Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| |
x |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended July 31, 2002
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
No. 000-10761
LTX Corporation
(Exact name of registrant as specified in its charter)
| MASSACHUSETTS |
|
04-2594045 |
| (State or other jurisdiction of Incorporation or organization) |
|
(I.R.S. Employer Identification
No.) |
University Avenue
Westwood, Massachusetts 02090
(781) 461-1000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class
|
|
Name of each exchange on which registered
|
| None |
|
None |
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.05 per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
The aggregate market value of
the Common Stock held by non-affiliates of the registrant on August 29, 2002 was $403,281,092
Number of shares
outstanding of each of the issuer’s classes of Common Stock as of August 29, 2002:
Common Stock, Par Value $0.05 Per
Share, 49,300,867 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the
Registrant’s Proxy Statement in connection with its 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K Report. The Compensation Committee Report, Stock Performance Graph and Audit Committee Report
of the Registrant’s Proxy Statement are expressly not incorporated herein by reference.
LTX CORPORATION
| |
|
|
|
Page
|
| |
| PART I |
|
|
|
|
| Item 1. |
|
|
|
1 |
| |
|
|
|
1 |
| |
|
|
|
2 |
| |
|
|
|
4 |
| |
|
|
|
4 |
| |
|
|
|
5 |
| |
|
|
|
6 |
| |
|
|
|
6 |
| |
|
|
|
6 |
| |
|
|
|
7 |
| |
|
|
|
7 |
| |
|
|
|
8 |
| |
|
|
|
8 |
| |
|
|
|
8 |
| |
|
|
|
9 |
| |
|
|
|
9 |
| Item 2. |
|
|
|
9 |
| Item 3. |
|
|
|
9 |
| Item 4. |
|
|
|
9 |
| |
| PART II |
|
|
|
|
| Item 5. |
|
|
|
10 |
| |
| Item 6. |
|
|
|
11 |
| |
| Item 7. |
|
|
|
12 |
| |
|
|
|
Page
|
| Item 7A. |
|
|
|
29 |
| Item 8. |
|
|
|
31 |
| Item 9. |
|
|
|
53 |
| |
| PART III |
|
|
|
|
| Item 10. |
|
|
|
53 |
| Item 11. |
|
|
|
53 |
| Item 12. |
|
|
|
53 |
| Item 13. |
|
|
|
53 |
| Item 14. |
|
|
|
53 |
| |
| PART IV |
|
|
|
|
| Item 15. |
|
|
|
53 |
| |
|
|
|
53 |
| |
|
|
|
53 |
| |
|
|
|
54 |
| |
|
|
|
54 |
| |
|
|
|
56 |
| |
|
|
|
56 |
| |
|
|
|
57 |
| |
|
|
|
58 |
1
PART I
Item 1.
Business Introduction
LTX Corporation (“LTX” or the “Company”)
designs, manufactures, markets and services semiconductor test solutions. Semiconductor designers and manufacturers worldwide, such as Analog Devices, Infineon Technologies, National Semiconductor, Philips Semiconductor, STATS, STMicroelectronics
and Texas Instruments, use semiconductor test equipment to test every device at two different stages during the manufacturing process. These devices are incorporated in a wide range of products, including mobile internet equipment such as 802.11
access points and interfaces, broadband access products such as cable modems and DSL modems, personal communication products such as cell phones and personal digital assistants, consumer products such as televisions, videogame systems, digital
cameras and automobile electronics, and for power management in portable and automotive electronics. We provide test systems, global applications consulting, repair services and operational support to over 100 customers in more than 15 countries.
We offer our customers the LTX Fusion® platform, which combines our enVision++ software with either our Fusion HF or Fusion CX configurations. We believe that Fusion is the first of a
new class of test systems that can test system-on-a-chip, or SOC, devices in a single test step. With Fusion, we believe we have the leading 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.
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 technological expertise in semiconductor test, 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.
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.
1
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 growth of the telecommunications industry. We expect
that future unit production growth will be led by the mobile internet, broadband network access, the increased use of digital signal processing (DSP) devices, and power management applications. These increases in unit production in turn lead to a
corresponding increase in the need for test equipment.
Furthermore, demand is increasing worldwide for smaller,
more highly integrated electronic products. 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 several separate semiconductor devices, each performing a specific function. By integrating these functions on a single
device, SOC enables lower cost, smaller size, higher performance, and lower power consumption.
Although the SOC
concept had been in development for several years, until recently manufacturers did not have an efficient and comprehensive method of testing these devices. Historically, device manufacturers used several narrowly focused testers, each designed to
test only digital, only memory, or only mixed signal devices, but incapable of testing all three. SOC does not fit into any one of these categories because it represents the convergence of these three technologies and requires new testing
technology.
