1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED APRIL 30, 2001
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
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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 01960
PEABODY, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
(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 May 31, 2001 was
13,017,225.
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ANALOGIC CORPORATION
INDEX
PAGE NO
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of April 30, 2001
and July 31, 2000........................................... 2
Condensed Consolidated Statements of Income for the Three
and Nine Months Ended April 30, 2001 and 2000............... 3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended April 30, 2001 and 2000........................ 4
Notes to Unaudited Condensed Consolidated Financial
Statements.................................................. 5-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................... 9-15
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 16
Signatures............................................................ 17
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ANALOGIC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
APRIL 30, JULY 31,
2001 2000 (NOTES 1,3)
--------- ----------------
RESTATED
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 31,119 $ 29,132
Marketable securities, at market....................... 78,441 87,242
Accounts and notes receivable, net of allowance for
doubtful accounts of $988 at April 30, 2001 and $1,010
at July 31, 2000...................................... 68,772 63,437
Inventories (Note 2)................................... 72,752 62,326
Deferred income taxes.................................. 8,067 8,511
Other current assets................................... 6,933 5,239
-------- --------
Total current assets.............................. 266,084 255,887
Property, plant and equipment, net.......................... 66,555 63,524
Investments in and advances to affiliated companies (Note
3)........................................................ 4,088 4,855
Capitalized software, net................................... 5,981 5,368
Other assets................................................ 4,025 3,567
-------- --------
Total assets...................................... $346,733 $333,201
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Mortgage and other notes payable....................... $ 367 $ 363
Obligations under capital leases....................... 328 714
Accounts payable, trade................................ 22,295 20,015
Accrued liabilities (Note 2)........................... 19,878 20,038
Accrued income taxes................................... 401 1,780
-------- --------
Total current liabilities......................... 43,269 42,910
Long-term debt:
Mortgage and other notes payable....................... 4,951 5,265
Obligations under capital leases....................... 658 374
-------- --------
5,609 5,639
Deferred income taxes....................................... 2,620 2,519
Excess of acquired net assets over cost, net................ -- 104
Minority interest in subsidiary............................. 4,227 4,268
Commitment (Note 7)
Stockholders' equity:
Common stock, $.05 par value........................... 703 699
Capital in excess of par value......................... 31,931 27,703
Retained earnings...................................... 277,118 266,127
Accumulated other comprehensive income................. (1,843) (2,118)
Treasury stock, at cost................................ (11,361) (11,869)
Unearned compensation.................................. (5,540) (2,781)
-------- --------
Total stockholders' equity........................ 291,008 277,761
-------- --------
Total liabilities and stockholders' equity........ $346,733 $333,201
======== ========
The accompanying notes are an integral part of these financial statements.
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ANALOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
------------------ --------------------
2001 2000 2001 2000
------- ------- -------- --------
Net revenue:
Product...................................... $81,449 $66,837 $235,889 $178,690
Engineering.................................. 6,852 5,323 18,920 15,774
Other revenue................................ 2,785 2,910 9,542 9,334
------- ------- -------- --------
Total net revenue....................... 91,086 75,070 264,351 203,798
------- ------- -------- --------
Costs of sales:
Product...................................... 52,200 41,287 151,192 111,507
Engineering.................................. 5,367 4,346 15,398 13,082
Other........................................ 1,669 1,508 4,901 4,496
------- ------- -------- --------
Total cost of sales..................... 59,236 47,141 171,491 129,085
------- ------- -------- --------
Gross margin...................................... 31,850 27,929 92,860 74,713
Operating expenses:
Research and product development............. 10,641 8,805 30,134 27,741
Selling and marketing........................ 8,813 6,728 24,115 19,015
General and administrative................... 7,909 6,396 22,902 17,729
------- ------- -------- --------
27,363 21,929 77,151 64,485
Income from operations............................ 4,487 6,000 15,709 10,228
Other (income) expense:
Interest income, net......................... (1,314) (1,404) (4,254) (4,419)
Equity in unconsolidated affiliates.......... (1,331) 137 (1,192) 1,946
Other, net................................... 94 10 516 (37)
------- ------- -------- --------
(2,551) (1,257) (4,930) (2,510)
Income before income taxes and minority
interest........................................ 7,038 7,257 20,639 12,738
Provision for income taxes........................ 2,006 2,250 6,358 3,950
Minority interest................................. 176 10 294 85
------- ------- -------- --------
Net Income........................................ $ 4,856 $ 4,997 $ 13,987 $ 8,703
======= ======= ======== ========
Earnings per common share: (Note 6)
Basic........................................ $ 0.37 $ 0.39 $ 1.08 $ 0.68
Diluted...................................... $ 0.37 $ 0.39 $ 1.07 $ 0.68
The accompanying notes are an integral part of these financial statements.
