Analogic Corporation
ANALOGIC CORP (Form: 10-Q, Received: 12/07/2012 16:15:18)
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, 2012

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, 2012 was 12,231,529.

 

 

 


Table of Contents

ANALOGIC CORPORATION

TABLE OF CONTENTS

 

            Page No.  
Part I. Financial Information   

Item 1.

  

Financial Statements

  
  

Unaudited Condensed Consolidated Balance Sheets as of October 31, 2012 and July 31, 2012

     3   
  

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended October 31, 2012 and 2011

     4   
  

Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended October 31, 2012 and 2011

     5   
  

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2012 and 2011

     6   
  

Notes to Unaudited Condensed Consolidated Financial Statements

     7   

Item 2.

  

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

     19   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     25   

Item 4.

  

Controls and Procedures

     26   
Part II. Other Information   

Item 1A.

  

Risk Factors

     27   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     27   

Item 6.

  

Exhibits

     27   

Signatures

     29   

Exhibit Index

     30   

 

2


Table of Contents

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share data)

 

     October 31,
2012
          July 31,
2012
 
Assets         

Current assets:

        

Cash and cash equivalents

   $ 170,938          $ 187,011   

Accounts receivable, net of allowance for doubtful accounts of $420 and $344 as of October 31, 2012 and July 31, 2012, respectively

     78,282            96,117   

Inventories

     123,325            108,944   

Refundable and deferred income taxes

     11,860            9,786   

Other current assets

     7,732              6,937   

Total current assets

     392,137              408,795   

Property, plant, and equipment, net

     101,279            96,769   

Goodwill and intangible assets, net

     35,423            36,189   

Deferred income taxes

     7,725            10,749   

Other assets

     6,266              5,494   

Total Assets

   $ 542,830            $ 557,996   
Liabilities and Stockholders’ Equity         

Current liabilities:

        

Accounts payable

   $ 37,843          $ 38,200   

Accrued liabilities

     29,522            41,746   

Advance payments and deferred revenue

     10,583            14,323   

Accrued income taxes

     -              5,670   

Total current liabilities

     77,948              99,939   

Long-term liabilities:

        

Accrued income taxes

     4,756            4,675   

Other long-term liabilities

     7,448              7,063   

Total long-term liabilities

     12,204              11,738   

Commitments and guarantees (Note 12)

        

Stockholders’ equity:

        

Common stock, $.05 par value

     612            608   

Capital in excess of par value

     103,915            100,222   

Retained earnings

     342,692            343,186   

Accumulated other comprehensive income

     5,459              2,303   

Total stockholders’ equity

     452,678              446,319   

Total Liabilities and Stockholders’ Equity

   $ 542,830            $
557,996
  

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

 

3


Table of Contents

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

    

Three Months Ended

October 31.

 
     2012          2011  

Net revenue:

       

Product

   $ 112,547         $ 114,007   

Engineering

     7,320             3,850   

Total net revenue

     119,867             117,857   

Cost of sales:

       

Product

     68,674           71,231   

Engineering

     6,107             3,600   

Total cost of sales

     74,781             74,831   

Gross profit

     45,086             43,026   

Operating expenses:

       

Research and product development

     14,074           15,267   

Selling and marketing

     11,655           10,465   

General and administrative

     11,922             11,710   

Total operating expenses

     37,651             37,442   

Income from operations

     7,435             5,584   

Other income (expense):

       

Interest income, net

     113           136   

Other income (expense), net

     (1,019          175   

Total other income (expense), net

     (906          311   

Income before income taxes

     6,529           5,895   

Provision for income taxes

     2,148             1,869   

Net income

   $ 4,381           $ 4,026   

Net income per common share:

                     

Basic

   $ 0.36         $ 0.32   

Diluted

   $ 0.35           $ 0.32   

Weighted average shares outstanding:

       

Basic

     12,323           12,437   

Diluted

     12,582           12,548   

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

 

4


Table of Contents

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

     Three Months Ended
October 31,
 
     2012          2011  

Net income

   $ 4,381         $ 4,026   

Other comprehensive income, net of taxes:

       

Foreign currency translation adjustment, net of a tax benefit of $0 for the three months ended October 31, 2012 and 2011, respectively

     3,203           (2,310

Unrealized losses on foreign currency forward contracts, net of a tax benefit of $24 for the three months ended October 31, 2012

     (47          -   

Total comprehensive income

   $ 7,537           $ 1,716   

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

 

5


Table of Contents

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

    

Three Months Ended

October 31,

 
     2012          2011  

OPERATING ACTIVITIES:

       

Net income

   $ 4,381         $ 4,026   

Adjustments to reconcile net income to net cash (used for) provided by operating activities

       

Benefit from deferred income taxes

     6,500           2,017   

Depreciation and amortization

     3,999           4,794   

Share-based compensation expense

     2,644           2,251   

Excess tax provision for share-based compensation

     (1,853        45   

Other

     732           323   

Net changes in operating assets and liabilities:

       

Accounts receivable

     18,397           3,186   

Inventories

     (14,056        (4,739

Refundable income taxes

     (5,870        -   

Other current assets

     (1,317        (144

Accounts payable

     (1,330        (2,062

Accrued liabilities

     (12,037        (7,612

Advance payments and deferred revenue

     (3,865        371   

Accrued income taxes

     (3,489        (742

Other liabilities

     423             179   

Total net changes in operating assets and liabilities:

     (23,144          (11,563

NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES

     (6,741          1,893   

INVESTING ACTIVITIES:

       

Additions to property, plant, and equipment

     (5,609          (6,815

NET CASH USED FOR INVESTING ACTIVITIES

     (5,609          (6,815

FINANCING ACTIVITIES:

       

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

     3,059           308   

Shares repurchased for taxes for vested employee restricted stock awards

    
(3,784

      
(328

Excess tax provision for share-based compensation

     1,853           (45

Purchase of common stock

     (3,937        (11,808

Dividends paid to shareholders

     (1,443          (1,337

NET CASH USED FOR FINANCING ACTIVITIES

     (4,252          (13,210

EFFECT OF EXCHANGE RATE CHANGES ON CASH

     529             (418

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (16,073          (18,550

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     187,011             169,656   

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 170,938           $ 151,106   

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

       

We had accrued milestone payments towards the construction of a manufacturing facility in Shanghai, China, and State College, PA, of $1,696 and $1,755 at October 31, 2012 and July 31, 2012, respectively. We also had $835 of other property, plant, and equipment that was included in accounts payable at October 31, 2012.

