1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 0-6715
ANALOGIC CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2454372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Centennial Drive, Peabody, Massachusetts 01960
(Address of principal executive offices) (Zip Code)
(978) 977-3000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
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
The number of shares of Common Stock outstanding at April 30, 1999 was
12,697,192.
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ANALOGIC CORPORATION AND SUBSIDIARIES
INDEX
Page
No.
Part I Financial Information
Consolidated Condensed Balance Sheets
April 30, 1999 and July 31, 1998 3
Consolidated Condensed Statements of Income
Three and Nine Months Ended April 30, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended April 30, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6 - 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
Part II Other Information 12 - 13
Index to Exhibits 12
3
PART I FINANCIAL INFORMATION
ANALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000 omitted)
April 30, July 31,*
1999 1998
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 29,576 $ 27,644
Marketable securities, at market 98,105 94,156
Accounts and notes receivable, net 52,566 54,393
Inventories 55,946 54,916
Prepaid expenses and other current assets 6,597 6,305
Total current assets 242,790 237,414
Property, plant and equipment, net 57,576 54,577
Investments in and advances to affiliated
companies 5,324 6,372
Other assets, including unamortized software
costs (1999, $3,637; 1998, $3,688) 4,691 4,594
$310,381 $302,957
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Mortgage and other notes payable $ 355 $ 2,950
Obligations under capital leases 614 560
Accounts payable, trade 10,630 11,617
Accrued employee compensation and benefits 10,606 12,441
Accrued expenses 6,345 7,808
Accrued income taxes 1,847 1,320
Total current liabilities 30,397 36,696
Long-term debt:
Mortgage and other notes payable 5,678 5,983
Obligations under capital leases 1,254 1,721
Deferred income taxes 2,877 3,144
Minority interest in subsidiaries 4,307 3,828
Excess of acquired net assets over cost, net
of accumulated amortization 245 330
Stockholders' equity:
Common stock, $.05 par 694 693
Capital in excess of par value 24,335 23,567
Retained earnings 254,446 241,329
Unrealized holding gains and losses 2,135 1,656
Cumulative translation adjustments (1,566) (1,373)
Treasury stock, at cost (13,245) (13,515)
Unearned compensation (1,176) (1,102)
Total Stockholders' Equity 265,623 251,255
$310,381 $302,957
* See note 2 of notes to consolidated condensed financial statements for
further information.
The accompanying notes are an integral part of these financial statements.
4
ANALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(000 omitted, except per share data)
Three Months Ended Nine Months Ended
April 30, April 30,
Revenues: 1999 1998 1999 1998
Product and service, net $60,570 $69,138 $183,576 $187,125
Engineering and licensing 6,136 4,219 13,337 12,641
Other operating revenue 2,637 2,575 8,669 8,785
Interest and dividend income 1,519 1,445 5,135 4,403
Total revenues 70,862 77,377 210,717 212,954
Costs and expenses:
Cost of sales:
Product and service 35,640 40,156 106,954 108,496
Engineering and licensing 2,937 3,986 9,328 11,439
Other operating expenses 1,458 1,396 4,431 4,531
General and administrative 5,277 4,645 15,679 14,702
Selling 6,352 6,623 19,236 19,115
Research and product development 10,348 9,388 29,318 26,402
Interest expense 90 123 295 352
(Gain) Loss on foreign exchange (40) (4) 109 (125)
Amortization of excess of
acquired net assets over cost (29) (28) (85) (307)
Total cost of sales and expenses 62,033 66,285 185,265 184,605
Income from operations 8,829 11,092 25,452 28,349
Gain on sale of marketable
securities 997
Equity in net loss
of unconsolidated affiliates (1,461) (1,150) (3,677) (2,811)
Impairment of investment (400)
Income before income taxes
and minority interest 7,368 9,942 21,775 26,135
Provision for income taxes 1,905 3,312 5,644 8,830
Minority interest in net income
of consolidated subsidiary 133 268 479 627
Net income $ 5,330 $ 6,362 $ 15,652 $ 16,678
Earnings per common share:
Basic $ 0.42 $ 0.50 $ 1.24 $ 1.32
Diluted $ 0.42 $ 0.50 $ 1.23 $ 1.31
Dividends declared per common share $ 0.07 $ 0.06 $ 0.20 $ 0.17
The accompanying notes are an integral part of these financial statements.