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ANALOGIC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
APRIL 30,
--------------------
2001 2000
-------- --------
OPERATING ACTIVITIES:
Net Income................................................ $ 13,987 $ 8,703
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes.................................. 545 (1,190)
Depreciation and amortization.......................... 10,128 9,793
Minority interest in net income of consolidated
subsidiaries.......................................... 294 85
Allowance for doubtful accounts........................ (22) 587
Gain on sale of equipment.............................. (51) (61)
Excess of equity in (gain)loss of unconsolidated
affiliates............................................ (1,192) 1,946
Loss on investment..................................... 487
Compensation from stock grants......................... 734 444
Net changes in operating assets and liabilities (Note
8).................................................... (17,529) (21,281)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES....... 7,381 (974)
-------- --------
INVESTING ACTIVITIES:
Investments in and advances to affiliated companies....... (2,744)
Return of investment from affiliated company.............. 1,000
Additions to property, plant and equipment................ (11,940) (9,481)
Capitalized software...................................... (2,369) (2,474)
Proceeds from sale of property, plant and equipment....... 109 92
Purchases of marketable securities........................ (7,805)
Maturities of marketable securities....................... 10,320 11,905
-------- --------
NET CASH USED IN INVESTING ACTIVITIES..................... (2,880) (10,507)
-------- --------
FINANCING ACTIVITIES:
Payments on debt and capital lease obligations............ (412) (770)
Issuance of common stock pursuant to stock options and
employee stock purchase plan........................... 1,230 941
Dividends paid to shareholders............................ (2,714) (2,689)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES..................... (1,896) (2,518)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................... (618) (25)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQIVALENTS....... 1,987 (14,024)
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 29,132 30,017
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 31,119 $ 15,993
======== ========
The accompanying notes are an integral part of these financial statements.
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ANALOGIC CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The unaudited condensed consolidated financial statements of Analogic
Corporation (the "Company") presented herein have been prepared pursuant to the
rules of the Securities and Exchange Commission for quarterly reports on Form
10-Q and do not include all of the information and note disclosures required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the results of
operations of the Company for all periods presented and the financial position
of the Company as of the dates presented. The results of the operations for the
three and nine months ended April 30, 2001 are not necessarily indicative of the
results to be expected for the fiscal year ending July 31, 2001 or any other
interim period.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended July 31, 2000 included
in the Company's Form 10-K as filed with the Securities and Exchange Commission
on October 20, 2000, as amended by the Company's Form 10K/A as filed with the
Securities and Exchange Commission on December 12, 2000, and the Company's Form
10K/A, as filed with the Securities and Exchange Commission on June 4, 2001.
The financial statements are unaudited and have not been examined by
independent certified public accountants. The consolidated balance sheet as of
July 31, 2000 contains data derived from audited financial statements.
Certain financial statement items have been reclassified to conform to the
current year's financial presentation format.
2. BALANCE SHEET INFORMATION:
Additional information for certain balance sheet accounts is as follows for
the periods indicated:
APRIL 30, JULY 31,
2001 2000
--------- --------
(IN THOUSANDS)
Inventory:
Raw materials.......................................... $40,768 $31,728
Work-in-process........................................ 21,436 20,724
Finished goods......................................... 10,548 9,874
------- -------
$72,752 $62,326
======= =======
Accrued liabilities:
Employee compensation and benefits..................... $ 9,869 $10,562
Warranty............................................... 3,500 3,636
Deferred revenue....................................... 2,760 2,309
Customer deposit....................................... 1,293 463
Other.................................................. 2,456 3,068
------- -------
$19,878 $20,038
======= =======
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ANALOGIC CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. INVESTMENT IN AND ADVANCES TO AFFILIATED COMPANIES:
A. Investment in Shenzhen Anke-Tech Co., Ltd:
During October 2000, Analogic Scientific, Inc. (ASI), a joint venture
corporation located in The People's Republic of China, entered into separate
agreements with four investors which resulted in these investors buying an 10.8%
equity interest in ASI from its existing investors. This transaction had the
approval of the Company and the other shareholder who prior to this transaction
each had a 50% equity ownership interest in ASI. As a result, the Company's
ownership in ASI was reduced by 5.4% to 44.6%. On January 18, 2001, the company
name was changed from "Analogic Scientific, Inc." to "Shenzhen Anke High-Tech
Co., Ltd"(SAHCO).
The Company accounts for this investment under the equity method of
accounting whereby the Company adjusts its investment balance to recognize its
share of SAHCO's earnings or losses, changes in SAHCO's capital investment and
dividends received.
SAHCO has historically provided the Company with current quarterly
information regarding its financial results. To ensure that the Company has
adequate time to review and adjust the financial information provided by SAHCO
to conform it to U.S. Generally Accepted Accounting Principles (GAAP), the
Company changed, effective with the quarter ended October 31, 2000, its method
of recording SAHCO's financial results and uses the previous quarter's financial
information of SAHCO to adjust its investment account in the current quarter,
thereby resulting in a consistently applied quarterly delay in recording its
equity-based accounting.
During fiscal 2001 the Company became aware of certain differences between
local statutory accounting practices used by SAHCO and U.S. GAAP primarily with
respect to the valuation of accounts receivable and inventory and revenue
recognition. During the quarter ended January 31, 2001, the Company evaluated
the potential differences in accounting basis and concluded that adjustments
were necessary for prior periods resulting in a reduction in the Company's
investment in SAHCO of $2,375,000 at July 31, 2000 (or $1,808,000 net of tax
effect) which reduced the carrying value of the Company's investment at July 31,
2000 from $6,125,000 to $3,750,000.