The increases in unit production of devices, the increase in complexity of those devices, and,
ultimately, the emergence of new semiconductor device technology have mandated changes in the design, architecture and complexity of such test equipment. Semiconductor device manufacturers must still be able to test the increasing volume and
complexity of devices in a reliable, cost-effective, efficient and flexible manner. However, the increased pace of technological change, together with the large capital investments required to achieve economies of scale, are changing the nature and
urgency of the challenges faced by device designers and manufacturers.
Designers and manufacturers historically
have not been able to use their test floors at peak efficiency because they had to use several separate digital and mixed signal testers to perform all of their required testing. This increases their costs of ownership due to increased training
requirements, greater floor space, decreased utilization and slower throughput. Furthermore, manufacturers cannot fully test new SOC designs because their current testing equipment does not include a sufficiently broad range of mixed signal
instrumentation. Manufacturers are subject to further increased testing costs if their testing equipment lacks the flexibility and capacity to run parallel tests on multiple devices at one time, or multi-site testing. These problems are exacerbated
when volume production of devices increases.
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
2
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 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 increasing the throughput 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 spend significant amounts of time writing 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’s hardware can be configured with a sufficient number of instruments to perform multi-site testing even on highly complex SOC devices. These
features allow our customers to take advantage of the increased throughput offered by multi-site testing without sacrificing their ability to introduce new products to market quickly.
A full range of mixed signal instrumentation. Testing different types of SOC input/output interfaces requires radio
frequency (RF), digital signal processing (DSP), power, time measurement, and other instruments. Fusion provides customers with the broad range of mixed signal instrumentation necessary to test these devices to the customer’s desired
specifications. Mixed signal test expertise is in short supply in the industry and one of our strengths in SOC testing is the depth of our mixed signal intellectual property, based on our heritage as a pioneer in this field.
Scalable performance. Semiconductor devices, depending upon their application,
require different levels of instrument performance for testing. For example, complex SOC devices require the advanced digital testing performance, including embedded memory testing, found in traditional high-end VLSI testers, whereas
consumer-oriented digital and mixed signal devices typically have less stringent digital test requirements. The Fusion single platform offers different levels of test capability at different price points, providing our customers with the ability to
match test performance exactly to their needs.
Easy-to-use software for test program
development. Our enVision++ software provides the customer’s test engineer with an expandable library of prepackaged, reusable test program modules and debugging tools, all accessible through an easy-to-use
graphical user interface. In most other testers, test engineers can reuse test code only by cutting and pasting lines of program code. enVision++ encapsulates test techniques into software objects that are added to 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.
3
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 believe that a single test platform solution offers our customers the greatest flexibility in managing the utilization of their test assets, thereby decreasing the cost
of test. We intend to continue to focus our resources on a single integrated hardware and software test platform solution by developing options and configurations that will extend Fusion’s reach to address cost-effectively the testing of
semiconductor devices across a wider spectrum of performance and complexity requirements. 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 advanced digital, mixed signal, and SOC 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. Because SOC technology comprises digital, analog and mixed signal technologies, the ability to test all of these elements enables a test system to be used across a wide range 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 recognize that large, diversified semiconductor device manufacturers,
commonly referred to as IDMs, large offshore test and assembly companies and certain fabless semiconductor device designers 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 key semiconductor companies is the most efficient way to maximize revenue. Therefore, we have organized our selling, field service, and field applications
organizations around these key companies, and located these resources close to their facilities. This has helped us to increase our responsiveness to customers’ needs and develop collaborative relationships that help guide us in developing
future applications and system options.
Further improve the flexibility of
our business model. In order to focus our resources on the development of Fusion, improve our responsiveness to customer needs, reduce fixed costs and working capital requirements, and manage the cyclicality of our
industry more effectively, we have implemented a more flexible business model. With the completion of the transition of our assembly, system integration and testing operations to Jabil Circuit, substantially all of our manufacturing functions have
been outsourced to third parties. We augment our focused internal development resources through our Open Platform Program and through strategic alliances with third party test technology providers such as StepTech, Inc. We engage contract employees
to address periods of peak demand. Through our strategic alliances, we have implemented additional international distribution and sub-contracted repair and support functions. We intend to continue to identify and implement programs which enhance our
ability to meet customers’ needs while reducing fixed costs.
