Analogic Corporation
ANALOGIC CORP (Form: 10-Q, Received: 12/10/2010 16:20:38)
Table of Contents

 

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 October 31, 2010

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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

8 Centennial Drive, Peabody, Massachusetts   01960
(Address of principal executive offices)   (Zip Code)

(978) 326-4000

(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   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes     ¨     No     ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨       Accelerated filer  x
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes   ¨     No   x

The number of shares of common stock outstanding at November 30, 2010 was 12,814,224.

 

 

 


Table of Contents

ANALOGIC CORPORATION

TABLE OF CONTENTS

          Page No.  

Part I. Financial Information

  
Item 1.    Financial Statements   
  

Unaudited Consolidated Balance Sheets as of October 31, 2010 and July 31, 2010

     3   
  

Unaudited Consolidated Statements of Operations for the Three Months Ended
October  31, 2010 and 2009

     4   
  

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended
October  31, 2010 and 2009

     5   
   Notes to Unaudited Consolidated Financial Statements      6   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      18   
Item 3.    Quantitative and Qualitative Disclosures about Market Risk      26   
Item 4.    Controls and Procedures      26   

Part II. Other Information

  
Item 1A.    Risk Factors      26   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      27   
Item 6.    Exhibits      28   

Signatures

     29   

Exhibit Index

     30   

 

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Table of Contents

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

ANALOGIC CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

 

     October 31,
2010
            July 31,
2010
 
Assets         

Current assets:

        

Cash and cash equivalents

   $         175,829           $         169,254    

Accounts receivable, net of allowance for doubtful accounts of $679 and $618 at October 31, 2010 and July 31, 2010, respectively

     79,387             74,211    

Inventories

     94,521             86,060    

Refundable and deferred income taxes

     7,626             8,860    

Other current assets

     12,940             13,112    

Current assets of discontinued operations (Note 3)

                      299    

Total current assets

     370,303             351,796    

Property, plant, and equipment, net

     71,766             69,403    

Capitalized software, net

     2,976             3,223    

Intangible assets, net

     39,028             39,761    

Goodwill

     1,849             1,849    

Other assets

     2,504             1,630    

Deferred income tax assets

     9,214             8,904    

Non-current assets of discontinued operations (Note 3)

                      9,210    

Total Assets

   $ 497,640                 $ 485,776    
Liabilities and Stockholders’ Equity         

Current liabilities:

        

Accounts payable

   $ 33,853           $ 23,868    

Accrued liabilities

     30,328             33,103    

Advance payments and deferred revenue

     8,500             8,888    

Accrued income taxes

     635             2,917    

Current liabilities of discontinued operations (Note 3)

                      1,293    

Total current liabilities

     73,316             70,069    

Long-term liabilities:

        

Accrued income taxes

     4,934             4,777    

Other long-term liabilities

     2,551             1,528    

Deferred income tax liabilities

                      360    

Total long-term liabilities

     7,485             6,665    

Commitments and guarantees (Note 14)

        

Stockholders’ equity:

        

Common stock, $.05 par value

     641             645    

Capital in excess of par value

     78,735             77,085    

Retained earnings

     327,876             326,590    

Accumulated other comprehensive income

     9,587                   4,722    

Total stockholders’ equity

     416,839                   409,042    

Total Liabilities and Stockholders’ Equity

   $ 497,640                 $ 485,776    

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ANALOGIC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

     Three Months Ended
October 31,
 
     2010             2009  

Net revenue:

        

Product

   $         96,689           $         89,454    

Engineering

     7,133                   3,352    

Total net revenue

     103,822                   92,806    

Cost of sales:

        

Product

     59,056             59,777    

Engineering

     5,747                   3,167    

Total cost of sales

     64,803                   62,944    

Gross profit

     39,019                   29,862    

Operating expenses:

        

Research and product development

     13,904             11,455    

Selling and marketing

     9,608             9,084    

General and administrative

     9,747             9,648    

Restructuring charge

     3,562                     

Total operating expenses

     36,821                   30,187    

Income (loss) from operations

     2,198                   (325)   

Other income (expense):

        

Interest income

     218             175    

Other, net

     (276)                  (143)   

Total other income (expense), net

     (58)                  32    

Income (loss) from continuing operations before income taxes

     2,140             (293)   

Provision for (benefit from) income taxes

     759                   (103)   

Income (loss) from continuing operations

     1,381             (190)   

Income from discontinued operations (net of income tax provisions of $168 and $114 for the three months ended October 31, 2010 and 2009, respectively)

     289             216    

Gain on disposal of discontinued operations (net of income tax provision of $505)

     924                     

Net income

   $ 2,594                 $ 26    

Basic net income (loss) per share:

                          

Income (loss) from continuing operations

   $ 0.11           $ (0.01)   

Income from discontinued operations, net of tax

     0.02             0.01    

Gain on disposal of discontinued operations, net of tax

     0.08                     

Basic net income per share

   $ 0.21                 $   

Diluted net income (loss) per share:

                          

Income (loss) from continuing operations

   $ 0.11           $ (0.01)   

Income from discontinued operations, net of tax

     0.02             0.01    

Gain on disposal of discontinued operations, net of tax

     0.07                     

Diluted net income per share

   $ 0.20                 $   

Weighted average shares outstanding:

        

Basic

     12,623             12,672    

Diluted

     12,677             12,820    

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ANALOGIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

     Three Months Ended
October 31,
 
     2010             2009  

OPERATING ACTIVITIES:

        

Net income

   $ 2,594           $ 26    

Less:

        

Income from discontinued operations

     289             216    

Gain on disposal of discontinued operations

     924                     

Income (loss) from continuing operations

     1,381                   (190)   

Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:

        

Provision for (benefit from) deferred income taxes

     515             (441)   

Depreciation and amortization

     4,334             4,214    

Allowance for doubtful accounts and notes receivable

     36               

Net loss on sale of property, plant, and equipment

     21               

Restructuring charge

     3,562               

Share-based compensation expense

     1,782             1,155    

Excess tax provision for share-based compensation

     112             49    

Net changes in operating assets and liabilities (Note 11)

     (11,286)                  (3,322)   

NET CASH PROVIDED BY CONTINUING OPERATIONS FOR OPERATING ACTIVITIES

     457             1,473    

NET CASH (USED BY) PROVIDED BY DISCONTINUED OPERATIONS FOR OPERATING ACTIVITIES

     (335)                  850    

NET CASH PROVIDED BY OPERATING ACTIVITIES

     122                   2,323    

INVESTING ACTIVITIES:

        

Proceeds from sale of discontinued operation, net

     10,467               

Additions to property, plant, and equipment

     (3,700)            (2,210)   

Capitalized software development costs

                (184)   

Maturities of short-term held-to-maturity marketable securities

                40,438    

Proceeds from the sale property, plant, and equipment

     22                     

NET CASH PROVIDED BY CONTINUING OPERATIONS FOR INVESTING ACTIVITIES

     6,789             38,048    

NET CASH USED BY DISCONTINUED OPERATIONS FOR INVESTING ACTIVITIES

                      (14)   

NET CASH PROVIDED FOR INVESTING ACTIVITIES

     6,789                   38,034    

FINANCING ACTIVITIES:

        

Issuance of stock pursuant to exercise of stock options, employee stock purchase plan, restricted stock plans, and non-employee director stock plan

     (22)            (117)   

Excess tax provision for share-based compensation

     (112)            (49)   

Dividends paid to shareholders

     (1,308)                  (1,267)   

NET CASH USED FOR FINANCING ACTIVITIES

     (1,442)                  (1,433)   

EFFECT OF EXCHANGE RATE CHANGES ON CASH

     1,106                   650    

NET INCREASE IN CASH AND CASH EQUIVALENTS

     6,575                   39,574    

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     169,254                   119,855    

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $     175,829                 $     159,429    

Supplemental disclosures of cash flow information:

        

Refunds received (cash paid) for income taxes, net

   $ (2,487)          $ 2,703    

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

1. Basis of presentation:

Company

Analogic Corporation (“Analogic” or the “Company”) is a high technology company that designs and manufactures advanced medical imaging and security systems and subsystems sold to Original Equipment Manufacturers (“OEMs”) and end users primarily in the healthcare and airport security markets. The Company is recognized worldwide for advancing state-of-the-art technology in the areas of medical computed tomography (“CT”), magnetic resonance imaging (“MRI”), digital mammography, ultrasound, and automated explosives detection systems for airport security. The Company’s OEM customers incorporate its technology into systems they in turn sell for various medical and security applications. The Company also sells its ultrasound products directly into specialized clinical end-user markets through its direct worldwide sales force under the brand name B-K Medical. The Company’s top ten customers combined for approximately 66% and 69% of the Company’s total net revenue for the three months ended October 31, 2010 and 2009, respectively. The Company had two customers, as set forth in the table below, which individually accounted for 10% or more of the Company’s net product and engineering revenue during the three months ended October 31, 2010 or 2009.