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

 

6


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1. Basis of presentation:

Company

Analogic Corporation, which we refer to as “we,” “us,” and “our,” is a high technology company that designs and manufactures advanced medical imaging and security systems and subsystems sold to original equipment manufacturers, which we refer to as “OEMs,” and end users primarily in the healthcare and airport security markets. We are recognized worldwide for advancing state-of-the-art technology in the areas of computed tomography, which we refer to as “CT,” ultrasound, magnetic resonance imaging, which we refer to as “MRI,” digital mammography, and CT-based automated threat detection systems for airport security. Our OEM customers incorporate our technology into systems they in turn sell for various medical and security applications. We also sell our ultrasound products directly into clinical end-user markets through our direct worldwide sales force under the brand name BK Medical. Our business is strategically aligned into three business segments—Medical Imaging, Ultrasound, and Security Technology.

Our top ten customers combined for approximately 71% and 62% of our total net revenue for the three months ended October 31, 2012 and 2011, respectively. We had three customers, as set forth in the table below, which individually accounted for 10% or more of our net revenue during the three months ended October 31, 2012 or 2011.

 

     Three Months  Ended
October 31,
             2012                   2011        

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

       17 %       16 %

Toshiba Corporation (“Toshiba”)

       11 %       12 %

Siemens AG (“Siemens”)

       *         11 %

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

Philips accounted for 18% and 13% of net accounts receivable at October 31, 2012 and July 31, 2012, respectively. L-3 Communications Corporation accounted for 11% and 18% at October 31, 2012 and July 31, 2012, respectively. General Electric Corporation accounted for 12% and 10% of net accounts receivable at October 31, 2012 and July 31, 2012, respectively.

The unaudited condensed consolidated financial statements presented herein include the accounts of us and our subsidiaries, all of which are wholly owned. Investments in companies in which ownership interests range from 10% to 50%, and we exercise significant influence over operating and financial policies are accounted for using the equity method. Other investments are accounted for using the cost method.

General

Our unaudited condensed consolidated financial statements presented herein have been prepared pursuant to the rules of the United States Securities and Exchange Commission, or the “SEC”, for quarterly reports on Form 10-Q. Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. In our opinion, the accompanying unaudited condensed 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, 2012 are not necessarily indicative of the results to be expected for the fiscal year ending July 31, 2013, which we refer to as fiscal year 2013, 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, 2012, which we refer to as fiscal year 2012, included in our Annual Report on Form 10-K as filed with the SEC on October 4, 2012. The accompanying unaudited condensed Consolidated Balance Sheet as of July 31, 2012 contains data derived from our audited financial statements, but do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America, or “U.S. GAAP”, for complete financial statements.

Basis of Presentation

Reclassifications and Revisions to Prior Period Financial Statements

In the third quarter of fiscal year 2012, we identified certain amounts totaling $620 recorded within “Effect of exchange rate on cash” in our unaudited condensed Consolidated Statements of Cash Flows for the first two quarters of fiscal year 2012 that should be classified primarily within cash flow from operating activities. We determined that this error in classification was not material to our unaudited condensed Consolidated Statement of Cash Flows for each quarter in fiscal year 2012. We corrected the unaudited

 

7


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

condensed Consolidated Statement of Cash Flows with the appropriate classification for the three months ended October 31, 2012 within this Form 10-Q. The Condensed Consolidated Statement of Cash Flows for the three months ended October 31, 2011 reflects a decrease in the “Net Cash Provided by Operating Activities” of $910 and a corresponding increase to “Effect of exchange rate on cash”. In future quarters, we will revise the amounts related to the six months ended January 31, 2012 to correct for the identified errors, which will result in an increase in “Effect Of Exchange Rate Changes On Cash” of $620 with corresponding decreases in the “Net Cash Provided by Operating Activities” and “Net Cash Used For Financing Activities” of $654 and $34.

2. Recent accounting pronouncements:

Recently adopted

Presentation of Comprehensive Income

In June 2011, the Financial Accounting Standards Board, or 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 International Financial Reporting Standards, or “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. Furthermore, 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 all periods thereafter and is applied retrospectively. Early adoption is permitted.

Subsequently, in December 2011, the FASB issued guidance which defers only those changes that relate to the presentation of reclassification adjustments. This guidance was effective for the interim period ended October 31, 2012, and did not have a material impact on our financial position, results of operations, or cash flows.

Not yet effective

Testing indefinite-lived intangible assets for impairment

In July 2012, the FASB issued an update regarding testing indefinite-lived intangible assets for impairment. This update gives an entity the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The guidance is effective for the interim period ended October 31, 2013, and is not expected to have an impact on our financial position, results of operations, or cash flows.

3. Share-based compensation:

The following table presents share-based compensation expense included in our unaudited condensed Consolidated Statements of Operations:

 

     Three months Ended
October 31,
             2012                    2011        

Cost of product sales

     $ 164        $ 132  

Cost of engineering sales

       400          -  

Research and product development

       308          619  

Selling and marketing

       340          253  

General and administrative

       1,432          1,247  

Total share-based compensation expense before tax

     $ 2,644        $ 2,251  

 

8


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

We recognize compensation expense on performance-based restricted stock grants with earnings per share, or “EPS,”-related and total shareholder return, or “TSR,”-related conditions along with time-based stock options and restricted stock award conditions as follows:

 

     For the Three Months Ended
October 31,
             2012                    2011        

Peformance based EPS-related condition

     $ 1,056        $ 958  

Performance based TSR-related condition

       714          775  

Total performance-based expense

       1,770          1,733  

Time based stock options and restricted stock awards

       874          518  

Total share-based compensation expense before tax

     $ 2,644        $ 2,251  

We estimate 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 our stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and our expected annual dividend yield. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our outstanding stock options granted during fiscal years 2013 and 2012.