Fusion offers a unique solution for testing the full spectrum of
non-memory devices, consisting of SOC, mixed signal, and digital devices. The Fusion test platform provides customers with highly reliable test performance and cost-efficiency in their efforts to accelerate their time-to-market for SOC, mixed
signal, and digital devices. The Fusion test platform combines our test station hardware with our enVision++ software and is available in Fusion HF and Fusion CX configurations. These configurations depend primarily on the digital 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
4
| |
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
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, open 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. Our Open Platform Program encourages third party development of instrumentation
for Fusion to augment our internal development, thereby increasing flexibility and scalability.
Fusion CX
In November 2001, we introduced the Fusion CX, which was jointly developed under our
agreement with StepTech, Inc. The Fusion CX is a high-performance, lower cost Fusion system targeted primarily towards the testing of high-volume mixed signal devices. The mixed signal device technologies tested by Fusion CX are often the precursor
to mixed signal technologies that will be incorporated into next generation SOC designs. Because Fusion CX uses the same enVision++ development software as Fusion HF, customers are able to upgrade their test capability to Fusion HF as the complexity
of their next generation SOC devices require. The Fusion CX features up to 128 digital pins, mixed signal and RF test instruments, and power management test technology. Typical device types tested on Fusion CX include radio frequency/wireless such
as 802.11b and power management.
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 $34.4 million, or 28.3% of net sales, in fiscal 2002, $37.3 million, or 11.3% of net sales, in fiscal 2001, and $32.0 million, or 10.5% of net sales, in fiscal 2000.
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
5
centers around the world, both directly and through strategic alliance partners who are located in Singapore, Japan, Korea and California.
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 the Fusion platform 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 development and production needs. Our expenditures for engineering and product development were $71.1 million, $66.0 million,
and $50.6 million, during fiscal 2002, 2001, and 2000, respectively.
Our engineering strategy is to focus on
development of the Fusion single test platform. We also intend to develop our future test systems in an evolutionary manner so that they may be progressively upgraded. Together with our strategic alliances and our Open Platform Program (as described
below) this approach preserves our customers’ substantial investments in our pre-existing test systems and 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.
We sell our products primarily through a worldwide sales
organization. Our sales organization is structured around key accounts, with a sales force of 26 people. We use a small number of independent sales representatives and distributors in certain other regions of the world.
Our sales to customers outside the United States are primarily denominated in United States dollars. Sales outside North America were 52%,
48%, and 62%, of total sales in fiscal 2002, 2001, and 2000, respectively.
In October 2000 we made an equity investment in, and entered into a
development agreement with, StepTech, Inc., an outsource technology provider to a broad range of semiconductor test equipment suppliers. Based in Hopkinton, Massachusetts, StepTech is privately held and specializes in the design and manufacture of
cost-effective test instrument solutions targeted towards wireless and mixed-signal semiconductor devices. Under the development agreement, StepTech will provide LTX with test technology to broaden the reach of Fusion’s single platform,
scalable architecture into the high volume, commodity semiconductor market. The Fusion CX is the first configuration jointly developed with StepTech. The agreement also grants LTX exclusive rights, for a three-year period, to certain StepTech
technologies. In return, StepTech will receive royalties on technology they have developed for the Fusion platform.
In the first quarter of fiscal 2002, we launched our Open Platform Program, which offers third-party test technology companies standardized hardware and open software interfaces to our Fusion hardware and enVision++ operating system.
The Open Platform Program was designed to facilitate third party development of instrumentation for our Fusion platform, thereby increasing the flexibility and scalability of Fusion for our customers. Open Platform also furthers our strategic goal
of a flexible business model by enabling LTX’s internal Engineering and Product Development team to focus on core enhancements and instrumentation for Fusion without sacrificing the availability of a wide variety of instrumentation demanded by
our customers. Current partners in the Open Platform Program include StepTech, LogicVision and GuideTech.
Finally, we have also established additional alliances that we believe will allow us to achieve our strategic goals of maintaining flexibility in our business model and expanding our ability to provide our customers
6
throughout the world with local support. For example, DI Corporation, our partner in Korea, provides local sales and support to the Korean market resulting in improved communications for our
customers and better market access for us. A subsidiary of Flextech Holdings, based in Singapore, provides board repair services for our customers, enabling quick repair turnarounds for our Asian customers and allowing us to focus on new product
development.