 

     Three Months Ended October 31,  
     2010              2009      

Koninklijke Philips Electronics N.V. (“Philips”)

     14 %             17 %     

Toshiba Corporation (“Toshiba”)

     11 %             15 %     

Philips accounted for 22% and 16% of net accounts receivable at October 31, 2010 and July 31, 2010, respectively, while L-3 Communications Corporation accounted for 13% of net accounts receivable at July 31, 2010.

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Investments in companies in which ownership interests range from 10% to 50%, and the Company exercises significant influence over operating and financial policies, are accounted for using the equity method. Other investments are accounted for using the cost method.

General

The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the United States Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary for a fair statement of the results for all interim periods presented. The results of operations for the three months ended October 31, 2010 are not necessarily indicative of the results to be expected for the fiscal year ending July 31, 2011 (“fiscal year 2011”), or any other interim period. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended July 31, 2010 (“fiscal year 2010”) included in the Company’s Annual Report on Form 10-K as filed with the SEC on September 23, 2010. The accompanying Consolidated Balance Sheet as of July 31, 2010 contains data derived from audited financial statements.

Basis of Presentation

Certain financial statement items have been reclassified to conform to the current period presentation.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2. Recent accounting pronouncements:

Recently adopted

Special purpose entities

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance that eliminates the concept of a qualified special-purpose entity and related guidance, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. This guidance was effective for the Company on August 1, 2010 and did not have a material impact on its financial position, results of operations, and cash flows.

In June 2009, the FASB issued guidance that requires former qualified special-purpose entities to be evaluated for consolidation, changes the approach to determining a variable interest entity’s (“VIE”) primary beneficiary, and requires companies to more frequently reassess whether they must consolidate VIEs. This guidance was effective for the Company on August 1, 2010 and did not have a material impact on its financial position, results of operations, and cash flows.

Revenue recognition

In March 2010, the FASB issued guidance related to revenue recognition that applies to arrangements with milestones relating to research or development deliverables. This guidance provides criteria that must be met to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This guidance was effective for the Company on August 1, 2010 and did not have a material impact on its financial position, results of operations, and cash flows.

3. Discontinued operations:

During the first quarter of fiscal year 2011, the Company sold its hotel business, and realized net proceeds of $10,467, after transaction costs. The Company recorded a gain on sale of the hotel business of $924, net of a tax provision of $505, or $0.07 per diluted share in the three months ended October 31, 2010. The hotel business has been reported as a discontinued operation and all periods presented have been revised accordingly to reflect these operations as discontinued. A member of the Company’s Board of Directors also serves on the Board of Directors of the entity that acquired the hotel business.

Revenues and net income for the hotel business for the three months ended October 31, 2010 and 2009 were as follows:

 

     Three Months Ended    
October 31,    
 
     2010             2009  

Total net revenue

   $     2,906            $     2,571     

Net income

     289              216     

 

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Table of Contents

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

The following represents a detailed listing of the current assets and current liabilities of discontinued operations:

 

     October 31,    
2010    
            July 31,    
2010    
 

Current assets of discontinued operations:

        

    Accounts receivable, net

     -              $         282     

    Other current assets

     -              17     

    Property, plant and equipment, net

     -              9,210     

Total assets

     $                 -              $ 9,509     

Current liabilities of discontinued operations:

        

    Accounts payable, trade

     -              $ 945     

    Accrued liabilities

     -              188     

    Advance payments

     -              160     

Total current liabilities

     $ -              $ 1,293     

4. Share-based compensation:

The following table presents share-based compensation expenses included in the Company’s unaudited Consolidated Statements of Operations:

 

     Three Months Ended
October 31,
 
     2010                 2009      

    Cost of product sales

   $ 118            $ 84     

    Research and product development

     519              244     

    Selling and marketing

     203              120     

    General and administrative

     942                    707     

    Share-based compensation expense before tax

           1,782                          1,155     

Beginning in the year ended July 31, 2008 (“fiscal year 2008”), the Company’s Compensation Committee of the Board of Directors (the “Committee”) began granting performance contingent restricted stock awards (“performance awards”). In fiscal year 2008, the Committee granted 100,183 performance contingent restricted shares under the Company’s 2007 Restricted Stock Plan. These shares vested if specific pre-established levels of performance were achieved at the end of a three-year performance cycle. The performance goal for the performance awards was based solely on the compound annual growth rate of an adjusted earnings per share metric for the Company. The actual number of shares issued was determined at the end of the three-year performance cycle and could range from zero to 200% of the target award. The actual number of shares issued included the payment of dividends on the actual number of shares earned. The Company recognized compensation expense over the performance period based on the number of shares that were deemed to be probable of vesting at the end of the three-year performance cycle. The total number of shares that vested at July 31, 2010 was 15,711. The expense (income) on these vested shares was approximately $1,100, of which ($127) was recorded in the three months ended October 31, 2009.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

In the year ended July 31, 2009 (“fiscal year 2009”), the Committee granted 45,751 performance awards under the Company’s 2007 Restricted Stock Plan, of which 6,330 shares have been forfeited through October 31, 2010. These shares will vest if specific pre-established levels of performance are achieved at the end of a three-year performance cycle, which is July 31, 2011 for the outstanding 39,421 shares granted. The performance goal for the performance awards is based solely on the compound annual growth rate of an adjusted earnings per share metric for the Company. The actual number of shares to be issued will be determined at the end of each three-year performance cycle and can range from zero to 200% of the target award, or up to 78,842 shares based upon the shares outstanding. The actual number of shares to be issued will also include the payment of dividends on the actual number of shares earned. The maximum compensation expense for the performance awards was $4,469 based on a weighted average grant date fair value of $56.69 per share. The Company is recognizing compensation expense over the performance period based on the number of shares that is deemed to be probable of vesting at the end of the three-year performance cycle. As of October 31, 2010, the Company estimated that no shares were deemed probable of vesting. During the three months ended October 31, 2010 and 2009, the Company recognized compensation expense (income) of $0 and ($10), respectively, for the performance awards based on the number of shares deemed probable of vesting.

In fiscal year 2010, the Committee granted 223,834 performance awards in the form of shares of restricted stock and restricted stock units pursuant to the Company’s 2007 Restricted Stock Plan and 2009 Stock Incentive Plan, of which 10,960 performance awards have been forfeited through October 31, 2010. These awards will vest as follows: 106,441 will vest based upon achievement of certain targets over the three-year period ending July 31, 2012 with respect to the Company’s cumulative non-GAAP earnings per share and 106,433 will vest based upon achievement of certain targets over the three-year period ending July 31, 2012 with respect to the Company’s relative total shareholder return (“TSR”) as determined against a specified peer group. The actual number of shares/units to be issued will be determined at the end of the three-year performance cycle and can range from zero to 200% of the target award, or up to 425,748 shares/units. The issuance of the shares/units will be accompanied by the payment of accumulated dividends on the actual number of shares earned. The maximum compensation expense for the performance awards with the non-GAAP earnings per share target is $8,527, based on a weighted average grant date fair value of $40.07 per share as determined by the closing price of the Company’s common stock on the date of grant. The Company is recognizing compensation expense over the performance period for the performance awards with the non-GAAP earnings per share target based on the number of shares/units that are deemed to be probable of vesting at the end of each three-year performance cycle. As of October 31, 2010, the Company estimated that total non-GAAP earnings per share awards covering 53,090 shares/units with a value of $2,127 were deemed probable of vesting. During the three months ended October 31, 2010 and 2009, the Company recognized compensation expense of $203 and $0, respectively, for the performance awards with the non-GAAP earnings per share target based on the number of shares deemed probable of vesting.

