 net sales.
Percentage of Net Sales Percentage
--------------------------------------------- Increase/(Decrease)
Three Months Six Months ---------------------------
Ended Ended Three Months Six Months
January 31, January 31, 1999 1999
----------------- ----------------- Over Over
1999 1998 1999 1998 1998 1998
---- ---- ---- ---- ---- ----
Net sales 100.0 % 100.0 % 100.0 % 100.0 % (38.9) (44.5)%
Cost of sales 68.9 63.8 71.0 64.3 (33.9) (38.9)
Gross margin 31.1 36.2 29.0 35.7 (47.6) (54.8)
Engineering and product
development expenses 17.2 14.4 19.4 13.4 (26.9) (19.5)
Selling, general and
administrative expenses 21.5 20.0 24.9 20.1 (34.3) (31.1)
----- ----- ----- ----- ----- ----
Income (loss) from operations (7.6) 1.8 (15.3) 2.2 N/M N/M
Interest (income) expense, net - - - - N/M N/M
Other income 11.0 - 5.8 - N/M N/M
----- ----- ----- ----- ----- ----
Income (loss) before income
taxes 3.4 1.8 (9.5) 2.2 12.9 N/M
Provision for income taxes - 0.4 - 0.5 (100.0) N/M
----- ----- ----- ----- ----- ----
Net income (loss) 3.4 % 1.4 % (9.5)% 1.7 % 48.9 N/M %
===== ===== ===== ===== ===== ====
N/M - Not Meaningful
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below contains certain forward-looking statements relating to,
among other things, estimates of economic and industry conditions, sales trends,
expense levels and capital expenditures. Actual results may vary from those
contained in such forward-looking statements. See "Business Risks" below.
Results of Operations
Three Months and Six Months Ended January 31, 1999 Compared
to the Three Months and Six Months Ended January 31, 1998
Net sales for the three months ended January 31, 1999 were $33.7 million
(including $2.5 million of deferred revenue from the Company's Fusion alliance
with Ando Electric Co., Ltd.) as compared to $55.1 million in the same quarter
of the prior year, a decrease of 39%. For the six months ended January 31,
1999, net sales were $60.7 million as compared to $109.3 million for the same
period of the prior year, a decease of 44%. The decrease in revenue is a result
of the STE and semiconductor industries experiencing a significant decline in
activity. Geographically, sales to customers outside of North America were 57%
and 61% of total net sales in the three months ended January 31, 1999 and 1998,
respectively.
The gross profit margin was 31% of net sales in the three months ended January
31, 1999, compared to 36% of net sales in the same quarter of the prior year.
For the six months ended January 31, 1999, gross profit margin was 29% compared
to 36% for the six months ended January 31, 1998. The decrease primarily results
from a lower level of sales relative to fixed manufacturing costs. The Company
anticipates that its gross margin as a percentage of sales will improve as
industry conditions continue to immprove, and as the Company realizes the full
impact of the consolidation of its manufacturing facilities.
8
Engineering and product development expenses were $5.8 million or 17.2% of net
sales, in the three months ended January 31, 1999, as compared to $7.9 million,
or 14.4% of net sales, in the same quarter of the prior year. For the six
months ended January 31, 1999, engineering and product development expenses were
$11.8 million, or 19.4% of net sales, as compared to $14.6 million, or 13.4% of
net sales, in the six months ended January 31, 1998. During the first half of
fiscal 1999, the Company realized savings in relation to the higher levels of
spending during fiscal 1998 when the Company was at an earlier stage of
development of its Fusion product.
Selling, general and administrative expenses were $7.3 million or 21.5% of net
sales, in the three months ended January 31, 1999, as compared to $11.0 million,
or 20.0% of net sales, in the same quarter of the prior year. For the six
months ended January 31, 1999, selling, general and administrative expenses were
$15.1 million, or 24.9% of net sales, as compared to $22.0 million, or 20.1% of
net sales, in the six months ended January 31, 1998. The decrease in selling,
general and administrative expenses in absolute dollars largely relates to the
Company's restructuring efforts taken during the fourth quarter of fiscal 1998
and first quarter of fiscal 1999.