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ANALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(000 omitted)
Nine Months Ended
April 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,652 $16,678
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,901 6,360
Amortization of capitalized software 1,478 1,801
Amortization of excess of acquired net
assets over cost (85) (307)
Minority interest in net profit of
consolidated subsidiary 479 627
Compensation from stock grants 479 392
Gain on sale of equipment (25) (4)
Gain on sale of marketable securities (997)
Excess of equity in net losses of
unconsolidated affiliates 3,677 2,811
Impairment of investment 400
Changes in operating assets and liabilities
Decrease (increase) in assets:
Accounts and notes receivable 1,827 (1,931)
Inventories (1,030) (13,968)
Prepaid expenses and other current assets (207) (866)
Other assets (47) (45)
Increase (decrease) in liabilities:
Accounts payable, trade (987) 5,349
Accrued expenses and other current liabilities (3,235) (1,036)
Accrued and deferred income taxes 175 (500)
TOTAL ADJUSTMENTS 9,400 (1,914)
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,052 14,764
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (9,914) (9,672)
Capitalized software (1,427) (1,183)
Purchases of marketable securities (6,440) (19,220)
Maturities of marketable securities 2,970 21,441
Proceeds from sale of property, plant and equipment 39 154
Proceeds from sales of marketable securities 997
Investments in and advances to affiliated companies (2,730) (2,240)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (17,502) (9,723)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit line 1,250
Payments on debt and capital lease obligations (3,313) (662)
Purchase of common stock for treasury (345)
Issuance of common stock pursuant to stock options
and employee stock purchase plan 769 612
Dividends declared to shareholders (2,536) (2,143)
NET CASH (USED) BY FINANCING ACTIVITIES (5,425) (943)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (193) (4)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,932 4,094
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 27,644 24,954
CASH AND CASH EQUIVALENTS, END OF PERIOD $29,576 $29,048
The accompanying notes are an integral part of these financial statements.
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ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting
solely of normal recurring adjustments) necessary to fairly present
Analogic Corporation's financial position as of April 30, 1999 and July
31, 1998, the results of its operations for the three and nine months
ended April 30, 1999 and 1998 and statement of cash flows for the nine
months then ended. The results of the operations for the three and nine
months ended April 30, 1999 are not necessarily indicative of the
results to be expected for the fiscal year ending July 31, 1999.
The accounting policies followed by the Company are set forth in Note 1
to the Company's financial statements in its Annual Report on Form 10-K
for the fiscal year ended July 31, 1998.
2. Financial statements, with the exception of the July 31, 1998 balance
sheet, are unaudited and have not been examined by independent certified
public accountants. The consolidated balance sheet as of July 31, 1998
contains data derived from audited financial statements.
3. The inventories as of April 30, 1999 were not based on a physical or
perpetual inventory but were calculated on the basis of material used
during the period. The components of inventory are estimated as
follows:
April 30, July 31,
1999 1998
Raw materials $25,839,000 $25,226,000
Work-in-process 19,380,000 18,845,000
Finished goods 10,727,000 10,845,000
$55,946,000 $54,916,000
4. Mortgage and other notes payable decreased by $2,595,000 during the nine
months ended April 30, 1999 primarily due to repayment of a line of
credit by Camtronics.
5. Total interest expense, amounted to $412,000 of which $117,000 was
capitalized during the nine months ended April 30, 1999. Interest paid
amounted to $295,000 and $352,000 during the nine months ended April 30,
1999 and 1998, respectively.
6. Income taxes paid during the nine months ended April 30, 1999 and 1998
amounted to $6,594,000 and $9,023,000, respectively.
