Analogic Corporation
ANALOGIC CORP (Form: 10-Q, Received: 12/09/2011 17:07:33)
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, 2011

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  x     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, 2011 was 12,229,160.

 

 

 


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, 2011 and July 31, 2011

     3   
  

Unaudited Consolidated Statements of Operations for the Three Months Ended October 31, 2011 and 2010

     4   
  

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2011 and 2010

     5   
  

Notes to Unaudited Consolidated Financial Statements

     6   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     24   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     33   

Item 4.

  

Controls and Procedures

     33   

Part II. Other Information

  

Item 1A.

   Risk Factors      34   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      34   

Item 6.

   Exhibits      34   

Signatures

        36   

Exhibit Index

     37   

 

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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,
2011
          July 31,
2011
 
Assets         

Current assets:

        

Cash and cash equivalents

   $ 151,106          $ 169,656   

Accounts receivable, net of allowance for doubtful accounts of $855 and $599 as of October 31, 2011 and July 31, 2011, respectively

     85,882            88,558   

Inventories

     109,532            105,483   

Refundable and deferred income taxes

     7,179            9,677   

Other current assets

     9,230              9,839   

Total current assets

     362,929            383,213   

Property, plant, and equipment, net

     85,014            83,157   

Goodwill and intangible assets, net

     38,486            39,252   

Other assets

     6,433            7,711   

Deferred income tax assets

     8,552              8,219   

Total Assets

   $ 501,414            $ 521,552   
Liabilities and Stockholders’ Equity         

Current liabilities:

        

Accounts payable

   $ 34,445          $ 37,478   

Accrued liabilities

     32,713            41,438   

Advance payments and deferred revenue

     9,455            9,249   

Accrued income taxes

     693              661   

Total current liabilities

     77,306            88,826   

Long-term liabilities:

        

Accrued income taxes

     5,433            5,322   

Other long-term liabilities

     4,112              3,932   

Total long-term liabilities

     9,545            9,254   

Commitments and guarantees (Note 15)

        

Stockholders’ equity:

        

Common stock, $.05 par value

     614            627   

Capital in excess of par value

     86,504            85,407   

Retained earnings

     318,256            325,941   

Accumulated other comprehensive income

     9,189              11,497   

Total stockholders’ equity

     414,563              423,472   

Total Liabilities and Stockholders’ Equity

   $ 501,414            $ 521,552   

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,
 
     2011           2010  

Net revenue:

        

Product

   $ 114,007          $ 96,689   

Engineering

     3,850              7,133   

Total net revenue

     117,857              103,822   

Cost of sales:

        

Product

     71,231            59,056   

Engineering

     3,600              5,747   

Total cost of sales

     74,831              64,803   

Gross profit

     43,026              39,019   

Operating expenses:

        

Research and product development

     15,267            13,904   

Selling and marketing

     10,465            9,608   

General and administrative

     11,710            9,747   

Restructuring

     -              3,562   

Total operating expenses

     37,442              36,821   

Income from operations

     5,584              2,198   

Other income (expense):

        

Interest income

     136            218   

Other, net

     175              (276

Total other income (expense), net

     311              (58

Income from continuing operations before income taxes

     5,895            2,140   

Provision for income taxes

     1,869              759   

Income from continuing operations

     4,026            1,381   

Income from discontinued operations (net of income tax provision of $168)

     -            289   

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

     -              924   

Net income

   $ 4,026            $ 2,594   

Basic net income per share:

        

Income from continuing operations

   $ 0.32          $ 0.11   

Income from discontinued operations, net of tax

     -            0.02   

Gain on disposal of discontinued operations, net of tax

     -              0.08   

Basic net income per share

   $ 0.32            $ 0.21   

Diluted net income per share:

        

Income from continuing operations

   $ 0.32          $ 0.11   

Income from discontinued operations, net of tax

     -            0.02   

Gain on disposal of discontinued operations, net of tax

     -              0.07   

Diluted net income per share

   $ 0.32            $ 0.20   

Weighted average shares outstanding:

        

Basic

     12,437            12,623   

Diluted

     12,548            12,677   

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,
 
     2011          2010  

OPERATING ACTIVITIES:

       

Net income

   $ 4,026         $ 2,594   

Less:

       

Income from discontinued operations

     -           289   

Gain on disposal of discontinued operations

     -             924   

Income from continuing operations

     4,026             1,381   

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

       

Benefit from deferred income taxes

     2,017           515   

Depreciation and amortization

     4,794           4,334   

Allowance for doubtful accounts

     325           36   

Net (gain) loss on sale of property, plant, and equipment

     (2        21   

Share-based compensation expense

     2,251           1,782   

Excess tax provision for share-based compensation

     45           112   

Net changes in operating assets and liabilities, net of acquired business (Note 12)

     (10,653          (7,724

NET CASH PROVIDED BY CONTINUING OPERATIONS FOR OPERATING ACTIVITIES

     2,803           457   

NET CASH USED FOR DISCONTINUED OPERATIONS FOR OPERATING ACTIVITIES

     -             (335

NET CASH PROVIDED BY OPERATING ACTIVITIES

     2,803             122   

INVESTING ACTIVITIES:

       

Proceeds from sale of discontinued operations, net

     -           10,467   

Additions to property, plant, and equipment

     (6,815        (3,700

Proceeds from the sale of property, plant, and equipment

     -             22   

NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES

     (6,815          6,789   

FINANCING ACTIVITIES:

       

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

     (20        (22

Excess tax provision for share-based compensation

     (45        (112

Purchase of common stock

     (11,808        -   

Dividends paid to shareholders

     (1,337          (1,308

NET CASH USED FOR FINANCING ACTIVITIES

     (13,210          (1,442

EFFECT OF EXCHANGE RATE CHANGES ON CASH

     (1,328          1,106   

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

     (18,550          6,575   

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     169,656             169,254   

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 151,106           $ 175,829   

Supplemental disclosures of cash flow information:

       

Cash paid for income taxes, net

   $ (13      $ (2,487

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”) provides advanced healthcare and security technology solutions to customers around the world. The Company provides advanced imaging systems and technology that enable computed tomography (“CT”), ultrasound, digital mammography, and magnetic resonance imaging (“MRI”) in medical applications, as well as automated threat detection for aviation security. The Company’s CT, MRI, digital mammography, and ultrasound transducer products are sold to original equipment manufacturers (“OEMs”). The Company’s BK Medical branded ultrasound systems, used in procedure-driven markets such as urology, guided surgery, and anesthesia, are sold to clinical end users through the Company’s direct sales force. The Company’s top ten customers combined for approximately 62% and 66% of the Company’s total net revenue for the three months ended October 31, 2011 and 2010, respectively. The Company had three 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, 2011 or 2010.

 

     Three Months Ended
October 31,
 
         2011                  2010      

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

     16        14

Toshiba Corporation (“Toshiba”)

     12        11

Siemens AG (“Siemens”)

     11        ( *) 

Note (*): Total net revenue was less than 10% in this period.

Philips accounted for 17% of net accounts receivable at October 31, 2011 and July 31, 2011, respectively. Siemens accounted for 12% of net accounts receivable at October 31, 2011.

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, 2011 are not necessarily indicative of the results to be expected for the fiscal year ending July 31, 2012 (“fiscal year 2012”), 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, 2011 (“fiscal year 2011”) included in the Company’s Annual Report on Form 10-K as filed with the SEC on October 4, 2011. The accompanying unaudited Consolidated Balance Sheet as of July 31, 2011 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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Table of Contents

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2. Recent accounting pronouncements:

Recently adopted

Impairment testing

In December 2010, the Financing Accounting Standards Board (the “FASB”) issued guidance modifying Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. This guidance was effective for the Company on August 1, 2011, and will apply to its impairment testing to be performed in the three months ending January 31, 2012, and it is not expected to have a material impact on its financial position, results of operations and cashflows.

In September 2011, the FASB issued an accounting standards update which provides, subject to certain conditions, the option to perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The update will be effective for the Company in its first quarter of fiscal year 2012. The update may reduce the complexity and costs of testing goodwill for impairment, but otherwise is not expected to have a material impact on its consolidated financial position, annual results of operations or cash flows.

Business combinations and noncontrolling interests

In December 2010, the FASB issued guidance specifying that if a public entity presents comparative financial statements, the entity (acquirer) should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. It also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance was effective for the Company prospectively for material business combinations for which the acquisition date was on or after August 1, 2011.

Not yet effective

Fair value measurements

In May 2011, the FASB issued an update to the accounting on fair value measurement to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This update changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements. This update does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRS. This update is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. Early adoption is prohibited. This guidance is effective for the Company on February 1, 2012 and the Company is currently evaluating the impact, if any, of this new accounting update on its financial position, results of operations, or cash flows.