Our customers include many of the world’s leading semiconductor device
manufacturers. In fiscal year 2002, 2001 and 2000, Texas Instruments accounted for 45%, 26% and 19%, and Vitesse Semiconductor Corporation accounted for 11%, 22%, and 11% of net sales, respectively. In fiscal year 2001 and 2000, Philips
Semiconductor accounted for 12% and 13% of net sales, respectively. In fiscal year 2001, Infineon Technologies accounted for 11% of net sales. Customers that have ordered Fusion products include the following:
| ALi (formerly Acer Labs) |
|
Hitachi |
|
Qlogic |
| Agere Systems |
|
Infineon Technologies |
|
Samsung |
| Amkor |
|
Maxim Integrated Devices |
|
SPIL |
| AMS International |
|
Motorola |
|
STATS |
| Analog Devices |
|
National Semiconductor |
|
STMicroelectronics |
| ASAT |
|
NEC |
|
Texas Instruments |
| ASE |
|
On Semiconductor |
|
UTAC |
| Carsem |
|
Philips Semiconductor |
|
Vitesse Semiconductor |
Because a relatively small number of semiconductor companies
purchase most of the world’s semiconductor test equipment and we have concentrated our sales and support efforts on such key customers, 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.
We have completed the transition of our final assembly,
system integration and testing operations to Jabil Circuit. We outsource certain components and subassemblies to contract manufacturers, including Sanmina, who provides us with certain subassemblies. We use standard components and prefabricated
parts manufactured to our specifications. These components and subassemblies to produce testers in configurations specified by our customers. Most of the components for our products are available from a number of different suppliers; however,
certain components are purchased from a single supplier or a limited group of suppliers. Although we believe that all single source components currently are available in adequate amounts, we cannot be certain that shortages will not develop in the
future. We are dependent on two semiconductor device manufacturers, Vitesse Semiconductor and Maxtech Components, who are sole source suppliers of custom components for our products, although Vitesse has two separate manufacturing facilities capable
of manufacturing our custom components. We have no written supply agreements with these sole source suppliers and purchase our custom components through individual purchase orders. We continuously evaluate sources for our custom components. We
cannot assure you that such alternative sources will be qualified or available to us.
We are dependent on
StepTech, Inc. to supply our Fusion CX. StepTech’s manufacturing facility is located in Hopkinton, Massachusetts.
Our facilities in Westwood, Massachusetts and San Jose, California perform final customer acceptance testing and research and development activities, which include assembly, system integration and testing for prototypes.
7
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, Credence Systems, Schlumberger Limited (NPTest Division), 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.
At July 31, 2002, our backlog of unfilled orders for all products and services
was $80 million, compared with $145.6 million at July 31, 2001. Historically, test systems generally ship within twelve months of receipt of a customer’s purchase order. While backlog is calculated on the basis of firm orders, orders may be
subject to cancellation or delay by the customer with limited or no penalty. Our backlog at any particular date, therefore, is not necessarily indicative of actual sales which may be generated for any succeeding period. Historically, our backlog
levels have fluctuated based upon the ordering patterns of our customers and changes in our manufacturing capacity.
The semiconductor industry and demand for semiconductor test equipment is highly cyclical. Customer delivery dates and order patterns typically get delayed and become less predictable when the semiconductor industry capacity exceeds
demand for a sustained period of time. As part of our periodic review of backlog, we determined that recent business conditions indicate that the industry will continue to be in an excess capacity situation for the foreseeable future, which reduces
our ability to rely on historical trends to accurately determine firm delivery dates for items remaining in our backlog. Based on this judgment, on July 31, 2002, we adjusted our backlog by $69 million. Although none of the $69 million reduction in
backlog was due to customer cancellations, we believe that the limited visibility in the semiconductor capital equipment industry for a recovery in orders warranted this adjustment.
The development of our products is largely based on proprietary
information. We rely upon a combination of contract provisions, copyright, trademark and trade secret laws to protect our proprietary rights in products. We also have a policy of seeking U.S. patents on technology considered of particular strategic
importance. Although we believe that the copyrights, trademarks and patents we own are of value, we believe that they will not determine our success, which depends principally upon our engineering, manufacturing, marketing and service skills.
However, we intend to protect our rights when, in our view, these rights are infringed upon.
We license some
software programs from third party developers and incorporate them in our products. Generally, these agreements grant us non-exclusive licenses with respect to the subject program and terminate only upon a material breach by us. We believe that such
licenses are generally available on commercial terms from a number of licensors.
The use of patents to protect
hardware and software has increased in the test equipment industry. We have at times been notified of claims that we may be infringing patents issued to others. Although there are no pending actions against us regarding any patents, no assurance can
be given that infringement claims by third parties will not negatively impact our business and results of operations. As to any claims asserted against us, we may seek or be required to obtain a license under the third party’s intellectual
property rights. There can be no assurance, however, that a license will be available under reasonable terms or at all. In addition, we could decide to resort to
8
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.