7. The Company declared a dividend of $.07 per common share on March 11,
1999, payable on April 9, 1999 to shareholders of record on March 26,
1999. The Company declared a dividend of $.07 per common share on
January 22, 1999, payable on February 19,1999 to shareholders of record
on February 5, 1999 and $.06 per common share on October 8, 1998,
payable on November 6, 1998 to shareholders of record on October 23,
1998.
8. The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires that all components of comprehensive income and total
comprehensive income be reported and that changes be shown in a
financial statement displayed with the same prominence as other
financial statements. The Company has elected to disclose this
information in its Statement of Stockholders' Equity. The following
table presents the calculation of comprehensive income and its
components for the three and nine months ended April 30, 1999 and 1998.
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ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
8. (Continued)
Three Months Ended Nine Months Ended
April 30, April 30,
1999 1998 1999 1998
Net Income $5,330,000 $6,362,000 $15,652,000 $16,678,000
Other Comprehensive Income
(Loss) Net of Tax:
Unrealized holding
gains and losses (529,000) (310,000) 323,000 (73,000)
Foreign currency
translation adjustment (663,000) 79,000 (239,000) 2,000
Total Comprehensive Income$4,138,000 $6,131,000 $15,736,000 $16,607,000
9. Basic earnings per common share was calculated by dividing net income by
the weighted average number of common shares outstanding during the
period. Diluted earnings per share was calculated by dividing net income
by the sum of weighted average number of common shares that would have
been outstanding if potentially dilutive common shares had been issued.
The following table indicates the number of shares utilized in the
earnings per shares calculations for the three and nine months ending
April 30, 1999 and 1998, respectively.
Three Months Ended Nine Months Ended
April 30, April 30,
1999 1998 1999 1998
Net Income $5,330,000 $6,362,000 $15,652,000 $16,678,000
Common Shares outstanding-
basic 12,688,059 12,621,309 12,666,213 12,606,372
Effect of dilutive
securities:
Stock Options 102,493 182,429 116,098 175,401
Common Shares outstanding-
diluted 12,790,552 12,803,738 12,782,311 12,781,773
Earnings per Common Share:
Basic $ 0.42 $ 0.50 $ 1.24 $ 1.32
Diluted $ 0.42 $ 0.50 $ 1.23 $ 1.31
8
ANALOGIC CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's balance sheet reflects a current ratio of 8.0 to 1 at April 30,
1999 compared to 6.5 to 1 at July 31, 1998. Cash, cash equivalents and
marketable securities, along with accounts and notes receivable, constitute
approximately 74% of current assets at April 30, 1999. Liquidity is sustained
principally through funds provided from operations, with short-term time
deposits and marketable securities available to provide additional sources of
cash. The Company places its cash investments in high credit quality
financial instruments and, by policy, limits the amount of credit exposure to
any one financial institution. Management does not anticipate any
difficulties in financing operations at anticipated levels. The Company's
debt to equity ratio was 0.17 to 1 at April 30, 1999 and 0.21 to 1 at July 31,
1998.
Capital expenditures totaled approximately $9,914,000 during the nine months
ended April 30, 1999, compared to $9,672,000 during the nine months ended
April 30, 1998.
The Company announced on March 16, 1999 that it will purchase, from time to
time, a number of its common shares in the open market,and as of April 30,
1999 the Company purchased 10,000 shares at an aggregate cost of $345,000.
RESULTS OF OPERATIONS
Nine Months Fiscal 1999 (04/30/99) vs. Nine Months Fiscal 1998 (04/30/98)
Product, service, engineering and licensing revenues for the nine months ended
April 30, 1999 were $196,913,000 as compared to $199,766,000 for the same
period last year, a decrease of 1%. The decrease of $2,853,000 was due to a
decreased sales in Signal Processing Technology Products of $6,477,000 and a
decrease in Industrial Technology Products of $2,653,000, offset by increased
sales of Medical Technology Products of $6,277,000. Product revenues continued
to be adversely affected by softness in the Asian and South American markets.
Other operating revenue of $8,669,000 and $8,785,000 represents revenue from
the Hotel operation for the nine months ending April 30, 1999 and 1998,
respectively.