As a result of the sale of a 5.4% equity interest in SAHCO, the Company
recognized a gain of $810,000 in the quarter ended April 30, 2001. In addition,
the Company recognized its share of SAHCO's quarterly profit of $15,000 in the
quarter ended April 30, 2001. The carrying value of the Company's investment in
SAHCO at April 30, 2001 was $3,225,000.
B. Other Investments:
During the quarter ended April 30, 2001 the Company received $1,000,000 as
a return on investment from a joint venture which generated income from license
related royalties based upon sales of medical imaging equipment.
4. DIVIDENDS:
The Company declared dividends of $.07 per common share on June 12, 2001,
payable July 10, 2001 to shareholders of record on June 26, 2001. The Company
declared dividends of $ .07 per common share on March 15, 2001, payable on April
12, 2001 to shareholders of record on March 29, 2001, $.07 per common share on
December 5, 2000, payable on January 9, 2001 to shareholders of record on
December 26, 2000 and $.07 per common share on October 12, 2000, payable on
November 10, 2000 to shareholders of record on October 27, 2000.
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ANALOGIC CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. COMPREHENSIVE INCOME:
The following table presents the calculation of total comprehensive income
and its components:
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
------------------ ------------------
2001 2000 2001 2000
------- ------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
Net Income............................................ $4,856 $4,997 $13,987 $ 8,703
Other Comprehensive Income (Loss) Net of Tax:
Unrealized holding gains and losses, net of taxes
of $80 and $58 for the three months ended April
30, 2001 and 2000 and $600 and $592 for the
nine months ended April 30, 2001 and 2000...... (121) (130) 918 (1,319)
Foreign currency translation adjustment, net of
taxes of $328 and $270 for the three months
ended April 30 , 2001 and 2000, and $417 and
$530 for the nine months ended April 30, 2001
and 2000....................................... (502) (602) (643) (1,179)
------ ------ ------- -------
Total Comprehensive Income............................ $4,233 $4,265 $14,262 $ 6,205
====== ====== ======= =======
6. NET INCOME PER SHARE:
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net income.................................. $ 4,856,000 $ 4,997,000 $13,987,000 $ 8,703,000
=========== =========== =========== ===========
Basic:
Weighted average number of common
shares outstanding................... 12,992,491 12,857,841 12,900,504 12,800,207
=========== =========== =========== ===========
Net income per share................... $ 0.37 $ 0.39 $ 1.08 $ 0.68
=========== =========== =========== ===========
Diluted:
Weighted average number of common
shares outstanding................... 12,992,491 12,857,841 12,900,504 12,800,207
Dilutive effect of stock options....... 134,650 82,318 143,604 58,362
----------- ----------- ----------- -----------
Total.................................. 13,127,141 12,940,159 13,044,108 12,858,569
=========== =========== =========== ===========
Net income per share........................ $ 0.37 $ 0.39 $ 1.07 $ 0.68
=========== =========== =========== ===========
7. COMMITMENT:
The Company's Danish subsidiary B-K Medical A/S announced in May 2001 the
construction of a new 135,000 square foot facility in Herlev, north of
Copenhagen, for the manufacture of specialized diagnostic ultrasound equipment
at an estimated cost of $15.5 million. The new facility, due for completion in
April 2002, will host manufacturing, R&D, service, marketing, sales and
administrative functions.
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ANALOGIC CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Changes in operating assets and liabilities are as follows:
NINE MONTHS ENDED
APRIL 30,
--------------------
2001 2000
-------- --------
(IN THOUSANDS)
Accounts and notes receivable............................... $ (6,428) $ (755)
Accounts receivable from affiliates......................... 1,111 (28)
Inventories................................................. (10,442) (17,342)
Other current assets........................................ (1,694) (372)
Other assets................................................ (456) (2,179)
Accounts payable trade...................................... 2,290 4,177
Accrued expenses and other current liabilities.............. (75) (2,831)
Accrued income taxes........................................ (1,835) (1,951)
-------- --------
Net changes in operating assets and liabilities............. $(17,529) $(21,281)
======== ========
9. SEGMENT INFORMATION:
The Company's operations are primarily within a single segment within the
electronics industry (Medical Instrumentation Technology Products). These
operations encompass the design, manufacture and sale of high technology,
high-performance, high precision data acquisition, conversion (analog/digital)
and signal processing instruments and systems to customers that both manufacture
and market products for medical and industrial use. The other segment represents
the Company's hotel operation, and other Company's operations, which do not meet
the materiality requirements of the statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information," and thus are not required to be separately disclosed. The table
below presents information about the Company's reportable segments for the
periods presented:
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Revenues:
Medical Instrumentation Technology Products........ $81,448 $68,675 $236,285 $184,923
Corporate and Other................................ 9,638 6,395 28,066 18,875
------- ------- -------- --------
Total................................................... $91,086 $75,070 $264,351 $203,798
------- ------- -------- --------
Income before income taxes and minority interest:
Medical Instrumentation Technology Products........ $ 5,335 $ 6,064 $ 14,492 $ 8,821
Corporate and Other................................ 1,703 1,193 6,147 3,917
------- ------- -------- --------
Total................................................... $ 7,038 $ 7,257 $ 20,639 $ 12,738
------- ------- -------- --------
APRIL 30, 2001 JULY 31, 2000
-------------- -------------
Identifiable Assets:
Medical Instrumentation Technology Products............ $231,658 $212,634
Corporate and Other, including Cash and Marketable
Securities............................................ 115,075 120,567
-------- --------
Total....................................................... $346,733 $333,201
-------- --------
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ANALOGIC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
RESULTS OF OPERATIONS
NINE MONTHS FISCAL 2001 (04/30/01) VS. NINE MONTHS FISCAL 2000 (04/30/00)
Product revenue for the nine months ended April 30, 2001 was $235,889,000
as compared to $178,690,000 for the same period last year, an increase of 32%.