Net interest expense was $58,000 in the three months ended January 31, 1999, as
compared to net interest income of $4,000 in the same quarter in the prior year.
The Company booked two transactions for $3.8 million during the three months
ended January 31, 1999. These transactions consisted of a liquidation of a joint
venture with Sumitomo Metal Industries, Ltd. in Japan and the sale of a portion
of the Company's board repair business in Singapore. These transactions are
consistent with the Company's strategic commitment to the Fusion product and its
focus on reducing costs. The combination of the liquidation of the joint venture
and the sale of the board repair business related to its first generation
products resulted in a gross gain of $5.6 million. The gain was reduced by a
reserve against anticipated costs related to these transactions of $1.8 million
resulting in a net gain of $3.8 million.
The Company had no tax provision for the three months ended January 31, 1999.
There was a $243,000 provision for income taxes in the same period of the prior
year. There was no provision for income taxes in the six months ended January
31, 1999, as compared to $596,000 in the six months ended January 31, 1998. The
change in the provision relates to the net loss from operations and the net
operating loss carryforward.
Net income was $1.1 million, or $0.03 per share, in the three months ended
January 31, 1999. The Company had a net income of $0.76 million, or $0.02 per
share, in the same quarter of the prior year.
Liquidity and Capital Resources
At January 31, 1999, the Company had $18.4 million in cash and equivalents and
working capital of $37.8 million, as compared to $25.1 million of cash and
equivalents and $34.0 million of working capital at July 31, 1998. The decrease
in cash balance of $6.7 million included $3.6 million of cash payments for
severance and other restructuring costs.
9
The Company's Japanese subsidiary had no short term bank debt outstanding at
January 31, 1999 as compared to $4.8 million at July 31, 1998. The decrease is
a result of the payment of approximately $5.0 million of short term bank debt of
the Japanese subsidiary by Sumitomo Metal Industries, Ltd. in connection with
the liquidation of the Company's joint venture with Sumitomo Metal Industries,
Ltd.
In October 1998, the Company obtained a $10.0 million domestic credit facility
from a bank. The facility is secured by all assets of the Company and bears
interest at the bank's prime rate plus 1%. Borrowing availability under the
facility is based on a formula of eligible accounts receivable less outstanding
letters of credit issued on behalf of the Company. The Company has used
approximately $3.0 million of borrowing availability for outstanding letters of
credit. During fiscal 1998, the Company had a $20 million domestic credit
facility which had no outstanding borrowings and expired in July 1998. In
addition, the Company had a $5 million equipment lease line which was repaid in
full during November 1998 upon its termination.
The Company has taken and continues to take significant steps to control and
reduce spending and capital expenditures and divest its non-strategic assets.
The Company anticipates that these steps, combined with its working capital and
its existing credit facility will be adequate to fund the Company's currently
proposed operating activities for the remainder of the fiscal year. However, a
significant shortfall from plan as a result of the Company's inability to ship
products as scheduled or delayed acceptance of the Company's new Fusion products
would unfavorably impact the Company's cash flow. The Company may require
additional capital to fund anticipated growth in fiscal 2000. In that event, the
Company would need to seek additional debt or equity financing. There can be no
assurance that the Company could obtain the necessary financing.
Year 2000
A discussion of the impact of the Year 2000 to the Company appears under the
heading "Business Risks" below.
BUSINESS RISKS
The Company in this report makes, and may from time to time elsewhere make,
disclosures which contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such disclosures in this
report include, without limitation, statements regarding the development,
introduction, acceptance and market for Fusion, the Company's belief, under
"Results of Operations. Three Months and Six Months Ended January 31, 1999 As
Compared to the Three Months and Six Months Ended January 31, 1998," as to
anticipated revenues, margins and levels of engineering and product development
expenses and the Company's belief, under "Liquidity and Capital Resources," as
to the adequacy of its cash resources. Such forward-looking statements involve
risks and uncertainties including, but not limited to, the following important
factors that could cause actual results to differ materially from those in the
forward-looking statement.