During the three months ended October 31, 2012, we granted 97,300 non-qualified stock options. The weighted-average grant-date fair values of options granted were $24.77 and $16.36 per share during the three months ended October 31, 2012 and 2011, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes valuation model with the following assumptions for the three months ended October 31, 2012 and 2011 as follows:

 

     Three Months Ended
October 31,
             2012                   2011        

Expected option term (1)

       5.42 years         5.34 years  

Expected volatility factor (2)

       41 %       38 %

Risk-free interest rate (3)

       0.78 %       0.95 %

Expected annual dividend yield (4)

       0.57 %       0.87 %

 

(1) The option life term factor was estimated using historical data.
(2) The expected volatility factor for each grant is determined based on the review of the weighted average of historical daily price changes of our common stock over the most recent expected option term.
(3) The risk free interest rate for periods equal to the expected term of the stock 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.

At October 31, 2012 and 2011, we had 326,585 and 407,137, respectively, target performance contingent restricted stock units outstanding. These awards vest if specific pre-established levels of performance have been achieved at the end of a three-year performance cycle. The three-year performance cycles for restricted stock units outstanding at October 31, 2012 end on July 31, 2013, 2014, and 2015. The three-year performance cycles for restricted stock shares/units outstanding at October 31, 2011 ended or will end on July 31, 2012, 2013, and 2014. 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. We grant performance restricted stock units with either an EPS related performance condition or a TSR related performance condition as determined against a specified peer group condition. During the three months ended October 31, 2012, we granted 30,474 performance restricted stock units with an EPS related performance condition and 23,668 performance restricted stock units with a TSR related performance condition. As of October 31, 2012, of the 326,585 restricted stock units outstanding, 194,964 had an EPS related performance condition and 131,621 had a TSR related performance condition.

We estimate the fair value of restricted stock and restricted stock units that vest based on time by the quoted market price of our common stock. We estimate 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.

 

9


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

For awards with an EPS-related condition, we recognize compensation expense over the performance period, net of estimated forfeitures, based on the number of shares that are deemed probable of vesting at the end of the three-year performance cycle. This probability assessment is done each quarter and changes in estimates can result in significant expense fluctuations due to the cumulative catch-up adjustment. The fair value of the awards with an EPS-related condition is determined by the closing price of our common stock on the date of grant.

For awards with a TSR-related condition, we recognize compensation expense on a straight-line basis, net of estimated forfeitures, over an average derived service period of 2.7 years for the awards granted in fiscal years 2011, 2012, and 2013. The total compensation expense for awards with a TSR-related condition is not contingent on the performance outcome. The weighted average grant date fair values of restricted stock units granted with a TSR-related condition was $106.36 per share for the three months ended October 31, 2012. The fair value of the restricted stock units with a TSR-related condition at date of grant was estimated using a Monte-Carlo Simulation model with the following assumptions:

 

     Three Months Ended
October 31,
         2012        
 

Stock Price (1)

     $70.04       

Expected volatility factor (2)

     28%   

Risk-free interest rate (3)

     0.32%   

Expected annual dividend yield (4)

     0.0%   

 

(1) The stock price is the weighted average closing price of our common stock on the date of grant.
(2) The expected volatility factor 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%.

4. Derivative Instruments

Certain of our foreign operations have revenues and/or expenses transacted in currencies other than the U.S. dollar. In order to mitigate foreign currency exchange risk, we use forward contracts to lock in exchange rates associated with a portion of its forecasted international expenses. We assess, both at inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of the hedged items. We also assess hedge ineffectiveness on a quarterly basis and record the gain or loss related to the ineffective portion to current earnings. If we determine that a forecasted transaction is no longer probable of occurring, we discontinue hedge accounting for the affected portion of the hedge instrument, and any related unrealized gain or loss on the contract is recognized in current earnings.

At October 31, 2012, we had forward contracts outstanding with notional amounts totaling $12,250 in the Canadian Dollar. These contracts have been designated as cash flow hedges, and the unrealized loss of $4, net of tax, as of October 31, 2012 on these contracts are reported in accumulated other comprehensive income (loss). Realized gains and losses on the cash flow hedges are recognized in income in the period when the payment of expenses is recognized. During the first quarter of fiscal year 2013, we recorded approximately $113 of realized gains included in other income (expense), net in our condensed Consolidated Statements of Operations. We expect all contracts currently outstanding to settle in the fiscal year ending July 31, 2013, which we refer to as fiscal year 2013, and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to operating expenses.

5. Fair value measurements:

We measure the fair value of our 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.

 

10


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

   

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.

Our cash equivalents at October 31, 2012 and July 31, 2012 are comprised primarily of demand deposits at highly rated financial institutions.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at October 31, 2012 and July 31, 2012:

 

                                                                   
     Fair Value Measurements at October 31, 2012         
     Quoted Prices in
Active Markets
for Identical
Assets Level 1
     Significant
Other
Observable
Inputs

Level 2
     Significant
Unobservable
Inputs

Level 3
     Total
Carrying
Value
 

Cash equivalents

   $ -       $ 14,617       $ -       $ 14,617   

Foreign currency forward contracts

     12         -         -         12   

Total assets

   $ 12       $ 14,617       $ -       $ 14,629   

Foreign currency forward contracts

   $ 16       $ -       $ -       $ 16   

Contingent consideration (A)

     -         -         435         435   

Total liabilities

   $ 16       $ -       $ 435       $ 451   
     Fair Value Measurements at July 31, 2012         
     Quoted Prices in
Active Markets
for Identical
Assets Level 1
     Significant
Other
Observable
Inputs
Level 2
     Significant
Unobservable
Inputs

Level 3
     Total
Carrying
Value
 

Cash equivalents

   $ -       $ 14,590       $ -       $ 14,590   

Foreign currency forward contracts

     72         -         -         72   

Total assets

   $ 72       $ 14,590       $ -       $ 14,662   

Foreign currency forward contracts

   $ 6       $ -       $ -       $ 6   

Contingent consideration (A)

     -         -         460         460   

Total liabilities

   $ 6       $ -       $ 460       $ 466   

 

(A) The amount of contingent consideration relates to the acquisition to acquire certain assets of an OEM ultrasound transducer and probe business in November 2010. We estimated the contingent consideration based on probability weighted expected future cash flows discounted at a rate of approximately 22.1%. The contingent consideration is marked to market at the end of each fiscal quarter and is expected to be paid in Fiscal Year 2013.