The increase in revenue of $57,199,000 was due to an increase in sales of
Medical Technology Products of $51,256,000 or 40%, primarily due to increased
demand for fully featured mid-range Computed Tomography (CT) systems, digital
radiography systems, patient monitors, and advanced cardiovascular information
management systems; an increase in sales of $11,246,000 or 67%, in Industrial
Technology Products due to demand for the Company's high frequency, Automatic
Test Equipment (ATE) boards; partially offset by a decrease in Signal Processing
Technology Products of $5,303,000 or 15%, caused by a dramatic downturn in
demand for its network access boards for the Internet Telephony market.
Engineering revenue for the nine months ended April 30, 2001 was $18,920,000 as
compared to $15,774,000 for the same period last year, an increase of 20%. The
increase of $3,146,000 was primarily due to customer funded projects for
developing imaging products and Media Gateway Systems. Other revenue represents
revenue from the Hotel operation.
Product cost of sales for first the nine months of fiscal 2001 was 64% of
product revenue compared to 62% for the same period last year. The increase in
product cost as percentage of product revenue was primarily due to higher
manufacturing costs and changes in product mix. Engineering cost of sales for
the first nine months of fiscal 2001 was 81% of engineering revenue or compared
to 83% for the same period last year. Other cost of sales represents costs
associated with the Hotel operation.
Research and product development expenses were $30,134,000 or 11% of total
revenue, for the first nine months of fiscal 2001, as compared to $27,741,000 or
14% of total revenue for the same period of the prior year. The increase of
$2,393,000 was due to the continuing research and development activities across
all of the Company's product lines.
Selling and marketing expenses were $24,115,000 or 9% of total revenue, and
$19,015,000 or 9% of total revenue, for the first nine months of fiscal 2001,
and 2000, respectively. The increase of $5,100,000 was due to higher personnel
and related selling costs of approximately $2,600,000 for the Company's
Camtronic subsidiary which is continuing its efforts of selling products
directly to end users as compared to its prior practice of selling through OEMs.
The remaining increase of $2,500,000 is primarily associated with additional
selling and marketing efforts to support the Company's revenue growth.
General and administrative expenses for the first nine months of fiscal
2001 were $22,902,000 as compared to $17,729,000 for the same period last year,
or 9% of total revenue in both periods. The increase of $5,173,000 was primarily
due to higher personnel and other related costs to support the Company's growth.
Computer software costs of $2,366,000 and $2,434,000 were capitalized in
the first nine months of fiscal 2001 and 2000, respectively. Amortization of
capitalized software amounted to $1,389,000 and $1,326,000 in the first nine
months of fiscal 2001 and 2000, respectively, and is included in research and
product development expenses.
Interest income, net of interest expense, for the first nine months of
fiscal 2001 was $4,254,000 as compared with $4,419,000 for the same period last
year. Interest income, net represents primarily interest earned on marketable
securities.
During the nine months ended April 30, 2001, the Company recorded income of
$1,192,000 related to equity in unconsolidated affiliates. The amount primarily
consists of a profit of $1,245,000 related to its share in a joint venture that
generated income from license related royalties based upon sales of medical
imaging equipment. This was partially offset by the Company's share of net
losses of $111,000 from the Company's investment in SAHCO. During the nine
months ended April 30, 2000, the Company recorded losses of $1,946,000 related
to equity in its unconsolidated affiliates. The Company recorded its share of
losses in a joint venture of $2,267,000 related to research and development
costs for the design and manufacture of medical equipment. This joint venture
was restructured during fiscal 2000 whereby the joint venture received license
9
11
related royalties based upon the sales of medical imaging equipment. This loss
was partially offset by a gain of $450,000 reflecting the Company's share of
profit of SAHCO.
Other expenses of $516,000 during the nine months ended April 30, 2001 are
mainly related to a writedown of approximately $487,000 which reflects the
difference between the Company's investment cost and the current market value of
the restricted securities the Company received during fiscal 2000 as a final
distribution of shares in a publicly traded company made by a limited
partnership in which the Company had invested.
The effective tax rate for the first nine months of fiscal 2001 and 2000
was 31%.