Presentation of Comprehensive Income

In June 2011, the FASB issued an update to the accounting on comprehensive income to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. This update requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Further, this update does not affect how earnings per share is calculated or presented. This update is effective for annual periods beginning after December 15, 2011 and annual and interim periods thereafter. The update is applied retrospectively, and early adoption is permitted. This guidance is effective for the Company on August 1, 2012 and will have no impact on its financial position, results of operations, or cash flows.

 

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Table of Contents

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

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 former 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 were as follows:

 

   

Three Months

Ended
October 31,
2010

 

Total net revenue

  $ 2,906   

Net income

    289   

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,
 
     2011           2010  

Cost of product sales

   $ 132          $ 118   

Research and product development

     619            519   

Selling and marketing

     253            203   

General and administrative

     1,247              942   

Share-based compensation expense before tax

   $ 2,251            $ 1,782   

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s outstanding stock options granted during fiscal years 2012 and 2011. The Company estimates the fair value of performance based restricted stock and restricted stock units with market conditions based on the use of a Monte-Carlo Simulation Model. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

The weighted-average grant-date fair values of options granted were $14.86 and $15.50 per share during the three months ended October 31, 2011 and 2010, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions for the three months ended October 31, 2011 and 2010 as follows:

 

               Three Months Ended
October 31,
              Three Months Ended
October 31,
     
               2011               2010      

Expected option term (1)

           5.34 years              4.74 years     

Expected volatility factor (2)

           38           43  

Risk-free interest rate (3)

           0.95           1.18  

Expected annual dividend yield (4)

           0.87           1.00  

 

(1) The option life was determined by estimating the expected option life using historical data.

 

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Table of Contents

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

(2) The stock volatility for each grant is determined based on the review of the weighted average of historical daily price changes of the Company’s Common Stock over the most recent five years, which approximates the expected option life of the grant.
(3) The risk-free interest rate for periods equal to the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
(4) The expected annual dividend yield is calculated by dividing the expected annual dividends by the stock price on the date of grant.

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. These shares vested if specific pre-established levels of performance were achieved at the end of a three-year performance cycle, which ended July 31, 2011. The performance goal for the performance awards was based solely on the compounded 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 have ranged 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 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, 2011 was 9,665. The expense on these vested shares was approximately $569, of which $0 was recorded in the three months ended October 31, 2010.

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 30,510 performance awards have been forfeited through October 31, 2011. These awards will vest as follows: 96,666 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 96,658 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 386,648 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 $7,747, 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 the three-year performance cycle. As of October 31, 2011, the Company estimated that total non-GAAP earnings per share awards covering 83,672 shares/units with a value of $3,352 were deemed probable of vesting. The Company recognized compensation expense of $337 and $203 during the three months ended October 31, 2011 and 2010, 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 217,233 performance awards in the form of shares of restricted stock units pursuant to the Company’s 2009 Stock Incentive Plan, of which 8,445 performance awards have been forfeited through October 31, 2011. These awards will vest as follows: 131,250 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 77,538 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 417,576 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 $11,027, based on a weighted average grant date fair value of $42.01 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 the three-year performance cycle. As of October 31, 2011, the Company estimated that total non-GAAP earnings per share awards covering 114,925 units with a value of $4,828 were deemed probable of vesting. The Company recognized compensation expense of $521 and $99 during the three months ended October 31, 2011 and 2010, respectively for the performance awards with the non-GAAP earnings per share target based on the number of shares 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 estimated to be $3,666 and $4,462 for awards granted in fiscal year 2011 and fiscal year 2010, respectively. The compensation expense is being recognized on a straight-line basis, net of estimated forfeitures, over a derived service period of 2.8 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 during the three months ended October 31, 2010. No TSR awards were granted in the three months ended October 31, 2011. 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  

Stock Price (1)

        $ 41.96   

Expected volatility factor (2)

          49

Risk-free interest rate (3)

          0.73

Expected annual dividend yield (4)

          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, 2011 to October 31, 2011:

 

     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 (1)
         Weighted
Average
Grant
Date Fair
Value
 

Outstanding at July 31, 2011

     274,522         $ 55.18            4.34          $ 1,466            51,800         $ 44.90            447,244         $ 46.95   

Granted

     123,226           46.06                        62,839           45.98                        

Exercised

     (7,649        40.39                                     

Vesting of restricted stock

                            (10,664        50.68            (9,665        45.98   

Cancelled (forfeited and expired)

     (9,775)           47.55                        (500)           58.41            (30,442)           55.18   

Outstanding at October 31, 2011

     380,324           52.72            5.18          $ 2,295            103,475           44.89            407,137           46.36   

Options vested or expected to vest at October 31, 2011 (2)

     366,396           52.99            5.12            2,173                         

Options exercisable at October 31, 2011

     217,809           57.59            4.08            885                         

 

(1) The number of performance-based unvested restricted stock awards is shown in this table at target. As of October 31, 2011, the maximum number of performance-based unvested restricted stock awards available to be earned is 814,274.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

(2) 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.

5. Business Combination

On November 19, 2010, the Company acquired certain assets of an OEM ultrasound transducer and probe business. The acquisition was undertaken by the Company in order to increase its market share in the transducer and probe business, expand its relationships with a major customer, and expand its product portfolio. The acquisition resulted in a bargain purchase as the seller was motivated to sell the assets of the transducer and probe business since they were not a core part of the seller’s business.

The acquisition has been accounted for as an acquisition under authoritative guidance for business combinations. The purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired, with the excess of the fair value of assets acquired over the purchase price recorded as a bargain purchase gain in the three months ended January 31, 2011.

The results of operations and estimated fair value of assets acquired and liabilities assumed were included in the Company’s unaudited consolidated financial statements beginning November 19, 2010.

The total purchase consideration is expected to be approximately $686 in cash, of which approximately $346 was paid at the closing. The purchase consideration also includes contingent consideration of $340, which represents the fair value of future cash payments expected to be made by the Company based on the sale of certain acquired products over a two year period commencing on November 1, 2010. The Company estimated the contingent consideration based on probability weighted expected future cash flows, and it is included under other long term liabilities in the Consolidated Balance Sheet at October 31, 2011 and July 31, 2011, respectively. These cash flows were discounted at a rate of approximately 22.1%. The contingent consideration is marked to market at the end of each fiscal quarter. As of October 31, 2011 there was no change in the fair value of contingent consideration compared to the fair value estimated at November 19, 2010. Acquisition-related costs were insignificant.

The final fair value allocated to each of the major classes of tangible and identifiable intangible assets acquired on November 19, 2010 and the bargain purchase gain recorded in general and administrative expenses in the unaudited Consolidated Statements of Operations were computed as follows:

 

Inventory

   $ 1,284   

Property, plant, and equipment

     489   

Intangible assets

     730   

Accrued liablities

     (154

Deferred tax liabilities

     (621

Net tangible and intangible assets

     1,728   

Estimated purchase price

     686   

Bargain purchase gain

   $ 1,042   

The deferred tax liability associated with the estimated fair value adjustments of tangible and intangible assets acquired is recorded at an estimated weighted average statutory tax rate in the jurisdictions where the fair value adjustments may occur.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

The following table sets forth the components of the identifiable intangible assets acquired and being amortized over their estimated useful lives, with a maximum amortization period of five years, on a straight-line basis:

 

     Fair Value      Useful Life

Backlog

   $ 70       3.5 months

Developed Technology

     420       5 years

Customer Relationships

     240       5 years

Total acquired identifiable intangible assets

   $ 730      

In determining the purchase price allocation, the Company considered, among other factors, its intention to use the acquired assets and the historical and estimated future demand for the acquired products and services. The fair value of developed technology was based upon the relief from royalty approach while the customer relationship and backlog intangible assets were based on the income approach. The rate used to discount the estimated future net cash flows to their present values for each intangible asset was based upon a weighted average cost of capital ranging from 22.1% to 24.1%. The discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales related to the technology and assets acquired.

The Company’s results would not have been materially different from its reported results had the acquisition occurred at the beginning of the three months ended October 31, 2010.