In fiscal year 2011, the Committee granted 216,234 performance awards in the form of shares of restricted stock units pursuant to the Company’s 2009 Stock Incentive Plan, of which none have been forfeited through October 31, 2010. These awards will vest as follows: 136,017 will vest based upon achievement of certain targets over the three-year period ending July 31, 2013 with respect to the Company’s cumulative non-GAAP earnings per share and 80,217 will vest based upon achievement of certain targets over the three-year period ending July 31, 2013 with respect to the Company’s relative TSR as determined against the Russell 2000 Index, of which the Company is a member. The actual number of units to be issued will be determined at the end of the three-year performance cycle and can range from zero to 200% of the target award, or up to 432,468 units. The issuance of the units will be accompanied by the payment of accumulated dividends on the actual number of shares earned. The maximum compensation expense for the performance awards with the non-GAAP earnings per share target is $11,415, based on a weighted average grant date fair value of $41.96 per share as determined by the closing price of the Company’s common stock on the date of grant. The Company is recognizing compensation expense over the performance period for the performance awards with the non-GAAP earnings per share target based on the number of units that are deemed to be probable of vesting at the end of each three-year performance cycle. As of October 31, 2010, the Company estimated that total non-GAAP earnings per share awards covering 47,334 units with a value of $1,986 were deemed probable of vesting. During the three months ended October 31, 2010 and 2009, the Company recognized compensation expense of $99 and $0, respectively, for the performance awards with the non-GAAP earnings per share target based on the number of units deemed probable of vesting.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

The compensation expense for the performance awards granted with a TSR target is $4,353 and $5,048 for awards granted in fiscal years 2011 and 2010, respectively. The compensation expense will be recognized on a straight-line basis, net of estimated forfeitures, over a derived service period of 2.9 and 2.7 years for the awards granted in fiscal years 2011 and 2010, respectively. The weighted average grant date fair values of awards granted with a TSR target was $54.27 and $49.19 per share during the three months ended October 31, 2010 and 2009, respectively. The fair value of awards with a TSR target at date of grant was estimated using a Monte-Carlo Simulation Model with the following assumptions:

 

         Three Months Ended        
    October 31,        
 
         2010                         2009          

Stock Price (1)

   $       41.96              $       40.14       

Expected volatility factor (2)

     49%                50%       

Risk-free interest rate (3)

     0.73%                1.37%       

Expected annual dividend yield (4)

     0.0%                 0.0%       

 

    (1) The stock price is the weighted average closing price of the Company’s common stock on the dates of grant.
    (2) The stock volatility for each grant is determined based on the historical volatility for the peer group companies over a period equal to the remaining term of the performance period from the date of grant for all awards.
    (3) The risk-free interest rate for periods equal to the performance period is based on the U.S. Treasury yield curve in effect at the time of grant.
    (4) Dividends are considered reinvested when calculating TSR. For the purpose of the fair value model, the dividend yield is therefore considered to be 0%.

The following table sets forth the stock option and restricted stock award transactions from July 31, 2010 to October 31, 2010:

 

   

Stock Options Outstanding

 

       

Time-Based
Unvested Restricted

Stock Awards

 

         

Performance-Based
Unvested Restricted
Stock Awards

 

 
    Number  
of Shares  
            Weighted    
    Average     
    Exercise    
    Price    
        Weighted    
Average    
Remaining     
Contractual    
Term    
(years)    
        Aggregate    
Intrinsic    
Value     
       

Number 

of Shares/Units 

          Weighted    
Average    
Grant Date     
Fair Value    
         

Number 

of Shares/Units 

          Weighted    
Average    
Grant Date     
Fair Value    
 

Outstanding at July 31, 2010

    320,009             $         54.38            4.66            $         754            108,816             $         52.26            340,906           $ 49.12     

Granted

    7,000             41.59                    11,334             41.96            216,234             46.53     

Exercised

    (900)            41.32                    -                 -          

Vesting of restricted stock

    -                         (9,828)            49.92            (15,711)            59.16     

Cancelled (forfeited and expired)

    (12,186)            51.69                    (1,031)            63.58            (72,900)            58.54     

Outstanding at October 31, 2010

    313,923             54.24            4.67            796            109,291             51.30            468,529             46.12     

Options vested or expected to vest at October 31, 2010 (1)

    292,283             54.15            4.62            737                     

Options exercisable at October 31, 2010

    129,294             52.39            3.49            289                     

 

    (1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

5. Marketable securities and fair value:

The Company measures the fair value of its financial assets and liabilities and non-financial assets and liabilities at least annually using a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

   

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

   

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

   

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company’s cash equivalents are comprised primarily of certificates of deposits.

The Company did not have any financial or non-financial assets or liabilities measured at fair value at October 31, 2010 or July 31, 2010.

The Company had no realized gains or losses on marketable securities, as it did not sell any marketable securities during the periods presented and cost has approximated fair value at the maturity dates.

6. Goodwill and other intangible assets:

The carrying amount of the goodwill at October 31, 2010 and July 31, 2010 was $1,849.

Other intangible assets include the value assigned to intellectual property and other technology, patents, customer contracts and relationships, a trade name, and in-process research and development. The estimated useful lives for all of these intangible assets, excluding the tradename as it is considered to have an indefinite life, are 10 to 14 years.

Intangible assets at October 31, 2010 and July 31, 2010 consisted of the following:

 

     October 31, 2010             July 31, 2010  
     Cost                 Accumulated    
Amortization    
            Net                 Cost                 Accumulated    
Amortization    
            Net      

Developed technology

   $     11,771            $     2,860            $     8,911            $     11,771            $     2,578            $     9,193     

Customer relationships

     25,200              4,590              20,610              25,200              4,139              21,061     

Tradename

     7,607              -              7,607              7,607              -              7,607     

In-process research and development

     1,900                    -                    1,900                    1,900                    -                    1,900     

Total

   $ 46,478                  $ 7,450                  $ 39,028                  $ 46,478                  $ 6,717                  $ 39,761     

Amortization expense related to acquired intangible assets was $733 for both the three months ended October 31, 2010 and 2009.

The estimated future amortization expenses related to intangible assets for each of the five succeeding fiscal years is expected to be as follows:

 

2011 (remaining nine months)

    $ 2,198   

2012

     2,931   

2013

     2,931   

2014

     2,931   

2015

     2,931   
    $         13,922   

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

The Company’s goodwill and indefinite lived intangible assets are tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would indicate the carrying value is not recoverable. Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by the Company in connection with the acquisition of Copley Controls Corporation (“Copley”) on April 14, 2008. The tradename represents the value allocated to the Copley tradename in connection with the acquisition of Copley. The goodwill and Copley tradename are part of the OEM reporting unit, both of which the Company tests for impairment during the second quarter of each fiscal year.

7. Restructuring charge:

In the first quarter of fiscal year 2011, the Company initiated a plan to reduce its workforce by 104 employees worldwide as the Company continues to streamline its operations and consolidate its Denmark and Canton, MA manufacturing operations into its existing facilities. The total cost of this plan, including severance and personnel related costs, was $3,562 and was recorded as a restructuring charge during the three months ended October 31, 2010.

In the second quarter of fiscal year 2010, the Company reduced its workforce by 17 employees worldwide. The total cost of this plan, including severance and personnel related costs, was $764 and was recorded as a restructuring charge during fiscal year 2010.

In the fourth quarter of fiscal year 2010, the Company recorded an additional restructuring charge of $420 for estimated sub-lease income that is no longer expected to be received for facility space the Company exited in the fourth quarter of fiscal year 2009. Offsetting this expense was an adjustment of severance and related benefit expenses of $494 related to a change in estimated severance benefits as well as changes in the employee population expected to receive such benefits.