6. Goodwill and other intangible assets:

The carrying amount of the goodwill at October 31, 2012 and July 31, 2012 was $1,849.

Other intangible assets include the value assigned to intellectual property and other technology, patents, customer contracts and relationships, a trade name, and in-process research and development. The estimated useful lives for all of these intangible assets, excluding the tradename as it is considered to have an indefinite life, are between 0.5 to 14 years.

 

11


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Intangible assets at October 31, 2012 and July 31, 2012 consisted of the following:

 

                                                                                                     
     October 31, 2012      July 31, 2012  
     Cost      Accumulated
Amortization
     Net      Cost      Accumulated
Amortization
     Net  

Developed technology

   $ 12,191       $ 5,277       $ 6,914       $ 12,191       $ 4,974       $ 7,217   

Customer relationships

     25,440         8,287         17,153         25,440         7,824         17,616   

Trade name

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

In-process research and development

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

Total

   $ 47,138       $ 13,564       $ 33,574       $ 47,138       $ 12,798       $ 34,340   

Amortization expense related to acquired intangible assets was $766 for both the three months ended October 31, 2012 and 2011, respectively.

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

 

2013 (remaining nine months)

   $ 2,297   

2014

     3,063   

2015

     3,063   

2016

     2,975   

2017

     2,931   
   $ 14,329   
  

 

 

 

Our 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 us in connection with a historical acquisition. The trade name represents the value allocated to trade names acquired in historical acquisitions 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 we account 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, which we test for impairment during the second quarter of each fiscal year. The Company expects to begin amortizing the in-process research and development over the product life cycle once production of the product begins, which is expected within the next six to eighteen months.

7. Restructuring charge:

The following table summarizes charges related to accrued restructuring activity for the three months ended October 31, 2012 and 2011:

 

                                                  
     Involuntary
Employee
Severance
    Facility
Exit
Costs
    Total  

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   

Balance at July 31, 2012

     277        -        277   

Cash payments

     (284     -        (284

Foreign exchange

     7        -        7   

Balance at October 31, 2012

   $ -      $ -      $ -   

 

12


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

8. Balance sheet information:

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

 

     October 31,
        2012         
     July 31,
        2012         
 

Accounts receivable, net of allowance:

     

Billed

   $ 72,758       $ 91,143   

Unbilled (A)

     5,524         4,974   
  

 

 

    

 

 

 
   $ 78,282       $ 96,117   
  

 

 

    

 

 

 

Inventories:

     

Raw materials

   $ 85,982       $ 73,657   

Work-in-process

     10,349         9,994   

Finished goods

     26,994         25,293   
  

 

 

    

 

 

 
   $ 123,325       $ 108,944   
  

 

 

    

 

 

 

Accrued liabilities:

     

Accrued employee compensation and benefits

   $ 16,099       $ 25,153   

Accrued restructuring charges

     -         277   

Accrued warranty

     5,443         5,634   

Other

     7,980         10,682   
  

 

 

    

 

 

 
   $ 29,522       $ 41,746   
  

 

 

    

 

 

 

Advance payments and deferred revenue:

     

Deferred revenue (B)

   $ 7,795       $ 11,551   

Customer deposits

     2,788         2,772   
  

 

 

    

 

 

 
   $ 10,583       $ 14,323   
  

 

 

    

 

 

 

 

(A) Total unbilled receivables at October 31, 2012 and July 31, 2012 were $8,522 and $7,653, respectively. At October 31, 2012 and July 31, 2012, the long-term portion of unbilled receivables of $2,998 and $2,678, respectively, was included in non-current other assets.
(B) Total deferred revenue at October 31, 2012 and July 31, 2012 was $8,585 and $12,267, respectively. At October 31, 2012 and July 31, 2012, the long-term portion of deferred revenue of $790 and $716, respectively, was included in non-current other liabilities.

 

13


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

9. Net income per share:

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

 

     Three months ended
October 31,
 
             2012                      2011          

Net income

   $ 4,381       $ 4,026   

Weighted average number of common shares outstanding-basic

     12,323         12,437   

Effect of dilutive securities:

     

Stock options and restricted stock awards

     259         111   

Weighted average number of common shares outstanding-diluted

     12,582         12,548   

Basic net income per share

   $ 0.36       $ 0.32   

Diluted net income per share

   $ 0.35       $ 0.32   

Anti-dilutive shares related to outstanding stock options and unvested restricted stock awards (A)

     29         274   

 

(A) Certain outstanding stock options were not included in the computation of diluted income per share because the options’ exercise prices were greater than the average market price of the Common Stock and, therefore, the effect would be anti-dilutive. Certain restricted stock units and awards were also excluded from the computation as their effect would be anti-dilutive.

10. Taxes:

The following table presents the provision for income taxes and the effective income tax rates for the three months ended October 31, 2012 and 2011:

 

     Three Months  Ended
October 31,
             2012                   2011        

Provision for income taxes

     $ 2,148       $ 1,869  

Effective tax rate

       33 %       32 %

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, 2012 was lower than the federal statutory rate due primarily to lower foreign tax rates. The effective tax rate was higher in the current period than in the quarter ended October 31, 2011 due to the expiration of the federal research and experimentation credit on December 31, 2011.

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

The total amounts of gross unrecognized tax benefits, which excludes interest and penalties discussed below, as of October 31, 2012 and July 31, 2012 were as follows:

 

October 31, 2012

 

July 31, 2012

$6,833   $6,756

These unrecognized tax benefits, if recognized in a future period, the timing of which is not estimable, would favorably impact our effective tax rate.

We are subject to U.S. Federal income tax as well as the income tax of multiple state and foreign jurisdictions. As of October 31, 2012, we have concluded all U.S. Federal income tax matters through the year ended July 31, 2008.

We accrue 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, 2012 and July 31, 2012, we had approximately $674 and $640, respectively, accrued for interest and penalties on unrecognized tax benefits.