Net income for the nine months ended April 30, 2001 was $13,987,000 or
$1.07 per diluted share as compared with $8,703,000 or $.68 per diluted share
for the same period last year. The increased performance over the prior year was
primarily due to increased sales volume of fully featured mid-range Computed
Tomography (CT) systems, Automatic Test Equipment (ATE) boards and advanced
cardiovascular radiography systems partially offset by the Company's previously
discussed share of loss in SAHCO and the writedown of the investment in
restricted securities received from a limited partnership to market value.
RESULTS OF OPERATIONS
THIRD QUARTER FISCAL 2001 (04/30/01) VS. THIRD QUARTER FISCAL 2000 (04/30/00)
Product revenue for the three months ended April 30, 2001 was $81,449,000
as compared to $66,837,000 for the same period last year, an increase of 22%.
The increase of $14,612,000 was primarily due to an increase in sales of Medical
Technology Products of $17,759,000 or 38%, due to increased demand for fully
featured mid-range Computed Tomography (CT) systems, patient monitors, and
advanced cardiovascular information management systems, partially offset by a
decrease in sales of $3,371,000 or 27%, in Signal Processing Technology Products
primarily due to lower sales to the telecommunications market. Engineering
revenue for the three months ended January 31, 2001 was $6,852,000 as compared
to $5,323,000 for the same period last year, an increase of 29%. The increase
was primarily due to customer funded projects for developing imaging products
and Media Gateway systems. Other revenue represents revenue from the Hotel
operation.
Product cost of sales was 64% of product revenue for the third quarter of
fiscal 2001, versus 62% for the third quarter of the prior year. The increase in
product cost was primarily due to higher manufacturing costs and changes in
product mix. Engineering cost of sales was 78% of engineering revenue for the
third quarter of fiscal 2001 as compared to 82% for the same period last year.
Other cost of sales represents operating costs associated with the Hotel
operation.
Research and product development expenses for the third quarter of fiscal
2001 were $10,641,000, as compared to $8,805,000, for the same period last year.
The increase of $1,836,000 was due to continuing research and development
activities across all of the Company product lines. Research and product
development expenses were 12% of total revenue for the third quarter of both
fiscal 2001 and 2000.
Selling and marketing expenses for the third quarter of fiscal 2001 were
$8,813,000, or 10% of total revenue, as compared to $6,728,000 or 9% of total
revenue, for the same period last year. The increase of $2,085,000 was due to
higher personnel-related costs of approximately $1,000,000 to support Camtronics
expanding its direct selling operations. The remaining increase of $1,085,000
was primarily due to selling and marketing to support the Company's revenue
growth.
General and administrative expenses for the third quarter of fiscal 2001
were $7,909,000, as compared to $6,396,000, for the same period last year, or 9%
of total revenue in both periods. The increase of $1,513,000 was primarily due
to higher personnel and other related costs to support the Company's growth.
Computer Software costs of $726,000 and $953,000 were capitalized in the
third quarter of fiscal 2001 and 2000, respectively. Amortization of capitalized
software amounted to $293,000 and $423,000 in the third quarter of fiscal 2001
and 2000, respectively, and is included in research and product development
expenses.
Interest income, net of interest expense, for the third quarter of fiscal
2001 was $1,314,000, as compared with $1,404,000 for the same period last year.
Interest income, net represents primarily interest earned on marketable
securities.
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During the third quarter of fiscal 2001, the Company recorded a gain of
$1,331,000 related to equity in unconsolidated affiliates. This gain consists
primarily of $525,000 from the Company's share of profit in a joint venture, a
gain of $15,000 reflecting the Company's share of profits in SAHCO, and a gain
of $810,000 resulting from the sale of a 5.4% equity interest in SAHCO to a
group of investors. During the three months ended April 30, 2000, the Company
recorded a loss of $137,000 related to equity in its unconsolidated affiliates.
The Company recorded a loss in a joint venture of $485,000 related to research
and development costs for the design and manufacture of medical equipment. This
loss was partially offset by a gain of $450,000 reflecting the Company's
investment share of profit in SAHCO.
Other expenses of $94,000 for the third quarter ended April 30, 2001 are
mainly related to a writedown of approximately $155,000 reflecting the
difference between the Company's investment cost and the current market value of
the restricted securities the Company received during fiscal 2000 as a final
distribution of shares in a publicly traded company made by a limited
partnership in which the Company had invested.
The effective tax rate for the third quarter of fiscal 2001 and 2000 was
29% and 31%, respectively. The decrease was due to an increase in the
utilization of a federal research and development credits.
Net income for the third quarter ended April 30, 2001 was $4,856,000 or
$.37 per diluted share as compared with $4,997,000 or $.39 per share for the
same period last year. The decrease of $141,000 in net income over the prior
year was primarily attributable to a reduction in revenue and gross margin due
to the downturn in demand for Industrial Technology and Signal Processing
Products, which are sold primarily to the semiconductor and telecommunications
industries, increased operating expenses, the writedown of the investment in
restricted securities received from a limited partnership, partially offset by
the Company's share of profit in SAHCO.