The following table summarizes charges related to accrued restructuring activity from July 31, 2009 through October 31, 2010:

 

         Involuntary     
      Employee     
     Severance     
                 

     Facility     
     Exit     

     Costs     

                       Copley     
      Acquisition     
                       Total       

    Balance at July 31, 2009

  $ 2,728          $ 1,058          $ 26          $ 3,812   

Cash payments

    (1,211 )           (189 )           (26 )           (1,426 )  

Foreign exchange

    16                        -                          -                          16   

    Balance at October 31, 2009

    1,533            869            -              2,402   

Restructuring charge

    764            -              -              764   

Cash payments

    (803 )           (189 )           -              (992 )  

Foreign exchange

    (7 )                       -                          -                          (7 )  

    Balance at January 31, 2010

    1,487            680            -              2,167   

Cash payments

    (609 )                       (189 )                       -                          (798 )  

    Balance at April 30, 2010

    878            491            -              1,369   

Restructuring charge

    -              420            -              420   

Adjustments

    (494 )           -              -              (494 )  

Cash payments

    (231 )                       (189 )                       -                          (420 )  

    Balance at July 31, 2010

    153            722            -              875   

Restructuring charge

    3,562            -              -              3,562   

Cash payments

    (238 )           (189 )           -              (427 )  

Foreign exchange

    42                        -                          -                          42   

    Balance at October 31, 2010

  $ 3,519                      $ 533                      $ -                        $ 4,052   

The cash expenditures subsequent to October 31, 2010 of approximately $3,519 in employee severance and $533 of facility exit costs will be paid within the next twelve months.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8. Balance sheet information:

Additional information for certain balance sheet accounts is as follows for the dates indicated:

 

     October 31,    
2010    
            July 31,    
2010    
 

Inventories:

        

Raw materials

   $     66,412            $         54,106   

Work-in-process

     8,895              12,896   

Finished goods

     19,214                    19,058   
   $ 94,521                  $ 86,060   

Accrued liabilities:

        

Accrued employee compensation and benefits

   $ 13,371            $ 18,765   

Accrued restructuring charge

     4,052              875   

Accrued warranty

     5,961              6,103   

Other

     6,944                    7,360   
   $ 30,328                  $ 33,103   

Advance payments and deferred revenue:

        

Deferred revenue

   $ 6,175            $ 5,492   

Customer deposits

     2,325                    3,396   
   $ 8,500                  $ 8,888   

9. Net income per share:

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic net income per share. Diluted net income per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including unvested restricted stock awards and the assumed exercise of stock options using the treasury stock method.

 

     Three Months Ended
October 31,    
 
     2010      2009  

    Income (loss) from continuing operations

   $ 1,381       $ (190

    Income from discontinued operations, net of tax

     289         216   

    Gain on disposal of discontinued operations, net of tax

     924         -     

    Net income

   $ 2,594       $ 26   

    Weighted average number of common shares outstanding-basic

     12,623         12,672   

    Effect of dilutive securities:

     

    Stock options and restricted stock awards

     54         148   

    Weighted average number of common shares outstanding-diluted

     12,677         12,820   

    Basic net income (loss) per share:

                 

    Income (loss) from continuing operations

   $ 0.11       $ (0.01

    Income from discontinued operations, net of tax

     0.02         0.01   

    Gain on disposal of discontinued operations, net of tax

     0.08         -     

    Basic net income per share

   $ 0.21       $ -     

    Diluted net income (loss) per share:

                 

    Income (loss) from continuing operations

   $ 0.11       $ (0.01

    Income from discontinued operations, net of tax

     0.02         0.01   

    Gain on disposal of discontinued operations, net of tax

     0.07         -     

    Diluted net income per share

   $ 0.20       $ -     

    Anti-dilutive shares related to outstanding stock options

     227         417   

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

In calculating the dilutive weighted average shares outstanding for the three months ended October 31, 2010 and 2009, approximately 330,000 and 150,000 performance awards, respectively, were excluded from the calculations since the performance criteria had not been met at October 31, 2010 and 2009 for those performance awards.

10. Comprehensive income (loss):

Components of comprehensive income (loss) include net income and certain transactions that have generally been reported as a component of stockholders’ equity. The following table presents the calculation of total comprehensive income (loss) and its components:

 

     Three Months Ended  
October 31,  
 
     2010               2009    

    Net income

   $     2,594            $ 26    

    Other comprehensive income (loss), net of taxes:

        

Pension adjustment, net of tax benefit of $10 and a tax provision of $6 for the three months ended October 31, 2010 and 2009, respectively.

     (19)               

Foreign currency translation adjustment, net of a tax benefit of $208 for the three months ended October 31, 2010 and a tax provision of $29 for the three months ended October 31, 2009.

     4,884                   1,929    

Total comprehensive income

   $ 7,459                 $     1,963    

The components of accumulated other comprehensive income, net of taxes, at October 31, 2010 and July 31, 2010 are as follows:

 

     October 31, 2010                July 31, 2010      

Pension adjustment

   $ (2,305      $ (2,286

Foreign currency translation adjustment

         11,892                 7,008   

Total

   $ 9,587               $     4,722   

11. Supplemental disclosure of cash flow information:

The changes in operating assets and liabilities were as follows:

 

     Three Months Ended October 31,  
         2010              2009      

Accounts receivable

   $ (3,701)       $ (2,320)   

Inventories

     (7,828)         (1,308)   

Refundable income taxes

     -           2,716    

Other assets

     (680)         (3,619)   

Accounts payable

     9,757          4,552    

Accrued liabilities

     (8,285)         (2,758)   

Other liabilities

     1,023          (106)   

Advance payments and deferred revenue

     (636)         (1,006)   

Accrued income taxes

     (936)         527    

Net changes in operating assets and liabilities

   $         (11,286)       $         (3,322)   

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

12. Taxes:

The following table presents the provision for (benefit from) income taxes and the effective income tax rates:

 

     Three Months Ended
October 31,
 
     2010             2009  

Provision for (benefit from) income taxes

   $ 759           $ (103)    

Effective tax rate

     35%             35%    

The effective income tax rate on continuing operations is based upon the estimated income for the year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies.

The total amount of gross unrecognized tax benefits, which excludes interest and penalties discussed below, were as follows for the dates indicated:

 

October 31, 2010        July 31, 2010

$                 12,206

     $            12,124

Of the 12,206 unrecognized tax benefits, 10,396, if recognized in a future period, the timing of which is not estimable, would impact the Company’s effective tax rate.

The Company is subject to U.S. Federal income tax as well as the income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. Federal income tax matters through the year ended July 31, 2002 and for the years ended July 31, 2004 through 2006. In the next four fiscal quarters, the statute of limitations may close on the federal and state income tax returns for the fiscal years ended July 31, 2003 and 2007. It is reasonably expected that net unrecognized benefits of $1,810 from these jurisdictions may be recognized within the next four quarters.

The Company accrues interest and, if applicable, penalties for any uncertain tax positions. This interest and penalty expense is treated as a component of income tax expense. At October 31, 2010 and July 31, 2010, the Company had approximately $1,347 and $1,270, respectively, accrued for interest on unrecognized tax benefits.

13. Segment information:

The Company operates primarily within two major markets: Medical Technology and Security Technology. During the first quarter of fiscal year 2011, as part of a strategic review, the Company modified its segment reporting as well as the names of certain of its segments based on the information reviewed by its principal executive officer. Medical Technology now consists of two reporting segments:

 

  1. Medical Imaging, which consists primarily of electronic systems and subsystems for CT and MRI medical imaging equipment and direct conversion digital x-ray detectors for mammography sold primarily through OEM customers as well as the Company’s motion central business (the current Medical Imaging segment combines the formerly separate segments of CT and MRI and Digital Radiography)

 

  2. Ultrasound (formerly Specialized Ultrasound), which consists of ultrasound systems and probes for the urology, ultrasound-guided surgery and radiology markets sold primarily through our direct sales force.