6. Fair value measurements:

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 at October 31, 2011 and July 31, 2011 are comprised primarily of demand deposits at highly rated financial institutions.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at October 31, 2011 and July 31, 2011:

 

$0,000 $0,000 $0,000 $0,000 $0,000 $0,000 $0,000
     Fair Value Measurements at October 31, 2011 using  
     Quoted Prices in
Active Markets
for Indentical
Assets Level 1
         

Significant

Other

Observable
Inputs

Level 2

         

Significant

Unobservable

Inputs

Level 3

          Total
Carrying
Value
 

Cash equivalents

   $ -            $ 9,600            $ -            $ 9,600   

Total assets

   $ -            $ 9,600            $ -            $ 9,600   

Contingent consideration

   $ -            $ -            $ 340            $ 340   

Total liabilities

   $ -            $ -            $ 340            $ 340   

 

$0,000 $0,000 $0,000 $0,000 $0,000 $0,000 $0,000
     Fair Value Measurements at July 31, 2011 using  
    

Quoted Prices in

Active Markets

for Indentical

Assets Level 1

          Significant
Other
Observable
Inputs
Level 2
         

Significant

Unobservable
Inputs

Level 3

          Total
Carrying
Value
 

Cash equivalents

   $ -            $ 9,600            $ -            $ 9,600   

Total assets

   $ -            $ 9,600            $ -            $ 9,600   

Contingent consideration

   $ -            $ -            $ 340            $ 340   

Total liabilities

   $ -            $ -            $ 340            $ 340   

7. Goodwill and other intangible assets:

The carrying amount of the goodwill at October 31, 2011 and July 31, 2011 was $1,849.

Other intangible assets include the value assigned to intellectual property and other technology, patents, customer contracts and relationships, a trade name, backlog, 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 0.5 to 14 years.

Intangible assets at October 31, 2011 and July 31, 2011 consisted of the following:

 

     October 31, 2011    July 31, 2011  
     Cost           Accumulated
Amortization
          Net           Cost           Accumulated
Amortization
          Net  

Developed technology

   $ 12,191          $ 4,065          $ 8,126          $ 12,191          $ 3,762          $ 8,429   

Customer relationships

     25,440            6,436            19,004            25,440            5,973            19,467   

Tradename

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

Backlog

     70            70            -            70            70            -   

In-process research and development

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

Total

   $ 47,208            $ 10,571            $ 36,637            $ 47,208            $ 9,805            $ 37,403   

Amortization expense related to acquired intangible assets was $766 and $733 for the three months ended October 31, 2011 and 2010, respectively.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

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

 

2012 (remaining nine months)

     2,297   

2013

     3,063   

2014

     3,063   

2015

     3,063   

2016

     2,975   
   $ 14,461   

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 more likely than not reduce the fair value of the reporting unit below its carrying value. 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 trade name represents the value allocated to the Copley trade name in connection with the acquisition of Copley and is tested for impairment during the second quarter of each fiscal year. The in-process research and development is from an investment in a startup company with proprietary technology that the Company accounts for using the equity method and is tested for impairment during the second quarter of each fiscal year. The goodwill is part of the OEM reporting unit (the “Reporting Unit”), which the Company tests for impairment during the second quarter of each fiscal year.

8. Restructuring charge:

In the first quarter of fiscal year 2011, the Company recorded a restructuring charge of $3,562 for severance and personnel related costs of a plan it initiated to reduce its workforce by 104 employees worldwide. The purpose of this workforce reduction was to streamline its operations and consolidate its Denmark and Canton, Massachusetts manufacturing operations into its existing facilities. During the second quarter of fiscal year 2011, the Company recorded an adjustment of $134 for a change in estimate of severance and related benefit expenses related to this plan.

In the fourth quarter of fiscal year 2011, the Company recorded a restructuring charge of $3,587 for severance and personnel related costs of a plan to streamline its operations by reducing its workforce by 51 employees worldwide.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

The following table summarizes charges related to accrued restructuring activity from July 31, 2010 through October 31, 2011:

 

       Involuntary
Employee
Severance
         Facility
Exit
Costs
         Total  

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   

Adjustments

     (134        -           (134

Cash payments

     (609        (121        (730

Foreign exchange

     (59          -             (59

Balance at January 31, 2011

     2,717           412           3,129   

Cash payments

     (529        (155        (684

Foreign exchange

     156             -             156   

Balance at April 30, 2011

     2,344           257           2,601   

Restructuring charge

     3,587           -           3,587   

Adjustments

     -           53           53   

Cash payments

     (836        (155        (991

Foreign exchange

     (60          -             (60

Balance at July 31, 2011

     5,035           155           5,190   

Cash payments

     (1,926        (155        2,081   

Foreign exchange

     (93          -             (93

Balance at October 31, 2011

   $ 3,016           $ -           $ 3,016   

The cash expenditures subsequent to October 31, 2011 of approximately $3,016 in employee severance will be paid within the next nine months.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9. Balance sheet information:

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

 

     October 31,
2011
          July 31,
2011
 

Accounts receivable, net of allowance:

        

Billed

   $ 77,603          $ 81,314   

Unbilled (A)

     8,279            7,244   
   $ 85,882          $ 88,558   

Inventories:

        

Raw materials

   $ 73,851          $ 75,434   

Work-in-process

     12,213            10,544   

Finished goods

     23,468            19,505   
   $ 109,532          $ 105,483   

Accrued liabilities:

        

Accrued employee compensation and benefits

   $ 15,432          $ 21,521   

Accrued restructuring charges

     3,016            5,190   

Accrued warranty

     5,250            5,174   

Other

     9,015            9,553   
   $ 32,713          $ 41,438   

Advance payments and deferred revenue:

        

Deferred revenue

   $ 7,169          $ 7,380   

Customer deposits

     2,286            1,869   
   $ 9,455          $ 9,249   

 

(A) Total unbilled receivables at October 31, 2011 and July 31, 2011 were $11,190 and $11,617, respectively. At October 31, 2011 and July 31, 2011, the long-term portion of unbilled receivables of $2,911 and $4,373, respectively, was included in non-current other assets.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

10. 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,

 
     2011           2010  

Income from continuing operations

   $ 4,026          $ 1,381   

Income from discontinued operations, net of tax

    
-
  
        289   

Gain on disposal of discontinued operations, net of tax

    
-
  
          924   

Net income

   $ 4,026            $ 2,594   

Weighted average number of common shares outstanding-basic

     12,437,000            12,623,000   

Effect of dilutive securities:

        

Stock options and restricted stock awards

     111,000              54,000   

Weighted average number of common shares outstanding-diluted

     12,548,000              12,677,000   

Basic net income per share:

                      

Income from continuing operations

   $ 0.32          $ 0.11   

Income from discontinued operations, net of tax

    
-
  
        0.02   

Gain on disposal of discontinued operations, net of tax

    
-
  
          0.08   

Basic net income per share

   $ 0.32            $ 0.21   

Diluted net income per share:

                      

Income from continuing operations

   $ 0.32          $ 0.11   

Income from discontinued operations, net of tax

    
-
  
        0.02   

Gain on disposal of discontinued operations, net of tax

    
-
  
          0.07   

Diluted net income per share

   $ 0.32            $ 0.20   

Anti-dilutive shares related to outstanding stock options and unvested restricted stock

     274,000            227,000   

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11. Comprehensive income:

Components of comprehensive income 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 and its components:

 

     Three Months Ended
October 31,
 
     2011          2010  

Net income

   $ 4,026         $ 2,594   

Other comprehensive income, net of taxes:

       

Pension adjustment, net of a tax benefits of $10 for the three months ended October 31, 2010.

               (19

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

     (2,310          4,884   

Total comprehensive income

   $ 1,716           $ 7,459   

The components of accumulated other comprehensive income, net of taxes, at October 31, 2011 and July 31, 2011 are as follows:

 

    

October 31,

2011

        

July 31,

2011

 

Pension adjustment

   $ (3,079      $ (3,079

Foreign currency translation adjustment

     12,268             14,576   

Total

   $ 9,189           $ 11,497   

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

12. Supplemental disclosure of cash flow information:

The changes in operating assets and liabilities, net of acquired business, were as follows:

 

     Three Months Ended
October 31,
 
     2011          2010  

Accounts receivable

   $ 3,211         $ (3,701

Inventories

     (4,316        (7,828

Other assets

     (144        (680

Accounts payable

     (2,022        9,757   

Accrued liabilities

     (7,190        (4,723

Other liabilities

     179           1,023   

Advance payments and deferred revenue

     371           (636

Accrued income taxes

     (742          (936

Net changes in operating assets and liabilities

   $ (10,653        $ (7,724

Supplemental disclosure of non-cash investing activities from continuing operations were as follows:

The Company accrued milestone payments towards the construction of a manufacturing facility in Shanghai, China, of $1,050 during the three months ended October 31, 2011 that were not paid as of October 31, 2011. The Company expects to pay the $1,050 in the second quarter of fiscal year 2012.

13. Taxes:

The following table presents the provision for income taxes and the effective income tax rates for the three months ended October 31, 2011 and 2010:

 

     Three Months Ended
October 31,
 
     2011           2010  

Provision for income taxes

   $ 1,869          $ 759   

Effective tax rate

     32%            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 effective tax rate for the three months ended October 31, 2011 of 32% was lower than the federal statutory rate due primarily to lower foreign tax rates and the federal research and experimentation credit.