Importance of New Product Introduction
The STE market is subject to rapid technological change and new product
introductions, as well as advancing industry standards. The development of
increasingly complex semiconductors and the utilization of semiconductors in a
broader spectrum of products have driven the need for more advanced test systems
to test such devices and to do so at an acceptable cost. The Company's ability
to
10
remain competitive in the mixed signal and system-on-a-chip IC markets will
depend upon its ability to successfully enhance existing test systems, develop
new generations of test systems, such as its new Fusion platform, and to
introduce these new products in a timely and cost-effective manner. The Company
also has to manufacture its products in volume at a competitive price and on a
timely basis to enable customers to integrate them into their operations as they
begin to produce their next generation of semiconductors. The Company's failure
to manufacture and ship test systems to customers in sufficient volume and on a
timely basis could materially adversely affect the Company's business and
results of operations. The Company's failure to have a competitive test system
available when required by a semiconductor manufacturer would make it
substantially more difficult for the Company to sell test systems to that
manufacturer for a number of years. The Company has in the past experienced
delays in introducing certain of its products and enhancements, and there can be
no assurance that it will not encounter technical or other difficulties that
could in the future delay the introduction of new products or enhancements.
If new products have reliability or functionality problems, then reduced,
canceled or rescheduled orders, higher manufacturing costs, delays in collecting
accounts receivable and additional warranty expense may result, which would
reduce gross margins on new product sales and otherwise materially affect the
Company's business and results of operations. The Company's Fusion product is
subject to the risks associated with new product introductions, including the
risk that delays in development, reliability or functionality problems could
increase expenses and reduce gross margins on new product sales. Furthermore,
announcements by the Company or its competitors of new products could cause
customers to defer or forego purchases of the Company's existing products,
which would also adversely affect the Company's business and results of
operations. There can be no assurance that the Company will be successful in
the introduction and volume manufacture of its new productions, that such
introduction will coincide with the development by semiconductor manufacturers
of their next generation semiconductors or that such products will satisfy
customer needs or achieve market acceptance. The failure to do so could
materially adversely affect the Company's business and results of operations.
Fluctuations in Sales and Operating Results
Given the relatively large selling prices of the Company's test systems, sales
of a limited number of test systems account for a substantial portion of sales
in any particular fiscal quarter and a small number of transactions could
therefore have a significant impact on sales and gross margins for that fiscal
quarter. The Company's sales and operating results have fluctuated and could
in the future fluctuate significantly from period to period, including from one
quarterly period to another, due to a combination of factors, including the
cyclical demand of the semiconductor industry, order cancellations or
rescheduling by customers, the large selling prices of the Company's test
systems (which typically result in a long selling process), competitive pricing
pressures and the mix between and configuration of test systems sold in a
particular period. The impact of these and other factors on the Company's sales
and operating results in any future period cannot be forecast with accuracy. In
addition, the need for continued investment in research and development, for
capital equipment requirements and for extensive worldwide customer support
capability results in significant fixed costs which would be difficult to reduce
in the event that the Company does not meet its sales objectives.
11
Dependence Upon Key Suppliers
Most of the components for the Company's products are available from a number of
different suppliers; however, certain components are purchased from a single
supplier. Any disruption or termination of supply of components, particularly
single source components, could have an adverse effect on the Company's business
and results of operations.
Cyclicality of Semiconductor Industry
The Company's business is largely dependent upon the capital expenditures of
semiconductor manufacturers. The semiconductor industry is highly cyclical and
has historically experienced recurring periods of oversupply, which often have
had a severely detrimental effect on such industry's demand for test equipment
and could cause cancellations, rescheduling or reductions of customer orders.
No assurance can be given that the Company's business and results of operations
will not be materially adversely affected if the current downturn continues for
a prolonged period or if downturns or changes in any particular market segments
of the semiconductor industry occur in the future, especially if all of the
market segments in which the Company participates experience downturns at the
same time.