Security Technology consists of advanced weapon and threat detection aviation security systems and subsystems sold primarily through OEM customers. The accounting policies of the segments are the same as those described in the summary of Significant Accounting Policies included in Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for fiscal year 2010.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

The table below presents information about the Company’s reportable segments. All periods presented have been revised accordingly to reflect new reporting segments.

 

     Three Months Ended  
October 31,  
 
         2010                      2009       

Net Revenue:

        

Medical Technology from external customers:

        

Medical Imaging

   $ 71,453             $ 65,863      

Ultrasound

     21,062                     20,013      

Total Medical Technology

     92,515               85,876      

Security Technology from external customers

     11,307                     6,930      

Total

   $     103,822                   $     92,806      

Income (loss) from operations

 

        

Medical Technology:

        

Medical Imaging (A)

   $ 3,222             $ 1,934      

Ultrasound (B)

     (2,141)                    (588)     

Total Medical Technology

     1,081               1,346      

Security Technology (C)

     1,117                     (1,671)     

Total income (loss) from operations

     2,198               (325)     

Total other income (loss), net

     (58)                    32     

Income (loss) from continuing operations before income taxes

   $ 2,140                   $ (293)      

 

     October 31, 2010                 July 31, 2010  

Identifiable assets:

        

Medical Imaging

   $ 184,640            $     186,494     

Ultrasound

     94,427              88,873     

Security Technology

     21,693                    17,506     

Total reportable segment assets

     300,760                    292,873     

Corporate assets (D)

     196,880                    192,903     

Total assets

   $     497,640            $ 485,776     

 

(A) Includes restructuring charge of $1,537 for the three months ended October 31, 2010.
(B) Includes restructuring charge of $1,582 for the three months ended October 31, 2010.
(C) Includes restructuring charge of $443 for the three months ended October 31, 2010.
(D) Includes cash and cash equivalents and marketable securities of $138,844 and $134,219 at October 31, 2010 and July 31, 2010, respectively.

14. Commitments and guarantees:

The Company’s standard OEM and supply agreements entered into in the ordinary course of business typically contain an indemnification provision pursuant to which the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with any United States patent, or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments the Company could be required to make under these indemnification provisions is, in some instances, unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes that its estimated exposure on these agreements is currently minimal. Accordingly, the Company has no liabilities recorded for these agreements as of October 31, 2010.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Generally, the Company warrants that its products will perform in all material respects in accordance with its standard published specifications in effect at the time of delivery of the products to the customer for a period ranging from 12 to 24 months from the date of delivery. The Company provides for the estimated cost of product and service warranties based on specific warranty claims, claim history, and engineering estimates, where applicable.

 

    

Three Months Ended

October 31,

 
     2010             2009  

Balance at the beginning of the period

   $         6,103            $ 5,918     

Accrual

     1,392              1,477     

Settlements made in cash or in kind during the period

     (1,534)                   (1,333)    

Balance at the end of the period

   $ 5,961                  $         6,062     

The Company currently has approximately $22,500 in revolving credit facilities with banks available for direct borrowings. The Company’s revolving credit facility agreements contain a number of covenants, including a covenant requiring the Company to maintain a tangible net worth (as defined in the revolving credit facility agreement) of no less than $255,000 as of the end of any fiscal quarter. The Company was in compliance with this covenant at October 31, 2010 with a tangible net worth of approximately $373,000. As of October 31, 2010, there were no direct borrowings or off-balance sheet arrangements.

15. Subsequent event:

On December 9, 2010, the Company announced that its Board of Directors authorized the repurchase of up to $30,000 of the Company’s common stock. The repurchase program will be funded using the Company’s available cash.

The Company declared a dividend of $0.10 per share of common stock on December 7, 2010, which will be paid on December 30, 2010 to stockholders of record on December 20, 2010.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides an analysis of our financial condition and results of operations and should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this report. The discussion contains statements, which, to the extent that they are not a recitation of historical facts, constitute “forward-looking statements” pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including, without limitation, 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, we make in this document or in any document incorporated by reference are forward-looking. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause our actual results, performance, or achievements to differ from the projected results. See “Risk Factors” in Part I, Item 1A. of our Annual Report on Form 10-K for fiscal year 2010 as filed with the U.S Securities and Exchange Commission (the “SEC”) on September 23, 2010 for a discussion of the primary risks and uncertainties known to us.

We report our financial condition and results of operations on a fiscal year basis ending July 31. The three months ended October 31, 2010 and 2009 represent the first quarters of fiscal years 2011 and 2010, respectively. All dollar amounts in this Item 2 are in thousands except per share data.

Summary

Analogic is a high technology company that designs and manufactures advanced medical imaging and security systems and subsystems sold to Original Equipment Manufacturers (“OEMs”) and end users primarily in the healthcare and airport security markets. We were incorporated in the Commonwealth of Massachusetts in November 1967 and are recognized worldwide for advancing state-of-the-art technology in the areas of medical computed tomography (“CT”), magnetic resonance imaging (“MRI”), digital mammography, ultrasound, and automated explosives detection systems (“EDS”) for airport security. Our OEM customers incorporate our technology into systems they in turn sell for various medical and security applications. We also sell our ultrasound products directly into specialized clinical end-user markets through our direct worldwide sales force under the brand name B-K Medical.

We operate primarily within two major markets: Medical Technology and Security Technology. During the first quarter of fiscal year 2011, as part of a strategic review, we modified our segment reporting as well as the names of certain of our segments based on the information reviewed by our principal executive officer. Medical Technology consists of two reporting segments: Medical Imaging (the current Medical Imaging segment combines the formerly separate segments of CT and MRI and Digital Radiography) and Ultrasound (formerly Specialized Ultrasound).

A significant portion of our products are sold to OEMs, whose purchasing dynamics have an impact on our reported sales. OEMs that purchase our Medical Imaging products generally incorporate those products as components in their systems, which are in turn sold to end users, primarily hospitals and medical clinics. In our Security Technology business, OEM customers purchase and resell our products to end users including domestic and foreign airports as well as the U.S Transportation Security Administration (“TSA”). In Security Technology, our OEM customers’ purchasing dynamics are affected by the level of government funding, the expansion of airport terminals and fluctuations in airline passenger volume.

The following table sets forth the percentage of total net revenue by reporting segment for the three months ended October 31, 2010 and 2009. All periods presented have been revised accordingly to reflect new reporting segments.

 

     Three Months Ended     
October 31,     
 
     2010                      2009     

Medical Technology:

        

Medical Imaging

     69%              71%     

Ultrasound

     20%                    22%     

Total Medical Technology

     89%              93%     

Security Technology

     11%                    7%     

Total

     100%                    100%     

 

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The following table sets forth key financial data from our unaudited Consolidated Statements of Operations for the three months ended October 31, 2010 and 2009.

 

     Three Months Ended    
October 31,    
           

Percentage      

Change      

 
     2010             2009                

Total net revenue

   $     103,822            $     92,806               12%    

Income (loss) from operations

     2,198              (325)              N/A    

Operating margin percentage

     2%              0%            

Income (loss) from continuing operations

   $ 1,381            $ (190)              N/A    

Diluted net income (loss) per share from continuing operations

     0.11              (0.01)               N/A    

During the first quarter of fiscal year 2011, we sold our hotel business, and realized net proceeds of $10,467, after transaction costs. We recorded a gain on sale of the hotel business of $924, net of a tax provision of $505, or $0.07 per diluted share in the three months ended October 31, 2010. The Hotel business, previously reported in the Other segment, is being reported as a discontinued operation and all periods presented have been revised accordingly to reflect these operations as discontinued.

Revenues and net income for the hotel business for the three months ended October 31, 2010 and 2009 were as follows:

 

     Three Months Ended    
October 31,    
 
     2010             2009  

Total net revenue

   $     2,906            $     2,571     

Net income

     289              216     

During the three months ended October 31, 2010, we recorded a restructuring charge of $3,562 for severance and personnel costs as part of a plan to reduce our workforce by 104 employees worldwide as we continue to streamline our operations and consolidate our Denmark and Canton, MA manufacturing operations into our existing facilities. We expect that this restructuring will result in annual expense savings of approximately $5,000, a portion of which will fund strategic growth initiatives.