The effective tax rate of 35% for the three months ended October 31, 2010 was higher due to the expiration of the federal research and experimentation credit on December 31, 2009 and from losses in the Company’s recently established subsidiary in Shanghai, China that are currently subject to a valuation allowance. These items were offset by lower foreign taxes.

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

 

October 31, 2011       July 31, 2011

$16,361

    $16,250

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

These unrecognized tax benefits, if recognized in a future period, the timing of which is not estimable except as described below, 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. As of October 31, 2011, 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 2007. Subsequent to October 31, 2011, the Company was informed by the Internal Revenue Service (“IRS”) that its audit of federal income tax returns for the fiscal years ended July 31, 2003, 2005, and 2008 had been completed and that the Company should expect to receive a refund of Federal research and experimentation credits that carryover from the fiscal years 1991 through 2000. The benefit, including interest, is expected to be approximately $10,000. Once the refund is realized, the Company expects to recognize the tax benefit of approximately $10,000, less related contingent professional fees of approximately $2,700, which will be recorded in general and administrative expenses. In connection with the conclusion of the IRS audit, the Company also expects to record a reversal of related tax reserves of approximately $2,100.

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, 2011 and July 31, 2011, the Company had approximately $1,525 and $1,485, respectively, accrued for interest and penalties on unrecognized tax benefits.

14. Segment information:

The Company has three reportable segments: Medical Imaging, Ultrasound, and Security Technology. At the end of fiscal year 2011, the Company combined its OEM Ultrasound transducer business, which has previously been reported in the Medical Imaging segment, with its BK Medical direct Ultrasound systems business in the Ultrasound segment, under one management team. The combined business is now reported as the Ultrasound segment consistent with how the Company’s principal executive officer began monitoring the business in the first quarter of fiscal year 2012. Medical Imaging 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. Ultrasound consists of ultrasound systems and transducers for the urology, ultrasound-guided surgery and radiology markets sold primarily through the Company’s 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 2011.

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

 

     Three Months Ended
October 31,
 
     2011          2010  

Net Revenue:

       

Medical Imaging

   $ 72,674         $ 64,164   

Ultrasound

     34,601           28,351   

Security Technology

     10,582             11,307   

Total

   $ 117,857           $ 103,822   

Income (loss) from operations

       

Medical Imaging (A)

   $ 5,482         $ 1,687   

Ultrasound (B)

     (341        (606

Security Technology (C)

     443             1,117   

Total income from operations

     5,584           2,198   

Total other income (expense), net

     311             (58

Income from continuing operations before income taxes

   $ 5,895           $ 2,140   

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

     October 31,
2011
          July 31,
2011
 

Identifiable assets:

        

Medical Imaging

   $ 194,107          $ 190,530   

Ultrasound

     126,663            129,497   

Security Technology

     20,440              23,644   

Total reportable segment assets

     341,210            343,671   

Corporate assets (D)

     160,204              177,881   

Total assets

   $ 501,414            $ 521,552   

 

(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 $443 for the three months ended October 31, 2010.
(D) Includes cash and cash equivalents of $118,130 and $135,069 at October 31, 2011 and July 31, 2011, respectively.

15. Commitments and guarantees:

Guarantees and Indemnification Obligations

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, 2011.

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 26 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.

The following table presents the Company’s product warranty liability for the three months ended October 31, 2011 and 2010:

 

     Three Months Ended
October,
 
     2011          2010  

Balance at the beginning of the period

   $ 5,174         $ 6,103   

Accrual

     1,962           1,392   

Settlements made in cash or in kind during the period

     (1,886          (1,534

Balance at the end of the period

   $ 5,250           $ 5,961   

At October 31, 2011 and July 31, 2011, the Company had deferred revenue for product extended warranty contracts of $6,589 and $6,528, respectively.

Revolving Credit Agreements

On October 11, 2011, the Company entered into a five-year revolving credit agreement (“Credit Agreement”) with three banks for which Sovereign Bank acts as Administrative Agent. The Credit Agreement provides $100,000 in available credit and expires on October 10, 2016, when all outstanding borrowings will be payable in full. The credit facility does not require amortization of principal and may be reduced before maturity in whole or in part at the Company’s option without penalty. The Credit Agreement replaces a $20,000 credit facility with Sovereign Bank which has been renewed annually since 2001 and was terminated in connection with the new facility.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Borrowings under the Credit Agreement may be used for general corporate purposes, including permitted acquisitions. The amount of available credit can be increased under specified circumstances up to $150,000 in aggregate. The Company is the sole borrower under the Credit Agreement. The obligations under the new credit facility are guaranteed by the Company’s material domestic subsidiaries and are supported by a pledge of 65% of the capital stock and equity equivalents of the Company’s principal international subsidiary.

Interest rates on borrowings outstanding under the credit facility would range from 1.25% to 2.00% above the LIBOR rate, or, at the Company’s option would range from 0.00% to 1.00% above the defined base rate, in each case based upon the Company’s leverage ratio. A quarterly commitment fee ranging from 0.20% to 0.35% per annum is applicable on the undrawn portion of the credit facility, based upon the Company’s leverage ratio.

The Credit Agreement limits the Company and its subsidiaries’ ability to, among other things: incur additional indebtedness; incur liens or guarantee obligations; pay dividends or make other distributions; make investments; dispose of assets; and engage in transactions with affiliates except on an arms-length basis. In addition, the Credit Agreement requires Analogic to maintain the following financial ratios:

 

   

A leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four quarters EBITDA of no greater than 2.75:1.00 at any time; and

 

   

An interest coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA to consolidated interest charges of no less than 3.00:1.00 at any time.

At October 31, 2011, the Company’s leverage ratio was 0.01 the Company’s interest coverage ratio was infinite as it had no attributable interest expense. As of October 31, 2011, the Company was in full compliance with all financial and operating covenants.

Any failure to comply with the financial or operating covenants of the credit facility would prevent the Company from being able to borrow and would also constitute a default, permitting the lenders to, among other things, accelerate repayment of outstanding borrowings, including all accrued interest and fees, and to terminate the credit facility. A change in control of the Company, as defined in the Credit Agreement, would also constitute an event of default, permitting the lenders to accelerate repayment and terminate the Credit Agreement.

In connection with the entering into this facility, the Company incurred approximately $500 of transactions costs, which are being expensed over the five-year life of the credit facility.

The Company currently also has approximately $4,000 in other revolving credit facilities with banks available for direct borrowings.

The Company did not have any borrowing outstanding under credit facilities at October 31, 2011 and July 31, 2011.

Investigation Regarding our Danish Subsidiary

As previously disclosed in the Company’s annual report on Form 10-K for the fiscal year ended July 31, 2011, the Company has identified transactions involving our Danish subsidiary, BK Medical, and certain of its foreign distributors, with respect to which the Company has raised questions concerning compliance with law, including Danish law and the United States Foreign Corrupt Practices Act, and its business policies. The Company has voluntarily disclosed this matter to the Danish government, the United States Department of Justice, and the Securities and Exchange Commission. We are unable to estimate the potential penalties and/or sanctions, if any, that might be assessed in connection with this matter. The Company has concluded that the identified transactions have been properly accounted for in our reported financial statements in all material respects. The Company has terminated the employment of certain BK Medical employees that were involved in the transactions. The Company is winding down its relationship with certain of the BK Medical distributors, and is evaluating its relationship with certain other of the BK Medical distributors, that were involved in the transactions. Replacing these employees and distributors could have an adverse impact on BK Medical’s distributor sales until their replacements are in place and productive. Revenue from sales to the BK Medical distributors with whom the Company has decided to wind down, or are otherwise evaluating its relationship, represented less than 1% of the Company’s total revenue in fiscal year 2011 and less than 2% of the Company’s total revenue in the first quarter of fiscal year 2012. During the first quarter of fiscal 2012, we incurred employee severance costs of approximately $400 and inquiry-related costs of approximately $997 in connection with this matter.

 

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ANALOGIC CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

16. Common stock repurchase:

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. During the three months ended October 31, 2011, the Company repurchased and retired 231,700 shares of Common Stock under this repurchase program for $11,808 at an average purchase price of $50.96 per share. As of October 31, 2011, the Company repurchased and retired 531,989 shares of Common Stock under this repurchase program for $26,995 at an average purchase price of $50.74 per share.

On December 5, 2011, 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.

17. Related party transactions:

On July 25, 2011, the Company entered into an agreement to sell its 25% interest in its China-based affiliate for $2,500. The book value of the interest in the China-based affiliate was written down to $0 in fiscal year 2006, and the Company expects to record a gain of $2,500. The expected closing is pending final approval by the Chinese government.

18. Subsequent event:

The Company declared a dividend of $0.10 per share of common stock on December 5, 2011, which will be paid on December 29, 2011 to stockholders of record on December 19, 2011.