At July 31, 2002, we employed 776 employees and 56 temporary workers. On
August 22, 2002, we had a reduction in force due to adverse business conditions, which impacted 83 employees and 11 temporary workers. None of our employees are represented by a labor union, and we have experienced no work stoppages. Many of our
employees are highly skilled, and we believe our future success will depend in large part on our ability to attract and retain these employees. We consider relations with our employees to be good.
Our manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment. We do not anticipate that compliance with these laws and regulations will have a material effect on our capital expenditures, earnings or competitive position.
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, engineering research and development and manufacturing are located in a 167,500 square foot
facility under a lease, which expires in 2009. In May 1995, we subleased to a third party for a ten year term a 208,000 square foot facility in Westwood, Massachusetts, which we had leased until 2010. In fiscal year 2002, the Company and its
landlord agreed to terminate this lease. 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 2007. 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 and our Asian headquarters is located in Singapore. We also maintain sales and support offices at other locations in Europe and in Asia. Office space leased in Asia and Europe totals approximately 113,816 square
feet.
We believe that our existing facilities are adequate to meet our current and foreseeable future
requirements.
Item 3.
Legal Proceedings
We have no material pending legal proceedings.
Item 4.
Submission of Matters to a Vote of Security Holders
There were no matters submitted to
a vote of stockholders during the fourth quarter of fiscal 2002.
9
PART II
Item 5. |
|
Market Value for the Registrant’s Common Stock and Related Security Holder Matters Market Prices for Common Stock |
Our common stock is quoted on the Nasdaq National Market under the symbol “LTXX”. The following table shows the high and low closing sale prices per share of our
common stock, as reported on the Nasdaq National Market, for the periods indicated:
| Period
|
|
High
|
|
Low
|
| Fiscal Year Ended July 31, 2002 |
|
|
|
|
|
|
| First Quarter |
|
$ |
23.99 |
|
$ |
10.85 |
| Second Quarter |
|
|
25.03 |
|
|
17.56 |
| Third Quarter |
|
|
27.41 |
|
|
19.12 |
| Fourth Quarter |
|
|
22.48 |
|
|
8.40 |
| Fiscal Year Ended July 31, 2001 |
|
|
|
|
|
|
| First Quarter |
|
$ |
26.13 |
|
$ |
12.25 |
| Second Quarter |
|
|
18.38 |
|
|
10.19 |
| Third Quarter |
|
|
27.25 |
|
|
13.69 |
| Fourth Quarter |
|
|
31.82 |
|
|
18.55 |
| Fiscal Year Ended July 31, 2000 |
|
|
|
|
|
|
| First Quarter |
|
$ |
16.69 |
|
$ |
10.38 |
| Second Quarter |
|
|
33.13 |
|
|
15.94 |
| Third Quarter |
|
|
52.25 |
|
|
25.00 |
| Fourth Quarter |
|
|
48.63 |
|
|
20.63 |
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 that
prohibit us from paying cash dividends.
As of August 29, 2002, we had approximately 1,036 stockholders of record
of our common stock.
10
Item 6.
Selected Consolidated Financial Data
The following table contains our selected
consolidated financial data and is qualified by the more detailed consolidated financial statements and notes thereto included elsewhere in this report. The selected consolidated financial data for and as of the end of each of the five fiscal years
in the period ended July 31, 2002 are derived from our audited consolidated financial statements.
| |
|
Fiscal Years ended July 31,
|
|
| |
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
1998
|
|
| |
|
(in thousands, except per share data and statistics) |
|
| Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net sales |
|
$ |
121,273 |
|
|
$ |
330,030 |
|
|
$ |
305,535 |
|
|
$ |
157,326 |
|
|
$ |
196,227 |
|
| Cost of sales |
|
|
96,006 |
|
|
|
177,034 |
|
|
|
161,078 |
|
|
|
93,451 |
|
|
|
127,837 |
|
| Inventory related provision |
|
|
42,200 |
|
|
|
12,800 |
|
|
|
— |
|
|
|
— |
|
|
|
40,718 |
|
| Engineering and product development expenses |
|
|
71,102 |
|
|
|
65,987 |
|
|
|
50,582 |
|
|
|
34,828 |
|
|
|
47,757 |
|
| Selling, general and administrative expenses |
|
|
28,337 |
|
|
|
37,029 |
|
|
|
38,477 |
|
|
|
31,517 |
|
|
|
50,772 |
|
| Reorganization costs |
|
|
— |
|
|
|
1,200 |
|
|
|
— |
|
|
|
— |
|
|
|
6,272 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