The following table sets forth an overview of cash flows for the three months ended October 31, 2010 and 2009.

 

     Three Months Ended    
October 31,    
 
       2010                 2009    

    Net cash provided by continuing operations for operating activities

   $ 457            $ 1,473     

    Net cash provided by continuing operations for investing activities

     6,789              38,048     

    Net cash used for financing activities

     (1,442)             (1,433)    

    Net cash (used for) provided by discontinued operations

     (335)             836     

    Effect of exchange rate changes on cash

     1,106                    650     

    Net increase in cash and cash equivalents

   $     6,575                  $     39,574     

During the three months ended October 31, 2010, we continued to generate cash from operating activities of our continuing operations. Net cash provided by continuing operations for operating activities in the three months ended October 31, 2010 reflects an investment in inventories in support of growth and manufacturing consolidation initiatives. Net cash provided by continuing operations for investing activities in the three months ended October 31, 2010 was due primarily to the proceeds from the sale of a discontinued operation of $10,467, partially offset by capital spending of $3,700. Prior year cash provided by continuing operations for investing activities benefited from $40,438 of short term investments held to maturity. The net cash used for financing activities in the three months ended October 31, 2010 and 2009 was due primarily to $1,308 and $1,267 of dividends paid to stockholders, respectively.

 

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Results of operations

Net revenue

Product revenue

Product revenue is summarized in the table below.

 

    

Three Months Ended  

October 31,   

     Percentage
Change
 
     2010             2009            

Product Revenue:

              

Medical Technology:

              

Medical Imaging

   $       68,879            $       63,110              9%     

Ultrasound

     21,062                    20,013                    5%     

Total Medical Technology

     89,941              83,123              8%     

Security Technology

     6,748                    6,331                    7%     

Total

   $ 96,689                  $ 89,454                    8%     

Medical Imaging

The increase for the three months ended October 31, 2010 versus the prior year comparable period was due primarily to the improving global economy and improvement in hospital spending, favorably impacting our OEM customers.

Ultrasound

The increase for the three months ended October 31, 2010 versus the prior year comparable period was due primarily to increased sales of our Flex Focus platform of products. This increase was partially offset by an unfavorable currency exchange rate change, which negatively impacted revenues by approximately $1,100.

Security Technology

The increase for the three months ended October 31, 2010 versus the prior year comparable period was due primarily to the favorable mix of higher throughput EDS products, which was partially offset by a decrease in sales of spare parts and accessories.

 

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Engineering revenue

Engineering revenue is summarized in the table below.

 

    

Three Months Ended

  October 31,  

     Percentage
Change
 
     2010             2009            

Engineering Revenue:

              

Medical Technology:

              

Medical Imaging

   $       2,574                  $       2,753                    -7%     

Total Medical Technology

     2,574              2,753              -7%     

Security Technology

     4,559                    599                    661%     

Total

   $ 7,133                  $ 3,352                    113%     

Medical Imaging

The decrease for the three months ended October 31, 2010 versus the prior year comparable period was due primarily to a decline in the amount of work performed on customer-funded projects during the period.

Security Technology

The increase for the three months ended October 31, 2010 versus the prior year comparable period was due primarily to the amount of work performed on a significant engineering development project that began in December 2009 for an OEM customer.

Gross margin

Product gross margin

Product gross margin is summarized in the table below.

 

             Three Months Ended         
October 31,  
            Percentage   
Change   
 
     2010               2009                  

Product gross profit

   $         37,633           $         29,677             26.8%   

Product gross margin %

     38.9%            33.2%         

Product gross margin percentage increased in the three months ended October 31, 2010 versus the prior year comparable period due primarily to a favorable mix of higher margin Ultrasound products and improved manufacturing efficiency with higher production throughput on growing volume along with improved component pricing from our vendors.

Engineering gross margin

Engineering gross margin is summarized in the table below.

 

             Three Months Ended         
October 31,  
            Percentage   
Change   
 
     2010             2009                

Engineering gross profit

   $         1,386           $         185             649.2%   

Engineering gross margin %

     19.4%            5.5%         

The increase in the engineering gross margin in the three months ended October 31, 2010 versus the prior year comparable period was due primarily to the engineering project with an OEM customer in our Security Technology business that began in December 2009. The gross margin on this Security Technology project was partially offset by costs in excess of revenues on certain Medical Imaging and Security Technology business projects.

 

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Operating expenses

Operating expenses are summarized in the table below.

 

     Three Months Ended    
October 31,    
 
     2010                 2009      

Research and product development

   $ 13,904            $ 11,455     

Selling and marketing

     9,608              9,084     

General and administrative

     9,747              9,648     

Restructuring charge

     3,562                    -     

Total operating expenses

   $     36,821                  $     30,187     

Operating expenses as a percentage of total net revenue are summarized in the table below.

 

     Three Months Ended    
October 31,    
 
         2010                    2009      

Research and product development

             13.4                12.3

Selling and marketing

     9.3        9.8

General and administrative

     9.4        10.4

Restructuring charge

     3.4              0.0

Total operating expenses

     35.5              32.5

Research and product development expenses related to projects not funded by our customers. These expenses increased $2,449 in the three months ended October 31, 2010 versus the prior year comparable period due primarily to higher spending on unfunded research and product development projects in support of growth initiatives.

Selling and marketing expenses increased $524 in the three months ended October 31, 2010 versus the prior year comparable period due primarily due to an increase in selling resources in the Ultrasound business as we expand our sales force and product offerings in existing and adjacent markets.

General and administrative expenses remained relatively consistent, increasing $99 in the three months ended October 31, 2010 versus the prior year comparable period.

Restructuring charge in the three months ended October 31, 2010 includes severance and personnel related costs for our plan to reduce our headcount by 104 employees worldwide.

Other income (expense), net

Other income (expense), net is summarized in the table below.

 

    

Three Months Ended    

October 31,    

 
         2010                     2009      

Interest income, net

   $         218            $         175     

Other, net

     (276)              (143)     

Net other income (expense) during the three months ended October 31, 2010 and 2009 consisted predominantly of foreign currency exchange gains and losses by our foreign subsidiaries.

 

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Provision for (benefit from) income taxes

The provision for (benefit from) income taxes and the effective tax rates are summarized in the table below.

 

    

Three Months Ended

October 31,

 
     2010                 2009      

Provision for (benefit from) income taxes

   $         759            $         (103)     

Effective tax rate

     35%              35%     

Our effective income tax rate on continuing operations is based upon the estimated income for the year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits or other tax contingencies.

Our effective rate of 35% for the three months ended October 31, 2010 was impacted by the expiration of the research and experimentation credit on December 31, 2009 and from losses in our recently established subsidiary in Shanghai, China that are currently subject to a valuation allowance. These items were offset by lower foreign taxes. The effective tax rate of 35% for the three months ended October 31, 2009 was impacted by the benefit of lower foreign taxes, a partial benefit from research and experimentation credits that expired December 31, 2009, and the detriment from losses in the Shanghai, China subsidiary that are currently subject to a valuation allowance.

Income from discontinued operations, net of tax

 

    

Three Months Ended

October 31,

 
     2010                 2009      

Income from discontinued operations, net of tax

   $         289            $         216     

The increase in income from discontinued operations, net of tax, in the three months ended October 31, 2010 versus the prior year comparable period was due primarily to increased occupancy and higher room rates at the hotel due primarily to the improving economy.

Income (loss) from continuing operations and diluted net income (loss) per share from continuing operations

Net income and diluted net income per share for the three months ended October 31, 2010 and 2009 are as follows:

 

    

        Three Months Ended        

October 31,    

 
     2010             2009  

Income (loss) from continuing operations

   $         1,381            $         (190)     

% of net revenue

     1.3%              -0.2%     

Diluted net income (loss) per share from continuing operations

   $ 0.11            $ (0.01)     

The increases in net income and diluted net income per share for the three months ended October 31, 2010 versus the prior year comparable periods were due primarily to increases in gross margins and the gain on sale of the hotel business, partially offset by a restructuring charge and an increase in unfunded research and product development expenses.