FINANCIAL CONDITION
Cash generated by operations in the first nine months of fiscal 2001 was
$7,381,000 compared to $974,000 used in operations during the same period of the
prior year. This increase was primarily the result of improved operating income
and increased income from equity investments. Operating cash flow generated by
the Company along with maturities of marketable securities of $10,320,000 was
used to invest in property, plant and equipment of $11,940,000, pay dividends of
$2,714,000, and fund other investing and financing activities.
The Company's balance sheet reflects a current ratio of 6.1 to 1 at April
30, 2001 compared to 6.0 to 1 at July 31, 2000. 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. The Company's debt to equity ratio was 0.19 to 1 at April
30, 2001 and 0.20 to 1 at July 31, 2000. Management does not anticipate any
difficulties in financing operations at anticipated levels.
The carrying amounts reflected in the consolidated balance sheets of cash
and cash equivalents, trade receivables, and trade payables approximate fair
value at April 30, 2001 due to the short maturities of these instruments.
The Company maintains a bond investment portfolio of various issuers,
types, and maturities. The Company's cash and investments include cash
equivalents, which the Company considers to be investments purchased with
original maturities of three months or less. Investments having original
maturities in excess of three months are stated at amortized cost, which
approximates fair value, and are classified as available for sale. A rise in
interest rates could have an adverse impact on the fair value of the Company's
investment portfolio. The Company does not currently hedge these interest rate
exposures.
Accounts and notes receivable increased $5,335,000 during the nine months
ended April 30, 2001, primarily due to revenue increase. The days sales
outstanding (DSO) increased from 61 to 62 days during this period.
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Inventory increased $10,426,000 during the nine months ended April 30, 2001
primarily due to increased raw materials. During this period the Company made
the decision to procure adequate supplies of key components to ensure that it
could meet customer requirements and support the Company's revenue growth.
The Company's Danish subsidiary B-K Medical A/S announced in May 2001 the
construction of a new 135,000 square foot facility in Herlev, north of
Copenhagen, for the manufacture of specialized diagnostic ultrasound equipment
at an estimated cost of $15.5 million. The new facility, due for completion in
April 2002, will host manufacturing, R&D, service, marketing, sales and
administrative functions.
During October 2000, Analogic Scientific, Inc. (ASI), a joint venture
corporation located in The People's Republic of China, entered into separate
agreements with four investors which resulted in these investors buying an 10.8%
equity interest in ASI from its existing investors. This transaction had the
approval of the Company and the other shareholder who prior to this transaction
each had a 50% equity ownership interest in ASI. As a result, the Company's
ownership in ASI was reduced by 5.4% to 44.6%. On January 18, 2001, the company
name was changed from "Analogic Scientific, Inc." to "Shenzhen Anke High-Tech
Co., Ltd" (SAHCO).
The Company accounts for this investment under the equity method of
accounting whereby the Company adjusts its investment balance to recognize its
share of SAHCO's earnings or losses, changes in SAHCO's capital investment and
dividends received.
SAHCO has historically provided the Company with current quarterly
information regarding its financial results. To ensure that the Company has
adequate time to review and adjust the financial information provided by SAHCO
to conform it to U.S. Generally Accepted Accounting Principles (GAAP), the
Company changed, effective with the quarter ended October 31, 2000 its method of
recording SAHCO's financial results and will use the previous quarters financial
information of SAHCO to adjust its investment account in the current quarter,
thereby resulting in a consistently applied quarterly delay in recording its
equity-based accounting.
During fiscal 2001 the Company became aware of certain differences between
local statutory accounting practices used by SAHCO and GAAP primarily with
respect to the valuation of accounts receivable and inventory and revenue
recognition. During the quarter ended January 31, 2001, the Company evaluated
the potential differences in accounting basis and concluded that adjustments
were necessary for prior periods resulting in a reduction in the Company's
investment in SAHCO of $2,375,000 at July 31, 2000 (or $1,808,000 net of tax
effect) which reduced the carrying value of the Company's investment at July 31,
2000 from $6,125,000 to $3,750,000.
As a result of the sale of a 5.4% equity interest in SAHCO the Company
recognized a gain of $810,000 in the quarter ended April 30, 2001. In addition
the Company recognized in the quarter ended April 30, 2001 its share of SAHCO's
quarterly profit of $15,000. The carrying value of the Company's investment in
SAHCO at April 30, 2001 was $3,225,000.
Other assets increased $458,000 for the nine months ending April 30, 2001.
The increase was primarily due to goodwill of $473,000, net of amortization,
resulting from Camtronics' acquisition of certain assets and property rights
related to a third party proprietary product which will be sold by Camtronics.
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains statements which, to the extent that they
are not recitation of historical facts, constitute "forward looking statements"
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that all forward-looking statements,
including statements about product development, market and industry trends,
strategic initiatives, regulatory approvals, sales, profits, expenses, price
trends, research and development expenses and trends, and capital expenditures,
involve risk and uncertainties and actual events and results may differ
significantly from those indicated in any forward-looking statements as a result
of a number of factors, including those discussed below.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS. ANY OF THESE RISKS COULD
HAVE A MATERIAL AND NEGATIVE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS.