Interest and dividend income increased $732,000, primarily due to interest
earned from the City of Peabody on real estate tax abatement.
The percentage of total cost of sales to total net sales for the nine months
of fiscal 1999 and 1998 were 59% and 60%, respectively. Operating costs
associated with the Hotel during the nine months of fiscal 1999 and 1998 were
$4,431,000 and $4,531,000, respectively.
General and administrative and selling expenses increased by $1,098,000
primarily due to increased staffing, partially offset by a real estate tax
abatement of approximately $170,000. Research and product development
expenses increased $2,916,000 primarily due to the Company's expanding
engineering efforts applicable to developing new and complex imaging systems,
and partially offset by a benefit of real estate tax abatement of
approximately $300,000.
Computer software costs of $1,427,000 and $1,183,000 were capitalized in the
nine months of fiscal 1999 and 1998, respectively. Amortization of
capitalized software amounted to $1,478,000 and $1,801,000 in the nine months
of fiscal 1999 and 1998, respectively.
9
ANALOGIC CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nine Months Fiscal 1999 (04/30/99) vs. Nine Months Fiscal 1998 (04/30/98)
(continued)
A loss on foreign exchange of $109,000 was realized during the nine months of
fiscal year 1999 versus a gain of $125,000 for the same period last year.
Most of the foreign exchange gains or losses have been incurred by our Danish
subsidiary, B-K Medical.
Minority interest in the net income of the Company's consolidated subsidiary,
Camtronics, for the nine months ended April 30, 1999 amounted to $479,000
compared to $627,000 for the nine months ended April 30, 1998.
During the nine months of fiscal 1999, the Company's investment in Analogic
Scientific was decreased by $180,000, and by $575,000 in the same period last
year, reflecting the Company's share of Analogic Scientific's equity.
The Company's share of losses of a privately held company amounted to
$3,599,000 and $2,485,000 during the first nine months of fiscal 1999 and
1998.
During the first nine months of fiscal 1999 and 1998, the Company's investment
in another privately held company was increased by $102,000 and $249,000,
respectively, reflecting the Company's share of its equity.
The Company recorded a reserve of $400,000 reflecting a partial impairment of
its 19% investment in another privately held company, during the first nine
months of fiscal 1998. No adjustment was required for the nine months of
fiscal 1999.
During the nine months of fiscal 1998, the Company sold 140,560 common shares
of a publicly traded company, resulting in a gain of $997,000.
Income from operations for the nine months of fiscal 1999 was adversely
affected by the softness in the Asian and South American markets, the
additional expenses associated with new engineering and production start up
programs, and the additional costs the company has sustained during this
period on making its systems Year 2000 compliant.
The effective tax rate for the nine months of fiscal 1999 and fiscal 1998 was
26% versus 34%, respectively. The decrease was primarily due to the tax
benefit applicable to equity in losses of unconsolidated subsidiaries and the
reversal of an overaccrual of prior years tax provision.
Net income for the nine months ended April 30, 1999 was $15,652,000, or $1.23
per diluted share, as compared to net income of $16,678,000, or $1.31 per
diluted share, for the nine months period ended April 30, 1998.
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ANALOGIC CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four digits to define the application year. Computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If the Company's internal systems do
not correctly recognize date information when the year changes to 2000, there
could be an adverse impact on the Company's operation.
The Company has undertaken considerable effort to assess the actions and
resources that will be required to make its systems Year 2000 compliant. The
Company, utilizing both internal and external resources to upgrade its
computer hardware and software systems, commenced implementation and now is
configuring and testing the Year 2000 software to meets its business needs.
The Company has also identified and is in the process of implementing changes
to other equipment in order to make them Year 2000 compliant.
The Company is also assessing the possible effects of the Year 2000 issues on
its significant vendors and customers, which could in turn affect the
Company's operations. The Company has not yet been able to determine,
however, whether any of its suppliers or service providers will need to make
any such software modifications or replacements or whether the failure to make
such software corrections will have an adverse effect on the Company's
operations or financial condition.