 

14


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

11. Segment information:

We have three reportable segments: Medical Imaging, Ultrasound, and Security Technology. Our Medical Imaging segment 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. Our Ultrasound segment consists of ultrasound systems and transducers for the urology, ultrasound-guided surgery and interventional radiology markets sold primarily through our direct sales force and ultrasound transducers sold primarily through OEM customers. Our Security Technology segment consists of advanced threat detection aviation security systems and subsystems sold primarily through OEM customers.

Net revenue, income (loss) from operations, identifiable assets, shared-based compensation expense, and depreciation and amortization expense of our reportable segments were as follows:

 

     Three Months Ended
October 31,
 
             2012                     2011          

Net revenue:

    

Medical Imaging

   $ 76,008      $ 72,674   

Ultrasound

     31,694        34,601   

Security Technology

     12,165        10,582   

Total

   $ 119,867      $ 117,857   

Income (loss) from operations

    

Medical Imaging

   $ 7,399      $ 5,482   

Ultrasound

     (794     (341

Security Technology

     830        443   

Total income from operations

     7,435        5,584   

Total other income (expense), net

     (906     311   

Income from continuing operations before income taxes

   $ 6,529      $ 5,895   

 

     As of  
     October 31,
        2012         
     July 31,
        2012         
 

Identifiable assets:

     

Medical Imaging

   $ 205,857       $ 199,512   

Ultrasound

     134,204         136,388   

Security Technology

     22,722         26,769   

Total reportable segment assets

     362,783         362,669   

Corporate assets (A)

     180,047         195,327   

Total assets

   $ 542,830       $ 557,996   

 

(A) Includes cash and cash equivalents of $134,036 and $153,122 at October 31, 2012 and July 31, 2012, respectively.

 

15


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

     Three Months Ended  
     October 31,  
             2012                      2011          

Share-based compensation:

     

Medical Imaging

   $ 1,581       $ 1,208   

Ultrasound

     593         725   

Security Technology

     470         318   

Total

   $ 2,644       $ 2,251   

Depreciation and amortization:

     

Medical Imaging

   $ 2,872       $ 2,996   

Ultrasound

     856         1,475   

Security Technology

     271         323   

Total

   $ 3,999       $ 4,794   

12. Commitments and guarantees:

Guarantees and Indemnification Obligations

Our standard OEM and supply agreements entered into in the ordinary course of business typically contain an indemnification provision pursuant to which we indemnify, hold harmless, and agree 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 our products. Such provisions generally survive termination or expiration of the agreements. The potential amount of future payments we could be required to make under these indemnification provisions is, in some instances, unlimited. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe that our estimated exposure on these agreements is currently minimal. Accordingly, we have no liabilities recorded for these agreements as of October 31, 2012.

Generally, we warrant that our products will perform in all material respects in accordance with our 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. We provide 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 our product warranty liability for the three months ended October 31, 2012 and 2011:

 

     Three Months Ended  
     October,  
             2012                     2011          

Balance at the beginning of the period

   $ 5,634      $ 5,174   

Accrual

     1,284        1,962   

Settlements made in cash or in kind during the period

     (1,475     (1,886

Balance at the end of the period

   $ 5,443      $ 5,250   

At October 31, 2012 and July 31, 2012, we had deferred revenue for product extended warranty contracts of $7,008 and $7,207, respectively.

Revolving Credit Agreements

On October 11, 2011, we entered into a five-year revolving credit agreement, which we refer to as 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.

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.

 

16


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

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.

As of October 31, 2012 our leverage ratio was 0.006 and our interest coverage ratio was not applicable as we had no attributable interest expense. As of October 31, 2012, 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 us, 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 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, 2012 and July 31, 2012.

Investigation Regarding our Danish Subsidiary

As initially 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 our 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, and are cooperating with an inquiry by the DOJ and the SEC. We are unable to estimate the potential penalties and/or sanctions, if any, that might be assessed in connection with these matters. We have concluded that the identified transactions have been properly accounted for in our reported financial statements in all material respects and have terminated the employment of BK Medical employees that were involved in the transactions. We have also wound down, or are in the process of winding down, our relationship with 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 BK Medical’s relationship represented less than 2.0% of our total revenue in the first quarter of 2012 and less than 0.2% of our total revenue in the first quarter of fiscal year 2013. During the first quarter of fiscal year 2013, we incurred inquiry-related costs of $75 in connection with this matter. During the first quarter of fiscal year 2012, we incurred employee termination costs of approximately $400 and inquiry-related costs of $997 in connection with this matter.

 

17


Table of Contents

ANALOGIC CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

13. Common stock repurchases:

On December 9, 2010, we announced that our Board of Directors authorized the repurchase of up to $30,000 of our common stock. The repurchase program was funded using our available cash. During the three months ended October 31, 2011, we 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. The 2010 repurchase program was completed in the second quarter of fiscal year 2012. The cumulative shares that were repurchased and retired under the program were 586,679 shares of common stock for $30,000 at an average price of $51.14 per share.

On December 8, 2011, we announced that our Board of Directors had authorized the repurchase of up to an additional $30,000 of our common stock. The repurchase program will be funded using our available cash. During the three months ended October 31, 2012, we repurchased and retired 56,324 shares of common stock under this repurchase program for $3,937 at an average purchase price of $69.86 per share. As of October 31, 2012, we repurchased and retired 193,915 shares of Common Stock under this repurchase program for $12,381 at an average purchase price of $63.85 per share.

14. Subsequent event:

We declared a dividend of $0.10 per share of common stock on December 4, 2012, which will be paid on December 28, 2012 to stockholders of record on December 18, 2012.

 

18


Table of Contents
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 condensed 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, 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 2012 as filed with the U.S Securities and Exchange Commission, or the SEC on October 4, 2012 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, 2012 and 2011 represent the first quarters of fiscal years 2013 and 2012, respectively. All dollar amounts in this Item 2 are in thousands except per share data.

Executive Summary

Introduction

We are a high technology company that designs and manufactures advanced medical imaging and security systems and subsystems sold to OEMs, and end users primarily in the healthcare and airport security markets. We are recognized worldwide for advancing state-of-the-art technology in the areas of CT, ultrasound, magnetic resonance imaging, digital mammography, and CT-based automated threat detection systems for airport security. Our OEM customers incorporate our technology into systems they in turn sell for various medical and security applications. We also sell our ultrasound products directly into clinical end-user markets through our direct worldwide sales force under the brand name BK Medical.