BECAUSE A SIGNIFICANT PORTION OF OUR REVENUE CURRENTLY COMES FROM A SMALL NUMBER
OF CUSTOMERS, ANY DECREASE IN REVENUE FROM THESES CUSTOMERS COULD HARM OUR
OPERATING RESULTS.
We depend on a small number of customers for a large portion of our
business, and changes in our customers' orders may have a significant impact on
our operating results. If a major customer significantly reduces the amount of
business it does with us, there would be an adverse impact on our operating
results. The following table sets forth the percentages of our total net sales
for our three largest customers in any of the last three fiscal years and the
percentage of our total net sales to our ten largest customers in those years:
YEAR ENDED JULY 31,
--------------------
2000 1999 1998
---- ---- ----
Philips................................................. 16% 18% 16%
General Electric........................................ 10% 8% 8%
Toshiba................................................. 9% 9% --
Imation................................................. -- -- 7%
Ten largest customers as a group........................ 60% 60% 56%
Although we are seeking to broaden our customer base, we will continue to
depend on sales to a relatively small number of major customers. Because it
often takes significant time to replace lost business, it is likely that our
operating results would be adversely affected if one or more of our major
customers were to cancel, delay or reduce significant orders in the future. Our
customer agreements typically permit the customer to discontinue future
purchases after timely notice.
In addition, we generate significant accounts receivable in connection with
the products we sell and the services we provide to our major customers.
Although our major customers are large corporations, if one or more of our
customers were to become insolvent or otherwise be unable to pay for our
services, our operating results and financial condition could be adversely
affected.
COMPETITION FROM EXISTING OR NEW COMPANIES IN THE MEDICAL INSTRUMENTATION
TECHNOLOGY INDUSTRY COULD CAUSE US TO EXPERIENCE DOWNWARD PRESSURE ON PRICES,
FEWER CUSTOMER ORDERS, REDUCED MARGINS, THE INABILITY TO TAKE ADVANTAGE OF NEW
BUSINESS OPPORTUNITIES AND THE LOSS OF MARKET SHARE.
We operate in a highly competitive industry. We are subject to competition
based upon product design, performance, pricing, quality and service and we
believe our innovative engineering and product reliability have been important
factors in our growth. While we try to maintain competitive pricing on those
products which are directly comparable to products manufactured by others, in
many instances our products will conform to more exacting specifications and
carry a higher price than analogous products manufactured by others.
Our competitors include divisions of some larger, more diversified
organizations as well as several specialized companies. Some of them have
greater resources and larger staffs than we have.
Many of our OEM customers and potential OEM customers have the capacity to
design and manufacture the products we manufacture for themselves. We face
competition from research and product development groups and the manufacturing
operations of our current and potential customers, who continually evaluate the
benefits of internal research and product development and manufacturing versus
outsourcing.
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WE DEPEND ON OUR SUPPLIERS, SOME OF WHICH ARE THE SOLE SOURCE FOR OUR
COMPONENTS, AND OUR PRODUCTION WOULD BE SUBSTANTIALLY CURTAILED IF THESE
SUPPLIERS ARE NOT ABLE TO MEET OUR DEMANDS AND ALTERNATIVE SOURCES ARE NOT
AVAILABLE.
We order raw materials and components to complete our customers' orders,
and some of these raw materials and components are ordered from sole-source
suppliers. Although we work with our customers and suppliers to minimize the
impact of shortages in raw materials and components, we sometimes experience
short-term adverse effects due to price fluctuations and delayed shipments. In
the past, there have been industry-wide shortages of electronics components. If
a significant shortage of raw materials or components were to occur, we may have
to delay shipments or pay premium pricing, which would adversely affect our
operating results. In some cases, supply shortages of particular components will
substantially curtail production of products using these components. We are not
always able to pass on price increases to our customers. Accordingly, some raw
material and component price increases could adversely affect our operating
results. We also depend on a small number of suppliers, some of whom are
affiliated with customers or competitors and others of whom may be small, poorly
financed companies, for many of the other raw materials and components that we
use in our business. If we are unable to continue to purchase these raw
materials and components from our suppliers, our operating results would be
adversely affected. Because many of our costs are fixed, our margins depend on
our volume of output at our facilities and a reduction in volume will adversely
affect our margins.
IF WE ARE LEFT WITH EXCESS INVENTORY, OUR OPERATING RESULTS WILL BE ADVERSELY
AFFECTED.
Because of long-lead times and specialized product designs, we typically
purchase components and manufacture products for customer orders or in
anticipation of customer orders based on customer forecasts. For a variety of
reasons, such as decreased end-user demand for the products we are
manufacturing, our customers may not purchase all of the products we have
manufactured or for which we have purchased components. In either event, we
would attempt to recoup our materials and manufacturing costs by means such as
returning components to our vendors, disposing of excess inventory through other
channels or requiring our OEM customers to purchase or otherwise compensate us
for such excess inventory. Some of our significant customer agreements do not
give us the ability to require our OEM customers to do this. To the extent we
are unsuccessful in recouping our material and manufacturing costs, not only
would our net sales be adversely affected, but also our operating results would
be disproportionately adversely affected. Moreover, carrying excess inventory
would reduce the working capital we have available to continue to operate and
grow our business.