 

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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 2011 as filed with the U.S Securities and Exchange Commission (the “SEC”) on October 4, 2011 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, 2011 and 2010 represent the first quarters of fiscal years 2012 and 2011, respectively. All dollar amounts in this Item 2 are in thousands except per share data.

Summary

Analogic provides advanced healthcare and security technology solutions to customers around the world. We provide advanced imaging systems and technology that enable computed tomography (“CT”), ultrasound, digital mammography, and magnetic resonance imaging (“MRI”) in medical applications, as well as automated threat detection for aviation security. Our CT, MRI, digital mammography, and ultrasound transducer products are sold to original equipment manufacturers (“OEMs”). Our BK Medical branded ultrasound systems, used in procedure-driven markets such as urology, guided surgery, and anesthesia, are sold to clinical end users through our direct sales force.

We have three reportable segments: Medical Imaging, Ultrasound, and Security Technology. At the end of fiscal year 2011, we combined our OEM Ultrasound transducer business, which has previously been reported in the Medical Imaging segment, and our BK Medical direct Ultrasound systems business in the Ultrasound segment, under one management team. The combined business is now reported as the Ultrasound segment consistent with how our principal executive officer began monitoring the business in the first quarter of fiscal year 2012. All periods presented have been revised accordingly to reflect the new reporting segments.

The following table sets forth the percentage of total net revenue by reporting segment for the three months ended October 31, 2011 and 2010.

 

     Three Months Ended
October 31,
 
     2011          2010  

Medical Imaging

     62        62

Ultrasound

     29        27

Security Technology

     9          11

Total

     100          100

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 or 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.

 

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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, 2011 and 2010.

 

     Three Months Ended
October 31,
          Percentage
Change
 
     2011           2010          

Total net revenue

   $ 117,857          $ 103,822            14%   

Gross profit

     43,026            39,019            10%   

Gross margin

     37%            38%         

Income from operations

   $ 5,584          $ 2,198            154%   

Operating margin percentage

     5%            2%         

Income from continuing operations

   $ 4,026          $ 1,381            192%   

Diluted net income per share from continuing operations

     0.32            0.11            196%   

During the three months ended October 31, 2011 our total net revenue increased by 14% as compared to the prior year comparable period due primarily to increased product revenue in our Medical Imaging segment as a result of increased demand in our MRI, CT, and mammography product lines. Product revenue also increased in our Ultrasound segment due primarily to the expansion of our direct sales organization in the United States and the acquisition of an OEM ultrasound transducer business in second quarter of fiscal year 2011. Also contributing to the increase in product revenue of the Ultrasound segment was a favorable change in the currency exchange rate in the period. Product revenue increased in our Security Technology segment as a result of increased sales of baggage scanners.

Gross margin percentage decreased in the three months ended October 31, 2011 versus the prior year comparable period due primarily to unfavorable manufacturing yields in our mammography business. Income from operations, income from continuing operations, and diluted net income per share from continuing operations increased in the three months ended October 31, 2011 from the prior year comparable period due primarily to increased gross profit from an increase in sales volume and no restructuring charges in the period. These improvements in operating results were partially offset by lower levels of customer funded research and development activity during the three months ended October 31, 2011 as compared to the prior year comparable period and $997 of inquiry-related costs related to a distributor matter at B-K Medical, our Danish subsidiary.

During the first quarter of fiscal year 2011, we sold our hotel business, and realized net proceeds of $10,467, after transaction costs for this sale. 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 is being reported as a discontinued operation and all periods presented have been revised accordingly to reflect these operations as discontinued.

Net revenue and net income for the hotel business for the three months ended October 31, 2010 was as follows:

 

                   

Three Months

Ended
October 31,

 
                    2010  

Total net revenue

            $ 2,906   

Net income

              289   

 

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The following table sets forth an overview of cash flows for the three months ended October 31, 2011 and 2010.

 

     Three Months Ended
October 31,
 
       2011            2010  

Net cash provided by continuing operations for operating activities

   $ 2,803         $ 457   

Net cash (used for) provided by investing activities

     (6,815        6,789   

Net cash used for financing activities

     (13,210        (1,442

Net cash used for discontinued operations

               (335

Effect of exchange rate changes on cash

     (1,328          1,106   

Net (decrease) increase in cash and cash equivalents

   $ (18,550        $ 6,575   

During the three months ended October 31, 2011, we generated $2,803 of cash from operating activities of continuing operations as compared to $457 in the prior year comparable period. The increase was due primarily to an increase in sales volume in the three months ended October 31, 2011 as compared to the prior year comparable period. Net cash used for investing activities in the three months ended October 31, 2011 was due primarily to capital spending of $6,815, which includes the construction of a manufacturing facility in Shanghai, China. Prior year cash provided by investing activities benefited from the proceeds from the sale of our hotel business of $10,467. The net cash used by financing activities in the three months ended October 31, 2011 primarily reflected $11,808 used to repurchase common stock.

Results of operations

Net revenue

Product revenue

Product revenue is summarized in the table below.

 

     Three Months Ended
October 31,
          Percentage
Change
 
     2011           2010          

Product Revenue:

              

Medical Imaging

   $ 70,300          $ 61,590            14

Ultrasound

     34,601            28,351            22

Security Technology

     9,106              6,748              35

Total

   $ 114,007            $ 96,689              18

Medical Imaging

For the three months ended October 31, 2011, product revenue increased versus the prior year comparable period primarily due to growth in our MRI, digital mammography, and CT product lines driven primarily by higher sales volume of new and existing products.

Ultrasound

For the three months ended October 31, 2011, product revenue increased from the prior year due primarily to increased sales volume of our Flex Focus products, with notable growth of over 20% in the US market over the same period in the prior year. Also contributing to the increase was the acquisition of an OEM ultrasound transducer and probe business in the second quarter of fiscal year 2011, as well as a favorable change in the currency exchange rates, which positively impacted revenues by approximately $500.

Security Technology

The increase in product revenues for the three months ended October 31, 2011 versus the prior year comparable period was due primarily to increased sales of baggage scanners due to increasing demand from our customer.

 

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Engineering revenue

Engineering revenue is summarized in the table below.

 

     Three Months Ended
October 31,
          Percentage
Change
 
     2011           2010          

Engineering Revenue:

              

Medical Imaging

   $ 2,374          $ 2,574            -8%   

Security Technology

     1,476              4,559              -68%   

Total

   $ 3,850            $ 7,133              -46%   

Medical Imaging

Engineering revenue in the three months ended October 31, 2011 remained relatively consistent with the prior year comparable period.

Security Technology

The decrease for the three months ended October 31, 2011 versus the prior year comparable period was due primarily to the timing of work performed on a significant development project for a large OEM customer.

Gross margin

Product gross margin

Product gross margin is summarized in the table below.

 

     Three Months Ended
October 31,
          Percentage
Change
 
     2011           2010          

Product gross profit

   $ 42,776          $ 37,633            13.7%   

Product gross margin %

     37.5%            38.9%         

Product gross margin percentage decreased in the three months ended October 31, 2011 versus the prior year comparable period due primarily to unfavorable manufacturing yields in our digital mammography business.

Engineering gross margin

Engineering gross margin is summarized in the table below.

 

     Three Months Ended
October 31,
          Percentage
Change
 
     2011           2010          

Engineering gross profit

   $ 250          $ 1,386            -82.0%   

Engineering gross margin %

     6.5%            19.4%         

The decrease in engineering gross margin in the three months ended October 31, 2011 versus the prior year comparable period was due primarily to less work performed on higher margin generating Security Technology engineering projects.

 

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Operating expenses

Operating expenses are summarized in the table below.

 

     Three Months Ended
October 31,
 
     2011           2010  

Research and product development

   $ 15,267          $ 13,904   

Selling and marketing

     10,465            9,608   

General and administrative

     11,710            9,747   

Restructuring

                  3,562   

Total operating expenses

   $ 37,442            $ 36,821   

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

 

     Three Months Ended
October 31,
 
     2011          2010  

Research and product development

     13.0        13.4

Selling and marketing

     8.9        9.3

General and administrative

     9.9        9.4

Restructuring

     0.0          3.4

Total operating expenses

     31.8          35.5

Research and product development expenses are related to projects not funded by our customers. These expenses increased $1,363 in the three months ended October 31, 2011 versus the prior year comparable period due primarily to greater investment in unfunded research and product development projects in support of our strategic growth initiatives.

Selling and marketing expenses increased $857 in the three months ended October 31, 2011 versus the prior year comparable period due primarily to an increase in selling resources in the Ultrasound business as we expand our sales force and product offerings in existing and adjacent markets. Also contributing to the increase was severance costs of approximately $400 for employees terminated in connection with certain distributor transactions involving B-K Medical.