Dependence Upon Key Personnel
The Company's success is dependent upon certain key management and technical
personnel. There is intense competition for a limited number of qualified
employees among companies in the semiconductor test equipment industry, and the
loss of certain of the Company's employees or an inability to attract and
motivate highly skilled employees could adversely affect its business.
Highly Competitive Industry
The STE industry is highly competitive in all areas of the world. Most of the
Company's major competitors have substantially greater financial resources and
some have more extensive engineering, manufacturing, marketing and customer
support capabilities than the Company. The Company expects its competitors to
continue to improve the performance of their current products and to introduce
new products with improved price and performance characteristics. The Company
principally competes on the basis of performance, cost of test, reliability,
customer service, applications support, price and ability to deliver its
products on a timely basis. New product introductions by the Company's
competitors could cause a decline in sales or loss of market acceptance of the
Company's existing products and could prevent the successful introduction of the
Company's new products. In addition, increased competitive pressure could lead
to intensified price-based competition, resulting in lower prices and adversely
affecting the Company's business and results of operations. The Company believes
that to remain competitive it will require significant financial resources for
investment in new product development and for the maintenance of customer
support centers worldwide. There can be no assurance that the Company will be
able to compete successfully in the future.
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. The Company is assessing the readiness of its products sold to
customers for handling Year 2000 issues, as well as its own internal business
systems and the products and internal business systems of its suppliers. In
connection with the foregoing, the Company has established a Year 2000 Program
12
to address both LTX product compliance and internal business systems and
suppliers compliance. The Program is sponsored by a member of senior management
who is charged with apprising senior management and the Board of Directors of
the status of the Company's compliance efforts.
Certain hardware and software products currently installed at sites will require
upgrade or other remediation to become Year 2000 compliant. The Company is
identifying and contacting affected customers to advise them of non-compliant
products. The Company has established three ongoing product-based teams to
ensure product compliance. The teams are managed in accordance with the
Company's engineering product development process. The Company anticipates that
it will incur costs of approximately $400,000 to make its products Year 2000
compliant. A majority of such Year 2000 compliance expenses is represented by
existing engineering personnel assigned to the project. The Company does not
believe that there will be a material adverse impact as a result of making its
products Year 2000 compliant since the Company's products are not "date
dependent".
The Company also has established a team to assess Year 2000 readiness of its
internal business systems (including its facilities) and the products and
internal business systems of its suppliers. The team has identified all mission
critical systems and plans have been formulated to ensure Year 2000 compliance.
It is anticipated that the Company will incur costs of approximately $300,000 in
making its internal business systems Year 2000 compliant. There can be no
assurance, however, that the Company will not experience unanticipated material
costs caused by undetected errors or defects in such systems.
The impact to the Company of Year 2000 will also be dependent on the manner in
which Year 2000 issues are addressed by third parties that either provide or
receive services or data to or from the Company or whose operations are critical
to the Company. To reduce this risk, the team has been identifying mission
critical third parties to determine their Year 2000 readiness. The Company is
also developing contingency plans if these third parties fail to address
adequately Year 2000 issues. These plans primarily involve identifying
alternative vendors and suppliers. There can be no assurance that these plans
will fully address these problems and whether such alternative sources are in
fact available.
Although the Company does not believe that there will be any material adverse
impact to its operations and products as a result of the Year 2000, there can be
no assurance that the Company will not experience unanticipated costs and
consequences caused by Year 2000 which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Market Risk
Financial instruments that potentially subject the Company to concentrations of
credit-risk consist principally of investments in cash equivalents, short-term
investments and trade receivables. The Company places its investment with high-
quality financial institutions, limits the amount of credit exposure to any one
institution and has established investment guidelines relative to
diversification and maturities designed to maintain safety and liquidity. The
Company's trade receivables result primarily from sales to semiconductors
manufacturers located in North America, Japan, the Pacific Rim and Europe.
Receivables are from major corporations or are supported by letters of credit.