The Company currently estimates that Year 2000 costs for this current fiscal
year and next will range from $5.0 million to $7.0 million. The estimated
costs are based on management's best projections, yet there can be no
guarantee that those forecasts will be achieved and actual results could
differ materially from those anticipated. The cost of the project will be
funded through operating cash flows.
RESULTS OF OPERATIONS
Third Quarter Fiscal 1999 (04/30/99) vs. Third Quarter Fiscal 1998 (04/30/98)
Product, service, engineering and licensing revenues for the three months
ended April 30, 1998 were $66,706,000 as compared to $73,357,000 for the same
period last year, a decrease of 9%. The decrease of $6,651,000 was due to a
decrease in sales of $2,217,000 of Medical Technology Products, a decrease in
Signal Processing Technology Products of $766,000 and a decrease in Industrial
Technology Products of $3,668,000. Product revenues continued to be adversely
affected by the softness in the Asian and South American markets. Other
operating revenue of $2,637,000 and $2,575,000 represents revenue from the
Hotel operation for the three months ending April 30, 1999 and 1998,
respectively.
The percentage of total cost of sales to total net sales for the third quarter
of fiscal 1999 and 1998 were 58% and 60%, respectively. The total cost of
sales percentage decreased due to higher engineering and licensing revenues.
Operating costs associated with the Hotel during the third quarter of fiscal
1999 and 1998 were $1,458,000 and $1,396,000, respectively.
General and administrative and selling expenses increased $361,000 primarily
due to increased staffing. Research and product development expenses increased
$960,000 primarily due to the Company's expanding engineering efforts
applicable to developing new and complex imaging systems.
11
ANALOGIC CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter Fiscal 1999 (04/30/99) vs. Third Quarter Fiscal 1998 (04/30/98)
(continued)
Computer software costs of $493,000 and $394,000 were capitalized in the third
quarter of fiscal 1999 and 1998, respectively. Amortization of capitalized
software amounted to $474,000 and $605,000 in the third quarter of fiscal 1999
and 1998, respectively.
A gain on foreign exchange of $40,000 was realized during the third quarter of
fiscal 1999 versus a gain of $4,000 for the same period last year. Most of
the foreign exchange gains have been incurred by our Danish subsidiary, B-K
Medical.
Minority interest in the net income of the Company's consolidated subsidiary,
Camtronics, for the third quarter ended April 30, 1999 amounted to $133,000
compared to $268,000 for the third quarter ended April 30, 1998.
The Company's share of losses of a privately held company amounted to
$1,451,000 and $972,000 during the third quarter of fiscal 1999 and 1998.
During the third quarter of fiscal 1999, the Company's investment in another
privately held company was decreased by $10,000, reflecting the Company's
share of its loss, compared to a decrease of $178,000 for the third quarter of
fiscal 1998.
Income from operations for the third quarter of fiscal 1999 was adversely
affected by the continued softness in the Asian and South American markets,
the additional expenses associated with new engineering and production start
up programs, the additional costs the company has sustained during this period
on making its systems Year 2000 compliant, and favorably impacted by higher
licensing revenue associated with the development of a low cost CT-Scanner.
The effective tax rate for the third quarter of fiscal 1999 and fiscal 1998
was 26% vs. 33%, for the same period last year. The decrease was primarily
due to the reversal of an overaccrual of prior years tax provision, and to the
tax benefit applicable to equity in losses of unconsolidated subsidiaries.
Net income for the quarter ended April 30, 1999 was $5,330,000, or $0.42 per
diluted share, as compared to net income of $6,362,000, or $0.50 per share for
the same period last year.
12
ANALOGIC CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) During the quarter ended April 30, 1999, the Company did not file any
reports on Form 8-K.
13
ANALOGIC CORPORATION AND SUBSIDIARIES
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.
ANALOGIC CORPORATION
Registrant
Date June 8, 1999 /s/ Bernard M. Gordon
Bernard M. Gordon
Chairman of the Board
Chief Executive Officer
Date June 8, 1999 /s/ John A. Tarello
John A. Tarello
Senior Vice President
Chief Accounting Officer