General and administrative expenses increased $1,963 in the three months ended October 31, 2011 versus the prior year comparable period. The increase was due primarily to $997 of costs related to the inquiry of the transactions at B-K Medical. Also contributing to the increase was an increase in share-based compensation expense for performance based awards of $305 in the three months ended October 31, 2011, respectively, versus the prior year comparable periods.

Restructuring 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,
 
     2011           2010  

Interest income, net

   $ 136          $ 218   

Other, net

     175            (276

Net other income (expense) during the three months ended October 31, 2011 and 2010 consisted predominantly of foreign currency exchange losses by our foreign subsidiaries in Denmark and Canada.

 

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Provision for income taxes

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

 

     Three Months Ended
October 31,
 
     2011           2010  

Provision for income taxes

   $ 1,869          $ 759   

Effective tax rate

     32%            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.

The effective tax rate for the three months ended October 31, 2011 of 32% was lower than the federal statutory rate due primarily to lower foreign tax rates and the federal research and experimentation credit.

Our effective tax rate of 35% for the three months ended October 31, 2010 was higher due to 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.

Income from discontinued operations, net of tax

 

     Three Months Ended
October 31,
 
     2011           2010  

Income from discontinued operations, net of tax

   $          $ 289   

During the first quarter of fiscal year 2011, we sold our hotel business.

Income from continuing operations and diluted net income per share from continuing operations

Income from continuing operations and diluted net income per share from continuing operations for the three months ended October 31, 2011 and 2010 are as follows:

 

     Three Months Ended
October 31,
 
     2011           2010  

Income from continuing operations

   $ 4,026          $ 1,381   

% of net revenue

     3.4%            1.3%   

Diluted net income per share from continuing operations

   $ 0.32          $ 0.11   

The increase in income from continuing operations and diluted net income per share from continuing operations for the three months ended October 31, 2011 versus the prior year comparable period was due primarily to increased gross profit from an increase in sales volume and a decrease in restructuring charges, partially offset by lower levels of customer funded research and development activity during the three months ended October 31, 2011 as compared to the prior year comparable period and employee severance costs of approximately $400 and inquiry-related costs of $997 related to a distributor matter at B-K Medical.

 

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Liquidity and capital resources

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

 

    

October 31,

2011

         

July 31,

2011

 

Cash and cash equivalents

   $ 151,106          $ 169,656   

Working capital

     285,623            294,387   

Short and long term debt

                  

Stockholders’ equity

     414,563            423,472   

Cash and cash equivalents at October 31, 2011 consisted entirely of highly liquid investments with maturities of three months or less from the time of purchase. 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, 2011 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, 2011, 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, Europe, and China. 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% devaluation in the October 31, 2011 and July 31, 2011 functional currencies, relative to the U.S. dollar, would result in a reduction of stockholders’ equity of approximately $1,227 and $1,458, respectively.

Cash flows

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

 

     Three Months Ended
October 31,
 
       2011            2010  

Net cash provided by continuing operations for operating activities

   $ 2,803         $ 457   

Net cash (used for) provided by investing activities

     (6,815        6,789   

Net cash used for financing activities

     (13,210        (1,442

Net cash used for discontinued operations

               (335

Effect of exchange rate changes on cash

     (1,328          1,106   

Net (decrease) increase in cash and cash equivalents

   $ (18,550        $ 6,575   

The cash flows generated from operating activities of our continuing operations in the three months ended October 31, 2011 primarily reflects our pre-tax earnings from continuing operations of $5,895, which included depreciation and amortization expenses of $4,794, and non-cash share-based compensation expense of $2,251. The positive impact of our operating earnings on cash flows, was partially offset by increases in inventories of $4,316, as well as decreases in accrued liabilities and accounts payable of $7,190 and $2,022, respectively, which were net of a decrease in accounts receivable of $3,211. The increase in inventories was due primarily to demand related inventory purchases. The decrease in accrued liabilities was due primarily to the payment of bonuses and severance. The decrease in accounts receivable was due primarily to a decrease in unbilled receivables of $427 on engineering projects due to the timing of completing milestones and lower sales volumes in the first quarter of fiscal year 2012 as compared to the fourth quarter of fiscal year 2011. The decrease in accounts payable was due primarily to the timing of vendor payments.

The net cash used for investing activities in the three months ended October 31, 2011 was due primarily to purchases of property, plant, and equipment of $6,815, of which approximately $3,600 relates to the construction of a manufacturing facility in Shanghai, China.

The net cash used for financing activities in the three months ended October 31, 2011 primarily reflected $11,808 used to repurchase common stock and $1,337 of dividends paid to stockholders.

 

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We believe that our balances of cash and cash equivalents 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.

Commitments, contractual obligations, and off-balance sheet arrangements

Our contractual obligations at October 31, 2011, 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

   $ 8,298          $ 2,435          $ 2,521          $ 1,237          $ 2,105   

Purchasing obligations

     42,757              41,836              921                             
   $ 51,055            $ 44,271            $ 3,442            $ 1,237            $ 2,105   

As of October 31, 2011, the total liabilities associated with uncertain tax positions were $7,543. 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.

On October 11, 2011, we entered into a five-year revolving credit agreement (the “Credit Agreement”) with three banks for which Sovereign Bank acts as Administrative Agent. The Credit Agreement provides $100,000 in available credit and expires on October 10, 2016, when all outstanding borrowings will be payable in full. The credit facility does not require amortization of principal and may be reduced before maturity in whole or in part at our option without penalty. The Credit Agreement replaces a $20,000 credit facility with Sovereign Bank which has been renewed annually since 2001 and was terminated in connection with the new facility.

Borrowings under the Credit Agreement may be used for general corporate purposes, including permitted acquisitions. The amount of available credit can be increased under specified circumstances up to $150,000 in aggregate. We are the sole borrower under the Credit Agreement. The obligations under the new credit facility are guaranteed by our material domestic subsidiaries and are supported by a pledge of 65% of the capital stock and equity equivalents of our principal international subsidiary.

Interest rates on borrowings outstanding under the credit facility would range from 1.25% to 2.00% above the LIBOR rate, or, at our option would range from 0.00% to 1.00% above the defined base rate, in each case based upon our leverage ratio. A quarterly commitment fee ranging from 0.20% to 0.35% per annum is applicable on the undrawn portion of the credit facility, based upon our leverage ratio.

The Credit Agreement limits us and our subsidiaries’ ability to, among other things: incur additional indebtedness; incur liens or guarantee obligations; pay dividends or make other distributions; make investments; dispose of assets; and engage in transactions with affiliates except on an arms-length basis. In addition, the Credit Agreement requires us to maintain the following financial ratios:

 

   

A leverage ratio, defined as consolidated funded indebtedness to consolidated trailing four quarters EBITDA of no greater than 2.75:1.00 at any time; and

 

   

An interest coverage ratio, defined as the ratio of consolidated trailing four quarters EBITDA to consolidated interest charges of no less than 3.00:1.00 at any time.

At October 31, our leverage ratio was 0.01 and our interest coverage ratio was infinite as we had no attributable interest expense, and we were in full compliance with all financial and operating covenants.

Any failure to comply with the financial or operating covenants of the credit facility would prevent us from being able to borrow and would also constitute a default, permitting the lenders to, among other things, accelerate repayment of outstanding borrowings, including all accrued interest and fees, and to terminate the credit facility. A change in control of Analogic Corporation, as defined in the Credit Agreement, would also constitute an event of default, permitting the lenders to accelerate repayment and terminate the Credit Agreement.

In connection with the entering into this facility, we incurred approximately $500 of transactions costs, which are being expensed over the five-year life of the credit facility.

We currently also have approximately $4,000 in other revolving credit facilities with banks available for direct borrowings.

We did not have any borrowing outstanding under credit facilities at October 31, 2011 and July 31, 2011.

 

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Impact of Investigation Regarding our Danish Subsidiary

As previously disclosed in our annual report on Form 10-K for the fiscal year ended July 31, 2011, we have identified transactions involving our Danish subsidiary, BK Medical, and certain of its foreign distributors, with respect to which we have raised questions concerning compliance with law, including Danish law and the United States Foreign Corrupt Practices Act, and our business policies. We have voluntarily disclosed this matter to the Danish government, the United States Department of Justice and the Securities and Exchange Commission. We are unable to estimate the potential penalties and/or sanctions, if any, that might be assessed in connection with this matter. We have concluded that the identified transactions have been properly accounted for in our reported financial statements in all material respects. We have terminated the employment of certain BK Medical employees that were involved in the transactions. We are winding down our relationship with certain of the BK Medical distributors, and are evaluating our relationship with certain other of the BK Medical distributors, that were involved in the transactions. Replacing these employees and distributors could have an adverse impact on BK Medical’s distributor sales until their replacements are in place and productive. Revenue from sales to the BK Medical distributors with whom we have decided to wind down, or are otherwise evaluating our relationship, represented less than 1% of our total net revenue in fiscal year 2011 and less than 2% of the Company’s total net revenue in the first quarter of fiscal year 2012. During the first quarter of fiscal 2012, we incurred employee severance costs of approximately $400 and inquiry-related costs of approximately $997 in connection with this matter.