We have three reportable segments: Medical Imaging, Ultrasound, and Security Technology. Our Medical Imaging segment 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. Our Ultrasound segment consists of ultrasound systems and transducers for the urology, ultrasound-guided surgery and interventional radiology markets sold primarily through our direct sales force and ultrasound transducers sold primarily through OEM customers. Our Security Technology segment consists of advanced weapon and threat detection aviation security systems and subsystems sold primarily through OEM customers.

Financial Highlights

The following table is a summary of our financial results for the first quarter of fiscal years 2013 and 2012:

 

     Three Months Ended
October 31,
      Percentage    
Change
             2012                   2011          

Total net revenue

     $ 119,867       $ 117,857         2 %

Gross profit

     $ 45,086       $ 43,026         5 %

Gross margin

       38 %       37 %    

Income from operations

     $ 7,435       $ 5,584         33 %

Operating margin

       6 %       5 %    

Net Income

     $ 4,381       $ 4,026         9 %

Diluted net income per share

     $ 0.35       $ 0.32         9 %

Outlook

Our business performance for the first quarter of fiscal year 2013 exhibited typical seasonal fluctuations due in part to timing of hospital equipment purchases. While our overall revenue grew only modestly during the quarter, compared to a year ago, we continue to expect to achieve our fiscal year 2013 financial goals of upper single digit revenue growth as compared to fiscal year 2012.

In fiscal year 2013 compared to fiscal year 2012, we expect the revenue growth, along with increasing leverage of our global infrastructure, to drive improved operating margins, even with continued strong investments in innovation and sales force coverage.

 

19


Table of Contents

For a discussion of seasonal aspects of our business please read Part 1, Item 1. Business of our Fiscal year 2012 Form 10-K filed on October 4, 2012.

Results of operations

Three months ended October 31, 2012 compared to three months ended October 31, 2011

Net revenue

Product revenue

Product revenue by segment are summarized as follows:

 

     Three months ended
October 31,
   Dollar
Change
      Percentage    
Change
     2012    2011     

Product Revenue:

                  

Medical Imaging

     $ 72,109        $ 70,300        $ 1,809         3 %

Ultrasound

       31,694          34,601        $ (2,907 )       -8 %

Security Technology

       8,744          9,106        $ (362 )       -4 %

Total

     $ 112,547        $ 114,007        $ (1,460 )       -1 %

Medical Imaging

Medical Imaging revenue improved during the quarter due largely to strong growth driven by migration to high-power wide-bore MRI systems. While CT revenues remained steady year over year, mammography and motion controls revenue declined during the quarter on market headwinds.

Ultrasound

Ultrasound revenue was unfavorably impacted by hospital purchasing hesitancy in the U.S., the impact of U.S. sales territory adjustments as we expand sales force coverage, foreign currency fluctuation, and the transition to new distributors in Eastern Europe.

Security Technology

Product revenue decreased primarily due to decreased sales of baggage scanners due to the timing of orders from one of our customers.

Engineering revenue

Engineering revenue by segment are summarized as follows:

 

     Three months ended
October 31,
   Dollar
Change
       Percentage    
Change
     2012    2011      

Engineering Revenue:

                   

Medical Imaging

     $ 3,899        $ 2,374        $ 1,525          64 %

Security Technology

       3,421          1,476          1,945          132 %

Total

     $ 7,320        $ 3,850        $ 3,470          90 %

Medical Imaging

The increase for the three months ended October 31, 2012 versus the prior year comparable period was due primarily to increased work on customer funded engineering projects in our CT product line.

 

20


Table of Contents

Security Technology

The increase for the three months ended October 31, 2012 versus the prior year comparable period was due primarily to the timing of work performed on a new customer funded engineering project that began in the second quarter of fiscal year 2012.

Gross margin

Product gross margin

Product gross margin is summarized as follows:

 

     Three Months Ended
October 31,
        Percentage    
Change
 
             2012                     2011            

Product gross profit

   $ 43,873      $ 42,776        2.6

Product gross margin

     39.0     37.5  

Product gross margin increased in the three months ended October 31, 2012 versus the prior year comparable period due primarily to improved gross margin in our Ultrasound and Medical Imaging segments. The improvement in our Ultrasound segment was driven by the continued cost savings following consolidation of our manufacturing operations. The Medical Imaging segment increase was driven by an improvement in vendor component quality in our digital mammography business. These increases were partially offset by severance costs in the Ultrasound segment of approximately $500 during the three months ended October 31, 2012 associated with further manufacturing consolidation.

Engineering gross margin

Engineering gross margin and percentage by segment are summarized as follows:

 

     Year Ended
October 31,
        Percentage    
Change
 
             2012                     2011            

Engineering gross profit

   $ 1,213      $ 250        385.2

Engineering gross margin

     16.6     6.5  

The increases in the engineering gross profit and engineering gross margin in the three months ended October 31, 2012 versus the prior year comparable period were due primarily to costs in excess of revenue on customer funded engineering projects in our CT and Security product lines during the three months ended October 31, 2011. Also contributing to the increase was a reduction in a loss accrual during the three months ended October 31, 2012 on a Security Technology project resulting from lower projected costs than originally estimated.

Operating expenses

Operating expenses are summarized as follows:

 

     Three Months Ended
October 31,
     Dollar
Change
    Percentage
Change
    Percentage of Net Revenue  
             2012                      2011                          2012                     2011          

Research and product development

   $ 14,074       $ 15,267       $ (1,193     (7.8 )%      11.8     13.0

Selling and marketing

     11,655         10,465         1,190        11.4     9.7     8.9

General and administrative

     11,922         11,710         212        1.8     9.9     9.9

Total operating expenses

   $ 37,651       $ 37,442       $ 209        0.6     31.4     31.8

Research and product development expenses are related to projects not funded by our customers. These expenses decreased in the three months ended October 31, 2012 versus the prior year comparable period due primarily to growth in funded research and product development projects in support of our strategic growth initiatives and a decrease in share-based compensation expense for performance based awards of $311.