Liquidity and capital resources

Key liquidity and capital resource information is summarized in the table below.

 

      October 31, 2010                July 31, 2010    

Cash and cash equivalents

   $               175,829            $               169,254     

Working capital

     296,987              281,727     

Short and long term debt

     -                -       

Stockholders' equity

     416,839              409,042     

 

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Cash and cash equivalents totaled $175,829 at October 31, 2010 and consisted entirely of highly liquid investments with maturities of three months or less from the time of purchase. The increase in cash and cash equivalents from July 31, 2010 to October 31, 2010 was due primarily to the sale of the hotel business in the three months ended October 31, 2010 for net proceeds $10,467, partially offset by the payment of bonuses of approximately $5,400 in the three months ended October 31, 2010 related to performance in fiscal year 2010. We periodically review our investment portfolio to determine if any investments are impaired due to changes in credit risk or other potential valuation concerns. We believe that our cash equivalents were appropriately valued at October 31, 2010 and we are not aware of any market events that would impact their valuation. This could change in the future should new developments arise in the credit markets.

The carrying amounts reflected in the consolidated balance sheets of cash and cash equivalents, trade receivables, and trade payables approximate fair value at October 31, 2010, due to the short maturities of these instruments.

We face exposure to financial market risks, including adverse movements in foreign currency exchange rates, and changes in interest rates. These exposures can change over time as business practices evolve and could have a material adverse impact on our financial results. Our primary exposure is related to fluctuations between the U.S. dollar and local currencies for our subsidiaries in Canada and Europe. Our investment in international subsidiaries is sensitive to fluctuations in currency exchange rates. The effect of a change in currency exchange rates on our net investment in international subsidiaries is reflected in the “accumulated other comprehensive income” component of stockholders’ equity. A 10% depreciation in the October 31, 2010 and July 31, 2010 functional currencies, relative to the U.S. dollar, would result in a reduction of stockholders’ equity of approximately $1,200 and $700, respectively.

Cash flows

The following table summarizes our sources and uses of cash over the periods indicated:

 

     Three Months Ended    
October 31,    
 
       2010          2009      

    Net cash provided by continuing operations for operating activities

   $ 457        $ 1,473    

    Net cash provided by continuing operations for investing activities

     6,789          38,048    

    Net cash used for financing activities

     (1,442)         (1,433)   

    Net cash (used for) provided by discontinued operations

     (335)         836    

    Effect of exchange rate changes on cash

     1,106          650    

    Net increase in cash and cash equivalents

   $       6,575        $       39,574    

The cash flows generated from operating activities of our continuing operations in the three months ended October 31, 2010 primarily reflects our pre-tax earnings of $1,381, which included depreciation and amortization expenses of $4,334, a restructuring charge of $3,562, and non-cash share-based compensation expense of $1,782. The impact of our operating earnings on cash flows were partially offset by increases in inventories and accounts receivable of $7,828, and $3,701, respectively, as well as a decrease in accrued liabilities of $8,285, which were net of an increase in accounts payable of $9,757.

The increase in inventories of $7,828 was due primarily to increased product demand and planned increases in Ultrasound inventories in preparation for the shift in production from Denmark to the United States. The increases in accounts receivable of $3,701 was due primarily to an increase in unbilled receivables of $4,428 on engineering projects due to the timing of completing milestones. The decrease in accrued liabilities of $8,285 was due primarily to the payment of bonuses of approximately $5,400 in the three months ended October 31, 2010 related to performance in fiscal year 2010.

The increase in accounts payable of $9,757 was due primarily to the timing of vendor payments and increased inventory purchases.

The net cash provided by continuing operations for investing activities in the three months ended October 31, 2010 was due primarily to the net proceeds of $10,467 from the sale of our hotel business, partially offset by purchases of property, plant, and equipment of $3,700.

The net cash used for financing activities in the three months ended October 31, 2010 was due primarily to $1,308 of dividends paid to stockholders.

We believe that our balances of cash, cash equivalents, and marketable securities, and cash flows expected to be generated by future operating activities will be sufficient to meet our cash requirements for at least the next 12 months.

 

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Commitments, contractual obligations, and off-balance sheet arrangements

Our contractual obligations at October 31, 2010, and the effect such obligations are expected to have on liquidity and cash flows in future periods, are as follows:

 

 Contractual Obligation        Total             

Less than

1  year  

            1 - 3 years              

More than

3 years - 5 years

            More than   
5 years  
 

 Operating leases

     $       8,540            $         2,675            $       2,019            $ 1,220            $ 2,626     

 Purchasing obligations

       61,600                    58,658                    2,942                    -                    -     
     $ 70,140                  $ 61,333                  $ 4,961                  $ 1,220                  $ 2,626     

As of October 31, 2010, the total liabilities associated with uncertain tax positions were $6,744. Due to the complexity associated with our tax uncertainties, we cannot make a reasonably reliable estimate of the period in which we expect to settle the non-current liabilities associated with these uncertain tax positions. Therefore, these amounts have not been included in the contractual obligations table.

We currently have approximately $22,500 in revolving credit facilities with banks available for direct borrowings. Our revolving credit facility agreements contain a number of covenants, including a covenant requiring us to maintain a tangible net worth (as defined in the revolving credit facility agreement) of no less than $255,000 as of the end of any fiscal quarter. We were in compliance with this covenant at October 31, 2010 with a tangible net worth of approximately $373,000. As of October 31, 2010, there were no direct borrowings or off-balance sheet arrangements.

Recent accounting pronouncements

Recently adopted

Special purpose entities

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance that eliminates the concept of a qualified special-purpose entity and related guidance, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. This guidance was effective for us on August 1, 2010 and did not have a material impact on our financial position, results of operations, or cash flows.

In June 2009, the FASB issued guidance that requires former qualified special-purpose entities to be evaluated for consolidation, changes the approach to determining a variable interest entity’s (“VIE”) primary beneficiary, and requires companies to more frequently reassess whether they must consolidate VIEs. This guidance was effective for us on August 1, 2010 and did not have a material impact on our financial position, results of operations, or cash flows.

Revenue recognition

In March 2010, the FASB issued guidance related to revenue recognition that applies to arrangements with milestones relating to research or development deliverables. This guidance provides criteria that must be met to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This guidance was effective for us on August 1, 2010 and did not have a material impact on our financial position, results of operations, or cash flows.

Critical accounting policies

The accompanying discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Our most critical accounting policies have a significant impact on the preparation of these consolidated financial statements. These policies include estimates and significant judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosures of contingent assets and liabilities. We continue to have the same critical accounting policies as are described in Item 7, beginning on page 35, in our Annual Report on Form 10-K for fiscal year 2010 filed with the SEC on September 23, 2010. Those policies and the estimates involved in their application relate to revenue recognition; inventory reserves; share-based compensation; warranty reserves; purchase price allocation for business combinations; impairment of goodwill and indefinite lived intangible assets; income tax contingencies; and deferred tax valuation allowances. We continue to evaluate our estimates and judgments on an on-going basis. By their nature, these policies require management to make difficult and subjective

 

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judgments, often on matters that are inherently uncertain. Our estimates and judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

All dollar amounts in this Item 3 are in thousands.

Certain of our foreign operations enter into transactions in currencies other than their functional currency, primarily the U.S. dollar and the Euro. We also have foreign currency exposure arising from the translation of our net equity investment in our foreign operations to U.S. dollars. We generally view our investments in foreign operations with functional currencies other than the U.S. dollar as long-term. The currencies to which we are exposed are the British pound, Chinese yuan, Canadian dollar, Danish kroner, and Euro. A 10% depreciation in the functional currencies, relative to the U.S. dollar, at October 31, 2010 and July 31, 2010 would result in a reduction of stockholders’ equity of approximately $1,200 and $700, respectively.