Recent accounting pronouncements

Recently adopted

Impairment testing

In December 2010, the Financing Accounting Standards Board (the “FASB”) issued guidance modifying Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. This guidance was effective for us on August 1, 2012 and it is not expected to have a material impact on our financial position, results of operations, or cash flows.

In September 2011, the FASB issued an accounting standards update which provides, subject to certain conditions, the option to perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The update will be effective for us in its first of fiscal year 2012. The update may reduce the complexity and costs of testing goodwill for impairment, but otherwise is not expected to have a material impact on our consolidated financial position, annual results of operations or cash flows.

Business combinations and noncontrolling interests

In December 2010, the FASB issued guidance specifying that if a public entity presents comparative financial statements, the entity (acquirer) should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. It also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This guidance was effective for us prospectively for material business combinations for which the acquisition date is on or after August 1, 2011.

Not yet effective

Fair value measurements

In May 2011, the FASB issued an update to the accounting on fair value measurement to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards (“IFRS”). This update changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements. This update does not extend the use of fair value accounting, but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or IFRS. This update is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. Early adoption is prohibited. This guidance is effective for us on February 1, 2012 and we are currently evaluating the impact, if any, of this new accounting update on our financial position, results of operations, or cash flows.

Presentation of Comprehensive Income

In June 2011, the FASB issued an update to the accounting on comprehensive income to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. GAAP and IFRS. This update requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Further, this update does not affect how earnings per share is calculated or presented. This update is effective for annual periods beginning after December 15, 2011 and annual and interim periods thereafter. The update is applied retrospectively, and early adoption is permitted. This guidance is effective for us on August 1, 2012 and will not have an impact on our financial position, results of operations, or cash flows.

 

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Table of Contents

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 39, in our Annual Report on Form 10-K for fiscal year 2011 filed with the SEC on October 4, 2011. 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 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% devaluation in the functional currencies, relative to the U.S. dollar, at October 31, 2011 and July 31, 2011 would result in a reduction of stockholders’ equity of approximately $1,227 and $1,458, 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, 2011, 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. Total interest income for the three months ended October 31, 2011 was $136. 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, 2011. 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, 2011, 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, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

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 2011, 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 2011.

 

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, 2011.

 

Period       Total Number of Shares
Purchased (1) (2)
        Average Price Paid
per Share (3)
       

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
 
8/1/11-8/31/11              $                 $ 14,813,697   
9/1/11-9/30/11       5,553          45.82                   14,813,697   
10/1/11-10/31/11       231,700          50.96          231,700        $ 3,005,482   

Total

      237,253        $ 50.84          231,700       

 

(1) Includes 5,553 shares of our common stock surrendered by employees in order to meet tax withholding obligations in connection with the vesting of restricted stock awards in September 2011.
(2) Includes 231,700 shares of our common stock purchased in open-market transactions in October 2011. These shares were purchased pursuant to a repurchase program authorized by the Board that was announced on December 9, 2010 to repurchase up to $30.0 million of our common stock. During the first quarter of fiscal year 2012, we repurchased 231,700 shares of our common stock under this repurchase program for $11.8 million at an average purchase price of $50.96 per share. The repurchase program does not have a fixed expiration date.
(3) For purposes of determining the number of shares to be surrendered by employees to meet tax withholding obligations, 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.

 

Item 6. Exhibits

 

Exhibit

  

Description

10.1

   Form of Notice to Executive Officers (at Vice President or higher level) Regarding the Fiscal Year 2012 Annual Incentive Plan

10.2

   Form of Nonstatutory Stock Option Agreement for 2009 Stock 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
101.INS   **    XBRL Instance Document.
101.SCH   **    XBRL Taxonomy Extension Schema Document.
101.CAL   **    XBRL Taxonomy Calculation Linkbase Document.
101.LAB   **    XBRL Taxonomy Label Linkbase Document.
101.PRE   **    XBRL Taxonomy Presentation Linkbase Document.
101.DEF   **    XBRL Taxonomy Extension Definition Linkbase Document.

 

** Submitted electronically herewith.

 

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Table of Contents

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at October 31, 2011 and July 31, 2011, (ii) Condensed Consolidated Statements of Operations for the three months ended October 31, 2011 and October 31, 2010, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2011 and October 31, 2010 and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

 

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Table of Contents

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 9, 2011  

/s/ James W. Green

  James W. Green
 

President and Chief Executive Officer

(Principal Executive Officer)

Date: December 9, 2011   /s/ Michael L. Levitz
  Michael L. Levitz
 

Senior Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

 

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Table of Contents

EXHIBIT INDEX

 

Exhibit

  

Description

10.1

   Form of Notice to Executive Officers (at Vice President or higher level) Regarding the Fiscal Year 2012 Annual Incentive Plan

10.2

   Form of Nonstatutory Stock Option Agreement for 2009 Stock 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
101.INS   **    XBRL Instance Document.
101.SCH   **    XBRL Taxonomy Extension Schema Document.
101.CAL   **    XBRL Taxonomy Calculation Linkbase Document.
101.LAB   **    XBRL Taxonomy Label Linkbase Document.
101.PRE   **    XBRL Taxonomy Presentation Linkbase Document.
101.DEF   **    XBRL Taxonomy Extension Definition Linkbase Document.

 

** Submitted electronically herewith.

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at October 31, 2011 and July 31, 2011, (ii) Consolidated Statements of Operations for the three months ended October 31, 2011 and October 31, 2010, (iii) Consolidated Statements of Cash Flows for the three months ended October 31, 2011 and October 31, 2010 and (iv) Notes to Unaudited Consolidated Financial Statements.

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

 

37

Exhibit 10.1

Analogic Corporation

Annual Incentive Plan for Fiscal Year 2012

 

 

 

Employee:       Supervisor:
Title:       Target Level (% of salary):
Plan Year:    8/1/11 - 7/31/12   

 

 

Congratulations! Analogic Corporation (the “Company”) has selected you to participate in its Annual Incentive Plan (the “Plan”) for Fiscal Year 2012. 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 80.7% of its Non-GAAP Earnings per Share (EPS) budget for fiscal year 2012;

 

  (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, 2012 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 - 60% of your award shall be determined by Analogic’s year-end results for Non-GAAP EPS relative to budget for fiscal year 2012.

 

  (b) Analogic Revenue - 30% of your award shall be determined by Analogic’s year-end results for Revenue relative to budget for fiscal year 2012.

 

  (c) Analogic Non-GAAP Return on Invested Capital (ROIC) - 10% of your award shall be determined by Analogic’s year-end results for Non-GAAP ROIC relative to budget for fiscal year 2012.

 

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 2012. “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 General Managers and Corporate VP’s and higher, 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 2012 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 80.7% of budget, no awards will be earned under this Plan.


* 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 2012 Fiscal Year, the payment date of any award will be after the completion of fiscal year 2012, as determined in the sole discretion of the Company’s Compensation Committee.


Analogic Corporation

Annual Incentive Plan for Fiscal Year 2012

 

Target Level (% of Salary):       Annual Salary as of 11/21/2012:
      Target Bonus as of 11/21/2012:
Performance Factors      
Analogic Non-GAAP EPS:    60% of award    Target Amount as of 11/21/2012:
Analogic Revenue:    30% of award    Target Amount as of 11/21/2012:
Analogic Non-GAAP ROIC:    10% of award    Target Amount as of 11/21/2012:

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 2012 Budget

 

% of Budget

   < 80.7%
of
Budget
    80.7%
of
Budget
    100%
of
Budget
    ³  124.1%
of
Budget
 

% of Target

     0     25     100     200

Award Amount

        

Revenue vs. Fiscal Year 2012 Budget

 

% of Budget

   < 95%
of
Budget
    95%
of
Budget
    100%
of
Budget
    ³  108%
of
Budget
 

% of Target

     0     25     100     200

Award Amount

        

Non-GAAP ROIC vs. Fiscal Year 2012 Budget

 

% of Budget

   < 83.3%
of
Budget
    83.3%
of
Budget
    100%
of
Budget
    ³  116.7%
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.

 

 

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 2012. See Section 3(c) of this document.

 

 

If Analogic Non-GAAP EPS is <80.7% of budget, no awards will be earned under the plan

Exhibit 10.2

ANALOGIC CORPORATION

Nonstatutory Stock Option Agreement

2009 Stock Incentive Plan

This Nonstatutory Stock Option Agreement is made as of the Agreement Date between Analogic Corporation (the “ Company ”), a Massachusetts corporation, and the Participant.