Selling and marketing expenses increased in the three months ended October 31, 2012 versus the prior year comparable period due primarily to an increase in selling resources and related expenses in the Ultrasound business as we expand our sales force and product offerings in existing and adjacent markets. These increases were partially offset by severance costs of approximately $400 in the three months ended October 31, 2011 for employees terminated in connection with certain distributor transactions involving BK Medical.

 

21


Table of Contents

General and administrative expenses increased slightly in the three months ended October 31, 2012 versus the prior year comparable period due primarily to increased compensation costs, audit fees, consulting costs and depreciation and amortization of $392, $359, $190, and $169, respectively, partially offset by $997 of costs related to the inquiry of the transactions at BK Medical in the three months ended October 31, 2011.

Other income (expense), net

Other income (expense), net is summarized as follows:

 

     Three Months Ended
October 31,
 
             2012                     2011          

Interest income, net

   $ 113      $ 136   

Other income (expense), net

     (1,019     175   

Total other income, net

   $ (906   $ 311   

Net other income (expense) during the three months ended October 31, 2012 and 2011 consisted predominantly of foreign currency transaction exchange gains (losses) by our foreign subsidiaries in Denmark, China, and Canada. The net other (expense) in the three months ended October 31, 2012 was due primarily to the strengthening US dollar in the current period.

Provision for income taxes

The provision for income taxes and the effective tax rates are summarized as follows:

 

     Three Months Ended
October 31,
 
             2012                     2011          

Provision for income taxes

   $ 2,148      $ 1,869   

Effective tax rate

     33     32

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

Our effective tax rate for the three months ended October 31, 2012 was lower than the federal statutory rate due primarily to lower foreign tax rates. The effective tax rate was higher in the current period than in the quarter ended October 31, 2011 due to the expiration of the federal research and experimentation credit on December 31, 2011.

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

Net Income and diluted net income per share

Net Income and diluted net income per share for the three months ended October 31, 2012 and 2011 were as follows:

 

     Three Months Ended
October 31,
 
             2012                     2011          

Net Income

   $ 4,381      $ 4,026   

% of net revenue

     3.7     3.4

Diluted net income per share

   $ 0.35      $ 0.32   

The increase in net income and diluted net income per share for the three months ended October 31, 2012 versus the prior year comparable period were due primarily to increased net revenue and gross profit. These increases were partially offset by foreign currency exchange losses and a higher effective tax rate.

 

22


Table of Contents

Liquidity and capital resources

Key liquidity and capital resource information are summarized as follows.

 

     October 31, 2012      July 31, 2012  

Cash and cash equivalents

   $ 170,938       $ 187,011   

Working capital

     314,189         308,856   

Long-term debt

     -         -   

Cash and cash equivalents at October 31, 2012 primarily consisted of demand deposits at highly rated banks and financial institutions. 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, 2012 and July 31, 2012 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 condensed consolidated balance sheets of cash and cash equivalents, trade receivables, and trade payables approximate fair value at October 31, 2012, 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 the change in currency exchange rates on our net investment in international subsidiaries is reflected in the “accumulated other comprehensive income” component of stockholders’ equity.

Cash flows

Sources and uses of cash flows are summarized as follows:

 

     Three months ended October
31,
 
             2012                     2011          

Net cash (used for) provided by operating activities

   $ (6,741   $ 1,803   

Net cash used for investing activities

     (5,609     (6,815

Net cash used for financing activities

     (4,252     (13,120

Effect of exchange rate changes on cash

     529        (418

Net decrease in cash and cash equivalents

   $ (16,073   $ (18,550

The cash flows used by operating activities in the three months ended October 31, 2012 primarily reflects our income from operations of $7,435, which included depreciation and amortization expenses of $3,999, and non-cash share-based compensation expense of $2,644, offset by increases in inventories of $14,056, refundable income taxes of $5,870, as well as decreases in accrued liabilities of $12,037, accrued income taxes of $3,489, and deferred revenue of $3,865, which were net of a decrease in accounts receivable of $18,397. 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 accrued income taxes was due primarily to payments made in the first quarter of fiscal year 2013. The decrease in deferred revenue was due primarily to timing of when our obligations to our customers were completed and revenue was earned. The decrease in accounts receivable was due primarily to lower sales volumes in the first quarter of fiscal year 2013 as compared to the fourth quarter of fiscal year 2012. 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, 2012 and 2011, were driven by purchases of property, plant, and equipment of $5,609 and $6,815, respectively.

The net cash used for financing activities in the three months ended October 31, 2012 primarily reflects $3,937 used to repurchase common stock, $1,443 of dividends paid to shareholders, and $3,784 of shares repurchased for taxes for vested employee restricted stock awards, partially offset by $3,059 of proceeds related to the issuance of stock. The net cash used for financing activities in the three months ended October 31, 2011 was driven by $11,808 used to repurchase common stock and $1,337 of dividends paid to shareholders.

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.

 

23


Table of Contents

Commitments, contractual obligations, and off-balance sheet arrangements

Our contractual obligations primarily consist of our obligations under non-cancellable operating leases, defined benefit and other purchase obligations, and contingent consideration. There have been no significant changes in our contractual obligations since July 31, 2012.

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 had 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, 2012, our leverage ratio was 0.006 and our interest coverage ratio was not applicable as we had no attributable interest expense, therefore, 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, 2012 and July 31, 2012.

 

24


Table of Contents

Impact of Investigation Regarding our Danish Subsidiary

As initially 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 our 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, and are cooperating with an inquiry by the DOJ and the SEC. We are unable to estimate the potential penalties and/or sanctions, if any, that might be assessed in connection with these matters. We have concluded that the identified transactions have been properly accounted for in our reported financial statements in all material respects and have terminated the employment of BK Medical employees that were involved in the transactions. We have also wound down, or are in the process of winding down, our relationship with 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 BK Medical’s relationship represented less than 2.0% of our total revenue in the first quarter of 2012 and less than 0.2% of our total revenue in the first quarter of fiscal year 2013. During the first quarter of fiscal year 2013, we incurred inquiry-related costs of $75 in connection with this matter. During the first quarter of fiscal year 2012, we incurred employee termination costs of approximately $400 and inquiry-related costs of $997 in connection with this matter.

Recent accounting pronouncements

For a discussion of new accounting standards please read Note 2, Recent accounting pronouncements to our condensed unaudited consolidated financial statements included within this report.