UNCERTAINTIES AND ADVERSE TRENDS AFFECTING OUR INDUSTRY OR ANY OF OUR MAJOR
CUSTOMERS MAY ADVERSELY AFFECT OUR OPERATING RESULTS.
Our business depends primarily on a specific segment of the electronics
industry, medical instrumentation technology products, which is subject to rapid
technological change and pricing and margin pressure. This industry has
historically been cyclical and subject to significant downturns characterized by
diminished product demand, rapid declines in average selling prices and
production over-capacity. In addition, changes in government policy relating to
reimbursement for the purchase and use of medical capital equipment could also
affect our sales. Our customers' markets are also subject to economic cycles and
are likely to experience recessionary periods in the future. The economic
conditions affecting our industry, in general, or any of our major customers, in
particular, may adversely affect our operating results. Our businesses outside
the medical instrumentation technology product sector are subject to the same or
greater technological and cyclical pressures.
OUR CUSTOMERS' DELAY OR INABILITY TO OBTAIN ANY NECESSARY UNITED STATES OR
FOREIGN REGULATORY CLEARANCES OR APPROVALS FOR THEIR PRODUCTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our products are used by a number of our customers in the production of
medical devices that are the subject of a high level of regulatory oversight. A
delay or inability to obtain any necessary United States or foreign regulatory
clearances or approvals for products could have a material adverse effect on our
business.
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The process of obtaining clearances and approvals can be costly and
time-consuming. There is a further risk that any approvals or clearances, once
obtained, may be withdrawn or modified. Medical devices cannot be marketed in
the United States without clearance or approval by the FDA. Medical devices sold
in the United States must also be manufactured in compliance with FDA Good
Manufacturing Practices, which regulate the design, manufacture, packing,
storage and installation of medical devices. Moreover, medical devices are
required to comply with FDA regulations relating to investigational research and
labeling. States may also regulate the manufacture, sale and use of medical
devices. Medical device products are also subject to approval and regulation by
foreign regulatory and safety agencies.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS, WHICH COULD AFFECT
THE MARKET PRICE OF OUR COMMON STOCK.
Our annual and quarterly results may vary significantly depending on
various factors, many of which are beyond our control, and may not meet the
expectations of securities analysts or investors. If this occurs, the price of
our common stock would likely decline.
These factors include:
- variations in the timing and volume of customer orders relative to our
manufacturing capacity;
- introduction and market acceptance of our customers' new products;
- changes in demand for our customers' existing products;
- the timing of our expenditures in anticipation of future orders;
- effectiveness in managing our manufacturing processes;
- changes in competitive and economic conditions generally or in our
customers' markets;
- changes in the cost or availability of components or skilled labor; and
- foreign currency exposure.
As is the case with many technology companies, we typically ship a
significant portion of our products in the last month of a quarter. As a result,
any delay in anticipated sales is likely to result in the deferral of the
associated revenue beyond the end of a particular quarter, which would have a
significant effect on our operating results for that quarter. In addition, most
of our operating expenses do not vary directly with net sales and are difficult
to adjust in the short term. As a result, if net sales for a particular quarter
were below our expectations, we could not proportionately reduce operating
expenses for that quarter, and, therefore, that revenue shortfall would have a
disproportionate adverse effect on our operating results for that quarter.
LOSS OF ANY OF OUR KEY PERSONNEL COULD HURT OUR BUSINESS BECAUSE OF THEIR
INDUSTRY EXPERIENCE AND THEIR TECHNOLOGICAL EXPERTISE.
We operate in a highly competitive industry and depend on the services of
our key senior executives and our technological experts. The loss of the
services of one or several of our key employees or an inability to attract,
train and retain qualified and skilled employees, specifically engineering and
operations personnel, could result in the loss of customers or otherwise inhibit
our ability to operate and grow our business successfully.
IF WE ARE UNABLE TO MAINTAIN OUR TECHNOLOGICAL EXPERTISE IN RESEARCH AND PRODUCT
DEVELOPMENT AND MANUFACTURING PROCESSES WE WILL NOT BE ABLE TO SUCCESSFULLY
COMPETE.
We believe that our future success will depend upon our ability to provide
research and product development and manufacturing services that meet the
changing needs of our customers. This requires that we successfully anticipate
and respond to technological changes in design and manufacturing processes in a
cost-effective and timely manner. As a result, we continually evaluate the
advantages and feasibility of new product design and manufacturing processes. We
cannot, however, provide assurance that our development efforts will be
successful.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company faces limited exposure to financial market risks, including
adverse movements in foreign currency exchange rates and changes in interest
rates. These exposures may change over time as business practices evolve and
could have a material adverse impact on the Company's financial results. The
Company's primary exposure has been related to local currency revenue and
operating expenses in Europe.
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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.
ANALOGIC CORPORATION
Registrant
Date: June 13, 2001 /s/ THOMAS J. MILLER, JR.
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Thomas J. Miller, Jr.
Chief Executive Officer and President
Date: June 13, 2001 /s/ JOHN J. MILLERICK
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John J. Millerick
Senior Vice President, Chief Financial
Officer and Treasurer (Principal Financial
and Accounting Officer)
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