The Company maintains reserves for potential credit losses and such losses have
been immaterial.
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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.
For all other balance sheet financial instruments, the carrying amount
approximates fair value.
Asia Economic Conditions
In light of the economic downturn in certain Asian countries, there can be no
assurance that continually the Company will be able to obtain additional orders
or that it will not experience cancellations of existing orders from customers
in or dependent upon such countries, any of which would have an adverse effect
on the Company's business and results of operations.
Customer Concentration
The loss of a major customer or reduction in, or rescheduling or cancellation
of, orders by major customers, including reductions, cancellations or
rescheduling due to market or competitive conditions in the semiconductor
industry, has had in the past and could have in the future an adverse effect on
the Company's business and results of operations. In addition, the Company's
ability to increase its sales will depend in part upon its ability to obtain
orders from new customers. The loss of one or more of its top ten customers
could have a material adverse effect on the Company's business and results of
operations.
Proprietary Rights
The Company's future success depends in part upon its proprietary technology.
Although the Company attempts to protect its proprietary technology through a
combination of contract provisions, trade secrets, copyrights and patents, it
believes that its future success depends more upon its engineering,
manufacturing, marketing and service skills. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be adequate to
prevent misappropriation of its technology or the independent development by
others of similar technology. Although there are no pending actions against the
Company regarding any patents, no assurance can be given that infringement
claims by third parties will not have a material adverse effect on the Company's
business and results of operations.
Acquisitions
The Company from time to time may acquire technologies, product lines or
businesses that are complementary to those of the Company. Although the Company
believes that integration of acquired technologies, product lines and businesses
will result in long-term growth and profitability, there can be no assurance
that the Company will be able to successfully negotiate, finance or integrate
such acquired technologies, product lines or business. Furthermore, the
integration of an acquired company or business may cause a diversion of
management time and resources. There can be no assurance that a given
acquisition, if consummated, would not materially adversely affect the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A discussion of the Company's exposure to and management of market risk
appears under the heading "Business Risks".
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PART II OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on December 8,
1998.
(b) Stockholders elected Messrs. Jacques Bouyer and Samuel Rubinovitz
as Class III Directors to serve additional terms of three years.
Messrs. Stephen M. Jennings and Robert E. Moore continued to serve
as Class I Directors, with their terms of office expiring at the
Year 1999 Annual Meeting of Stockholders. Messrs. Roger W.
Blethen, Robert J. Boehlke and Roger J. Maggs continued to serve
as Class II Directors, with their terms of office expiring at the
Year 2000 Annual Meeting of Stockholders.
(c) Matters voted upon and the results of the voting were as follows:
(i) Stockholders voted 32,060,982 shares FOR and 1,750,145 shares
WITHHELD from the election of Jacques Bouyer as a Class III
Director. Stockholders voted 33,119,983 shares FOR and
691,144 shares WITHHELD from the election of Samuel
Rubinovitz as a Class III Director.
(ii) Stockholders voted 27,698,402 shares FOR; 5,971,475 shares
AGAINST and 141,250 shares ABSTAINED regarding the vote to
amend the 1993 Employees' Stock Purchase Plan to increase the
number of shares of common stock available for issuance
thereunder by 1,500,000.
Item 6. Exhibits and Reports on Form 8-K
(a) (i) Exhibit 10 Material Contracts
- LTX Corporation 1993 Employees' Stock Purchase Plan
(Exhibit 10 (D)). Previously filed as Exhibit 4 to the
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Company's Registration Statement No. 333-71455 on Form S-8
filed on January 29, 1999.
- Second Amendment to Loan Agreement between LTX Corporation
and Ando Electric Co., Ltd. (Exhibit 10(BB)).
(ii) Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed during the three months ended
January 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LTX Corporation
Date: By: /s/ Roger W. Blethen
-------------------------------- -----------------------------------
Roger W. Blethen
Chief Executive Officer and President
Date: By: /s/ David G. Tacelli
-------------------------------- -----------------------------------
David G. Tacelli
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
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