Critical accounting policies

The accompanying discussion and analysis of our financial condition and results of operations is based on our condensed 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 condensed 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 41, in our Annual Report on Form 10-K for fiscal year 2012 filed with the SEC on October 4, 2012. 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, 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, 2012 and July 31, 2012 would result in a reduction of stockholders’ equity of approximately $1,017 and $697, respectively.

At October 31, 2012, we had forward contracts outstanding with notional amounts totaling $12,250 in the Canadian Dollar. These contracts have been designated as cash flow hedges, and the unrealized loss of $4, net of tax, as of October 31, 2012 on these contracts are reported in accumulated other comprehensive income (loss). No cash flow hedges were outstanding for periods prior to fiscal year 2012. During the first quarter of fiscal year 2013, we recorded approximately $113 of realized gains included in other income (expense), net in our condensed Consolidated Statements of Operations. Realized gains and losses on the cash flow hedges are recognized in income in the period when the payment of expenses is recognized. We expect all contracts to settle in the fiscal year ending July 31, 2013, which we refer to as fiscal year 2013, and any amounts in accumulated other comprehensive income (loss) to be reported as an adjustment to operating expenses.

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, 2012, 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, 2012 was $113. An interest rate change of 10% would not have a material impact on the fair value of our investment portfolio or on future earnings.

 

25


Table of Contents
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, 2012. 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, 2012, 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, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

26


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 2012, 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 2012.

 

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, 2012.

 

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

 

Approximate Dollar Value

of Shares that May Yet

Be Purchased Under the
Plans or Programs

8/1/2012-8/31/2012

  55,868   $66.63   37,275   $19,132,549

9/1/2012-9/30/2012

  4,044   79.80   3,370   18,863,119

10/1/2012-10/31/2012

  15,679   79.39   15,679   17,618,312
 

 

 

 

 

 

 

 

Total

  75,591   69.99   56,324   17,618,312
 

 

   

 

 

 

(1) Includes 18,293 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 2012.
(2) During the first quarter of fiscal year 2013, we repurchased 56,324 shares of our common stock in open-market transactions for $3,935 at an average purchase price of $69.86 per share. These shares were purchased pursuant to a repurchase program authorized by our Board of Directors that was announced on December 8, 2011 to repurchase up to $30.0 million of our common stock. 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 2013 Annual Incentive Plan
  31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
  31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
  32.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended
  32.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended
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.

 

27


Table of Contents

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets at October 31, 2012 and July 31, 2012, (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended October 31, 2012 and October 31, 2011, (iii) Unaudited Condensed Consolidated Statements of Comprehensive Income for the three months ended October 31, 2012 and October 31, 2011, (v) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2012 and October 31, 2011 and (vi) 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.

 

28


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 7, 2012     /s/ James W. Green
   

James W. Green

President and Chief Executive Officer

(Principal Executive Officer)

   
Date: December 7, 2012     /s/ Michael L. Levitz
   

Michael L. Levitz

Senior Vice President, Chief Financial Officer and Treasurer

(Principal Financial Officer)

 

29


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 2013 Annual Incentive Plan
  31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
  31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
  32.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended
  32.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended
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, 2012 and July 31, 2012, (ii) Consolidated Statements of Operations for the three months ended October 31, 2012 and October 31, 2011, (iii) Consolidated Statements of Cash Flows for the three months ended October 31, 2012 and October 31, 2011 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.

 

30

Exhibit 10.1

Analogic Corporation

Annual Incentive Plan for Fiscal Year 2013

 

 

 

Employee:    Supervisor:
Title:    Target Level (% of salary):
Plan Year:   

 

 

Congratulations! Analogic Corporation (the “Company”) has selected you to participate in its Annual Incentive Plan (the “Plan”) for Fiscal Year 2013. 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 91.4% of its Non-GAAP Earnings per Share (EPS) budget for fiscal year 2013;

 

  b) you are an employee of the Company on July 31, 2013,** or your employment is terminated involuntarily after January 31, 2013 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 2013.

 

  b) Analogic Revenue - 30% of your award shall be determined by Analogic’s year-end results for Revenue relative to budget for fiscal year 2013.

 

  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 2013.

 

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 2013. “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.

 

  c) If you are not eligible for an award for the entire 2013 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. Equitable adjustments will be made to exclude the impact of acquisitions or divestitures during the performance period. 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 91.4% 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 2013 Fiscal Year, the payment date of any award will be after the completion of fiscal year 2013, as determined in the sole discretion of the Company’s Compensation Committee.


Analogic Corporation

Annual Incentive Plan for Fiscal Year 2013

 

Target Level (% of Salary):       Annual Salary as of 10/29/2012:
      Target Bonus as of 10/29/2012:
Performance Factors      
Analogic Non-GAAP EPS:    60% of award    Target Amount as of 10/29/2012:
Analogic Revenue:    30% of award    Target Amount as of 10/29/2012:
Analogic Non-GAAP ROIC:    10% of award    Target Amount as of 10/29/2012:

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 2013 Budget

 

% of Budget

   < 91.4% of
Budget
  91.4% of
Budget
  100% of
Budget
  ³  115.2%  of
Budget

% of Target

       0 %         25 %         100 %         200 %  

Award Amount

     $ 0              

 

b. Revenue vs. Fiscal Year 2013 Budget

 

% of Budget

   < 93% of
Budget
  93% of
Budget
  100% of
Budget
  ³  105.4%  of
Budget

% of Target

       0 %         25 %         100 %         200 %  

Award Amount

     $ 0              

 

c. Non-GAAP ROIC vs. Fiscal Year 2013 Budget

 

% of Budget

   < 92.7% of
Budget
  92.7% of
Budget
  100% of
Budget
  ³  106%  of
Budget

% of Target

       0 %         25 %         100 %         200 %  

Award Amount

     $ 0              

 

 

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 2013. See Section 3(c) of this document.

 

 

If Analogic Non-GAAP EPS is <91.4% of budget, no awards will be earned under the plan

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 7, 2012   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 7, 2012   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, 2012 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 7, 2012

 

/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, 2012 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 7, 2012

 

/s/ Michael L. Levitz

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