Our cash and investments include cash equivalents, which we consider to be investments purchased with original maturities of three months or less. At October 31, 2010, we did not have any held-to-maturity marketable securities having maturities from the time of purchase in excess of three months, which would be stated at amortized cost, approximating fair value. Our cash equivalents and marketable securities are comprised primarily of U.S. government discount notes at October 31, 2010. Total interest income for the three months ended October 31, 2010 was $218. An interest rate change of 10% would not have a material impact on the fair value of our investment portfolio or on future earnings.

 

Item 4. Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of October 31, 2010. The term “disclosure controls and procedures”, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions to be made regarding required disclosure. It should be noted that any system of controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met and that management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of October 31, 2010, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

There were no changes to our internal control over financial reporting during the quarter ended October 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

 

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for fiscal year 2010, which could materially affect our business, financial condition, and future operating results. The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for fiscal year 2010.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table contains information about purchases by us of our equity securities during the three months ended October 31, 2010. All of the shares shown as purchased in the table below were surrendered by our employees in order to meet tax withholding obligations in connection with the vesting of restricted stock awards. These transactions were not part of a publicly announced program to repurchase shares of our common stock.

 

Period        

         Total Number         

of Shares

Purchased

         

     Average Price Paid     

per Share (1)

         

Total Number of

Shares Purchased

as Part of Publicly

     Announced Plans or     
Programs

         

Maximum Number

(or Approximate

Dollar Value) of

Shares that May

Yet Be Purchased

     Under the Plans or     
Programs

 

    8/1/10-8/31/10

        —              $ —                —              $ —       

    9/1/10-9/30/10

        6,595              42.03              —                —       

    10/1/10-10/31/10

        86               44.93              —                —       

    Total

        6,681            $ 42.07              —              $ —       

 

(1) For purposes of determining the number of shares to be surrendered, the price per share deemed to be paid was the closing price of our common stock on the NASDAQ Global Select Market on the vesting date.

 

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Item 6. Exhibits

 

Exhibit    

Description

10.1   Form of Notice to Executive Officers (at Vice President or higher level) Regarding the Fiscal Year 2011 Annual Incentive Plan
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended
32.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended

 

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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
Date: December 10, 2010   /s/ James W. Green
   
  James W. Green
 

President and

Chief Executive Officer

  (Principal Executive Officer)
Date: December 10, 2010   /s/ Michael L. Levitz
   
  Michael L. Levitz
 

Vice President,

Chief Financial Officer and Treasurer

  (Principal Financial Officer)

 

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EXHIBIT INDEX

 

Exhibit    

Description

10.1   Form of Notice to Executive Officers (at Vice President or higher level) Regarding the Fiscal Year 2011 Annual Incentive Plan
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended
32.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended

 

30

Exhibit 10.1

Analogic Corporation

Annual Incentive Plan for Fiscal Year 2011

 

 

Employee:

         

 

Supervisor:

   
Title:       Business Unit:           Corporate

Plan Year:         8/1/10 - 7/31/11

 

     

Target Level (% of salary):

 

Congratulations! Analogic Corporation (the “Company”) has selected you to participate in its Annual Incentive Plan (the “Plan”) for fiscal year 2011. A summary of the terms of the Plan, as it applies to you, is shown below*:

 

1. Eligibility to Earn an Award

You will be eligible to earn an award under the Plan if all of the following conditions apply:

 

  (a) Analogic achieves at least 50% of its Non-GAAP Earnings per Share (EPS) budget for fiscal year 2011;

 

  (b) you are an employee of the Company on the date of the payment of the award,** or your employment is terminated involuntarily on or after February 1, 2011 and you are eligible for Severance Benefits.

 

2. Performance Factors (see attachment)

The Target Level for your award is listed above. Your actual award may be greater or less than the Target Level, depending on the Company’s performance for the Plan year. If you are eligible to receive an award, your final award amount will be determined based upon the following performance factors:

 

  (a) Analogic Non-GAAP EPS - 70% of your award shall be determined by Analogic’s year-end results for Non-GAAP EPS relative to budget for fiscal year 2011.

 

  (b) Analogic Revenue - 30% of your award shall be determined by Analogic’s year-end results for Revenue relative to budget for fiscal year 2011.

 

3. Determining Your Award

 

  (a) Your award will be equal to your Target Level multiplied by your Eligible Base Earnings, adjusted for the actual performance measures relative to budget attained for 2011. “Eligible Base Earnings” means total base salary payments (including vacation, sick, and holiday pay) made through Company payroll for the Plan year. Payments made to employees during approved medical leaves of absence are excluded.

 

  (b) Actual awards will range from 0 to two (2) times the Target Level for the performance factors. For Corporate VP’s and General Managers, amounts in excess of the Target Level will be paid 50% in cash and 50% in stock.

 

  (c) If you are not eligible for an award for the entire 2011 fiscal year or if your Target Level changes during the Plan year, your award will be prorated based on the number of months that you were eligible to receive the award.

This document is not an employment agreement, and terms of employment are unaffected because of this document. The Company reserves the right to adjust awards up or down in its discretion based on exceptional circumstances. If Analogic Non-GAAP EPS is less than 50% of budget, no awards will be earned under this Plan.

My signature represents my receipt of the terms and understanding of this plan.

 

Name

   

Date

 

 

* For more information concerning the Plan, please contact the Human Resources Department.
** Because payment of an award under the Plan is determined in part upon the Company’s performance during the 2011 Fiscal Year, the payment date of any award will be after the completion of fiscal year 2011, as determined in the sole discretion of the Company’s Compensation Committee.


Analogic Corporation

Annual Incentive Plan for Fiscal Year 2011

 

Target Level (% of Salary):       Annual Salary as of :
      Target Bonus as of :

Performance Factors

     

Analogic Non-GAAP EPS:

   70% of award    Target Amount as of :

Analogic Revenue:

   30% of award    Target Amount as of :

If you are eligible to receive an award under the Plan, the following charts describe how the amount of your award will be determined based upon the Company’s financial performance.

 

a. Analogic Non-GAAP Earnings per Share vs. Fiscal Year 2011 Budget

 

% of Budget

   < 80% of
Budget
     80% of
Budget
     100% of
Budget
     123% of
Budget
 

% of Target

     0%           25%           100%           200%     

Award Amount

           

Revenue vs. Fiscal Year 2011 Budget

 

% of Budget

   < 96% of
Budget
     96% of
Budget
     100% of
Budget
     105% of
Budget
 

% of Target

     0%           25%           100%           200%     

Award Amount

           

 

 

Amounts earned in excess of the year-end Target Bonus will be paid 50% in cash and 50% in stock.

 

 

Intermediate results on above financial measures will be interpolated.

 

 

If Analogic Non-GAAP EPS is <50% of budget, no awards will be earned under the plan

 

 

Your target bonus, and all variations thereof, are based on a full fiscal year in your current position and will be prorated to reflect the actual amount of time you are in your current role during fiscal 2011. See Section 3(c) of this document.

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, James W. Green, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Analogic Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

    /s/ James W. Green
   
Date: December 10, 2010   James W. Green
 

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)/RULE 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Michael L. Levitz, certify that:

 

  1. I have reviewed this Quarterly Report on Form 10-Q of Analogic Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

    /s/ Michael L. Levitz
   
Date: December 10, 2010   Michael L. Levitz
 

Vice President, Chief Financial Officer, and Treasurer

(Principal Financial Officer)

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(b)/RULE 15d-14(b)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

In connection with the Quarterly Report on Form 10-Q of Analogic Corporation (the “Company”) for the quarter ended October 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, James W. Green, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to the best of his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 10, 2010

 

/s/ James W. Green
 
James W. Green
President and Chief Executive Officer
(Principal Executive Officer)

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14(b)/RULE 15d-14(b)

OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

In connection with the Quarterly Report on Form 10-Q of Analogic Corporation (the “Company”) for the quarter ended October 31, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael L. Levitz, Vice President, Chief Financial Officer, and Treasurer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to the best of his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: December 10, 2010

 

/s/ Michael L. Levitz
 
Michael L. Levitz
Vice President, Chief Financial Officer, and Treasurer
(Principal Financial Officer)