 

I. Agreement Date
    Date:  

 

II. Participant Information
    Participant:  
    Participant Address:  

 

III. Option Information
    Grant Date:   
    Number of Shares:   
    Exercise Price 1 :    $

 

IV. Vesting Table
     Vesting Date    Percentage of Option Shares that Vests
  
  
  

This Agreement includes this cover page and the following Exhibit, which is expressly incorporated by reference in its entirety herein:

Exhibit A – General Terms and Conditions

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Agreement Date.

 

ANALOGIC CORPORATION     PARTICIPANT

 

   

 

Name:     Name:
Title:    

 

 

 

Page 1 of 5


ANALOGIC CORPORATION

Nonstatutory Stock Option Agreement

Exhibit A – General Terms and Conditions

For valuable consideration, receipt of which is acknowledged, the parties hereto agree as follows:

1. Grant of Option .

(a) In consideration of services rendered to the Company by the Participant, the Company has granted to the Participant as of the Grant Date set forth on the cover page of this Agreement, subject to the terms and conditions set forth in this Agreement and in the Company’s 2009 Stock Incentive Plan (the “ Plan ”), an option to purchase up to the number of shares set forth on the cover page of this Agreement (the “ Shares ”) of common stock, $.05 par value per share, of the Company (the “ Common Stock ”), at the exercise price per Share set forth on the cover page of this Agreement. Unless earlier terminated, this option shall expire at 5:00 p.m., Eastern time, on the seventh anniversary of the Grant Date (the “ Final Exercise Date ”).

(b) It is intended that the option evidenced by this agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “ Code ”). Except as otherwise indicated by the context, the term “ Participant ”, as used in this Agreement, shall be deemed to include any person who acquires the right to exercise this option validly under its terms.

2. Vesting Schedule .

(a) This option will become exercisable (“ vest ”) in accordance with the Vesting Table set forth on the cover page of this Agreement, except to the extent provided otherwise in Section 3.

(b) The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this option under Section 3 or under the Plan.

3. Exercise, Acceleration and Termination of Option .

(a) Form of Exercise . To exercise this option, the Participant shall deliver to the Company a notice of exercise in a form (which may be in electronic form) approved by the Company, along with payment in full of the exercise price in the manner provided in the Plan, including without limitation “net exercise” as provided in Section 5(g)(4) of the Plan. The Participant may purchase less than the number of shares covered hereby, provided that no partial exercise of this option may be for any fractional share.

 

Page 2 of 5


(b) Continuous Relationship with the Company Required . Except as otherwise provided in this Section 3, this option may not be exercised unless the Participant, at the time he or she exercises this option, is, and has been at all times since the Grant Date, an employee of the Company. For purposes of this Agreement, employment with the Company shall include employment with a parent or subsidiary of the Company, or any successor to the Company.

(c) Effect of Termination of Employment with the Company .

(1) If the Participant ceases to be employed by the Company for any reason other than death, Disability (as defined below), termination for Cause (as defined below), Retirement (as defined below) or voluntary resignation, then the portion of this option that is vested as of the date of such termination of employment shall be exercisable by the Participant until the end of the 90-day period following the date of such termination of employment (or, if earlier, until the Final Exercise Date) and shall terminate at the end of such period.

(2) If the Participant ceases to be employed by the Company as a result of his or her death, then the portion of this option that is vested as of the date of such termination of employment, plus a portion covering the Additional Pro Rata Shares (as defined below), shall be exercisable by the Designated Beneficiary (as defined in the Plan) of the Participant until the end of the one-year period following the date of death (or, if earlier, until the Final Exercise Date) and shall terminate at the end of such period. Any unvested portion of this option (after giving effect to the vesting of the Additional Pro Rata Shares) shall terminate as of his or her death. The “Additional Pro Rata Shares” shall mean (i) the number of Shares that would have vested on the next vesting date (as set forth on the cover page of this Agreement) multiplied by (ii) a fraction, the numerator of which is the number of full months elapsed since the most recent Vesting Date (or the Grant Date, if termination occurs prior to the first Vesting Date) and the denominator of which is the number of months between the most recent Vesting Date and the next Vesting Date. Any unvested portion of this option (after giving effect to the vesting of the Additional Pro Rata Shares) shall terminate as of the date of such termination of employment.

(3) If the Participant ceases to be employed by the Company as a result of his or her Disability, then the portion of this option that is vested as of the date of such termination of employment, plus a portion covering the Additional Pro Rata Shares, shall be exercisable by the Participant (or his or her legal representatives) until the end of the one-year period following the date of such employment termination (or, if earlier, until the Final Exercise Date) and shall terminate at the end of such period. Any unvested portion of this option (after giving effect to the vesting of the Additional Pro Rata Shares) shall terminate as of such employment termination.

(4) If the Participant ceases to be employed by the Company as a result of the termination of his or her employment by the Company for Cause, this option shall terminate upon the effective date of such termination of employment. If the Participant is given notice by the Company of the termination of his or her employment by the Company for Cause, and the effective date of such employment termination is subsequent to the date of the delivery of such notice, the right to exercise this option shall be suspended from the time of the delivery of such notice until the earlier of (i) such time as it is determined or otherwise agreed that the Participant’s employment shall not be terminated for Cause as provided in such notice or (ii) the effective date of such termination of employment (in which case this option shall, pursuant to the preceding sentence, terminate immediately upon the effective date of such termination of employment).

 

Page 3 of 5


(5) If the Participant ceases to be employed by the Company as a result of his or her Retirement, then the portion of this option that is vested as of the date of such termination of employment, plus a portion covering the Additional Pro Rata Shares, shall be exercisable by the Participant until the end of the one-year period following the date of such Retirement (or, if earlier, until the Final Exercise Date) and shall terminate at the end of such period. Any unvested portion of this option (after giving effect to the vesting of the Additional Pro Rata Shares) shall terminate as of such Retirement.

(6) If the Participant ceases to be employed by the Company as a result of his or her voluntary resignation (other than in the case of Retirement), this option shall terminate upon the effective date of such termination of employment.

(d) Change in Control Event . This option shall become fully vested effective immediately prior to a Change in Control Event (as defined in the Plan).

(e) Definitions .

(1) For purposes of this Agreement, “ Cause ” shall mean any intentional dishonest, illegal, or insubordinate conduct which is materially injurious to the Company or a subsidiary, or a breach of any provision of any employment, nondisclosure, non-competition or similar agreement between the Participant and the Company.

(2) For purposes of this Agreement, “ Disability ” shall mean a disability that entitles the Participant to receive benefits under a Company-sponsored disability program. If no program is in effect for the Participant, Disability will apply if the Participant has become totally and permanently disabled within the meaning of Section 22(e)(3) of the Code.

(3) For purposes of this Agreement, “ Retirement ” shall mean the Participant voluntarily leaving the employment of the Company with a combination of years of age and years of service of at least 75 and at least 10 years of service; provided that a Participant will not be deemed to have retired in any situation involving a termination for Cause, as determined by the Company.

4. Withholding Taxes . No Shares will be issued pursuant to the exercise of this option unless and until the Participant pays to the Company, or makes provision satisfactory to the Company, in the manner permitted in the Plan, for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this option.

5. Restrictions on Transfer . This option may not be sold, assigned, transferred, pledged or otherwise encumbered by the Participant, either voluntarily or by operation of law, except by will or the laws of descent and distribution.

6. Provisions of the Plan . This Agreement is subject to the provisions of the Plan. The Participant acknowledges receipt of the Plan, along with the Prospectus relating to the Plan.

 

Page 4 of 5


7. Miscellaneous .

(a) No Rights to Employment . The Participant acknowledges and agrees that the grant of this option and its vesting pursuant to Section 2 do not constitute an express or implied promise of continued employment for the vesting period, or for any period.

(b) Entire Agreement . This Agreement and the Plan constitute the entire agreement between the parties, and supersede all prior agreements and understandings, relating to the subject matter of this Agreement; provided that any separate employment or severance agreement between the Company and the Participant that includes terms relating to the acceleration of vesting of equity awards shall not be superseded by this Agreement.

(c) Governing Law . This Agreement shall be construed, interpreted and enforced in accordance with the internal laws of the Commonwealth of Massachusetts, without regard to any applicable conflict of law principles.

(d) Interpretation . The interpretation and construction of any terms or conditions of the Plan or this Agreement by the Compensation Committee shall be final and conclusive.

 

Page 5 of 5

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(s) 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(s) 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 9, 2011   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(s) 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(s) 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 9, 2011   Michael L. Levitz
 

Senior 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, 2011 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 9, 2011

 

/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, 2011 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 9, 2011

 

/s/ Michael L. Levitz        

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