Analogic Corporation
ANALOGIC CORP (Form: 10-Q, Received: 06/07/2017 15:58:13)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2017

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      No   

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

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

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

 

If  an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.

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

As of May 30, 2017, there were 12,470,526 shares of common stock outstanding.

 

 

 


 

ANALOGIC CORPORATION

Form 10Q – Quarterly Report

For the Quarterly Period Ended April 30, 2017

TABLE OF CONTENTS

 

 

 

 

 

Page No.

Part I. Financial Information

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of April 30, 2017 and July 31, 2016

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Nine Months Ended April 30, 2017 and 2016

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended April 30, 2017 and 2016

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended April 30, 2017 and 2016

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

 

Item 2.

 

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

 

22

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

31

 

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

32

 

 

 

 

 

Item 1A.

 

Risk Factors

 

32

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

 

Item 6.

 

Exhibits

 

32

 

 

 

 

 

Signatures

 

33

 

2


 

Part I. FINANCIA L INFORMATION

Item 1.

Financial Statements (Unaudited)

ANALOGIC CORPORATION

CONSOLIDATED BALANCE SHEETS

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

 

 

 

April 30,

 

 

July 31,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

158,633

 

 

$

118,697

 

Accounts receivable, net of allowance for doubtful accounts of $1,160 and

   $1,070 as of April 30, 2017 and July 31, 2016, respectively

 

 

93,560

 

 

 

112,412

 

Inventory

 

 

144,344

 

 

 

145,513

 

Income tax receivable

 

 

1,902

 

 

 

3,004

 

Prepaid expenses and other current assets

 

 

10,229

 

 

 

9,178

 

Total current assets

 

 

408,668

 

 

 

388,804

 

Property, plant, and equipment, net

 

 

105,539

 

 

 

107,790

 

Intangible assets, net

 

 

27,406

 

 

 

45,194

 

Goodwill

 

 

2,344

 

 

 

73,915

 

Deferred income taxes

 

 

19,051

 

 

 

10,671

 

Other assets

 

 

4,669

 

 

 

6,523

 

Total assets

 

$

567,677

 

 

$

632,897

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

29,211

 

 

$

28,575

 

Accrued employee compensation and benefits

 

 

17,906

 

 

 

18,108

 

Accrued income tax

 

 

2,361

 

 

 

1,610

 

Accrued warranty

 

 

6,205

 

 

 

6,296

 

Accrued restructuring charges

 

 

2,442

 

 

 

5,248

 

Deferred revenue

 

 

4,702

 

 

 

5,359

 

Customer deposits

 

 

4,028

 

 

 

3,476

 

Contingent consideration

 

 

-

 

 

 

4,534

 

Other current liabilities

 

 

5,478

 

 

 

5,261

 

Total current liabilities

 

 

72,333

 

 

 

78,467

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Accrued income taxes, net of current portion

 

 

1,858

 

 

 

2,174

 

Contingent consideration, net of current portion

 

 

-

 

 

 

7,705

 

Other long-term liabilities

 

 

11,772

 

 

 

13,374

 

Total long-term liabilities

 

 

13,630

 

 

 

23,253

 

Guarantees, commitments and contingencies (Note 15)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, $0.05 par value; 30,000,000 shares authorized and 12,471,169

   shares issued and outstanding as of April 30, 2017; 30,000,000 shares authorized

   and 12,396,765 shares issued and outstanding as of July 31, 2016

 

 

622

 

 

 

619

 

Capital in excess of par value

 

 

156,635

 

 

 

149,005

 

Retained earnings

 

 

335,317

 

 

 

390,013

 

Accumulated other comprehensive loss

 

 

(10,860

)

 

 

(8,460

)

Total stockholders’ equity

 

 

481,714

 

 

 

531,177

 

Total liabilities and stockholders’ equity

 

$

567,677

 

 

$

632,897

 

 

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

3


 

ANALOGIC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

April 30,

 

 

April 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

120,791

 

 

$

126,376

 

 

$

371,373

 

 

$

366,443

 

Engineering

 

 

1,371

 

 

 

1,604

 

 

 

3,448

 

 

 

4,354

 

Total net revenue

 

 

122,162

 

 

 

127,980

 

 

 

374,821

 

 

 

370,797

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

68,667

 

 

 

71,340

 

 

 

210,149

 

 

 

202,410

 

Engineering

 

 

1,334

 

 

 

1,707

 

 

 

3,180

 

 

 

3,736

 

Total cost of sales

 

 

70,001

 

 

 

73,047

 

 

 

213,329

 

 

 

206,146

 

Gross profit

 

 

52,161

 

 

 

54,933

 

 

 

161,492

 

 

 

164,651

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and product development

 

 

14,900

 

 

 

16,464

 

 

 

46,962

 

 

 

50,269

 

Selling and marketing

 

 

16,356

 

 

 

15,796

 

 

 

51,894

 

 

 

46,278

 

General and administrative

 

 

10,377

 

 

 

13,208

 

 

 

27,978

 

 

 

48,712

 

Restructuring

 

 

2,080

 

 

 

1,839

 

 

 

2,379

 

 

 

8,269

 

Asset impairment charges

 

 

73,051

 

 

 

-

 

 

 

83,474

 

 

 

-

 

Total operating expenses

 

 

116,764

 

 

 

47,307

 

 

 

212,687

 

 

 

153,528

 

(Loss) income from operations

 

 

(64,603

)

 

 

7,626

 

 

 

(51,195

)

 

 

11,123

 

Other income (expense), net

 

 

57

 

 

 

(934

)

 

 

(357

)

 

 

(4,899

)

(Loss) income before income taxes

 

 

(64,546

)

 

 

6,692

 

 

 

(51,552

)

 

 

6,224

 

(Benefit) provision for income taxes

 

 

(4,882

)

 

 

1,722

 

 

 

(1,934

)

 

 

2,863

 

Net (loss) income

 

$

(59,664

)

 

$

4,970

 

 

$

(49,618

)

 

$

3,361

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(4.78

)

 

$

0.40

 

 

$

(3.98

)

 

$

0.27

 

Diluted

 

$

(4.78

)

 

$

0.40

 

 

$

(3.98

)

 

$

0.27

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

12,486

 

 

 

12,392

 

 

 

12,457

 

 

 

12,412

 

Diluted

 

 

12,486

 

 

 

12,553

 

 

 

12,457

 

 

 

12,623

 

Dividends declared and paid per share

 

$

0.10

 

 

$

0.10

 

 

$

0.30

 

 

$

0.30

 

 

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

4


 

ANALOGIC CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

April 30,

 

 

April 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net (loss) income

 

$

(59,664

)

 

$

4,970

 

 

$

(49,618

)

 

$

3,361

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

178

 

 

 

3,551

 

 

 

(2,415

)

 

 

303

 

Unrecognized gain on pension benefits, net of tax

 

 

58

 

 

 

26

 

 

 

167

 

 

 

76

 

Unrealized (loss) gain on foreign currency forward contracts,

   net of tax

 

 

(324

)

 

 

373

 

 

 

(153

)

 

 

358

 

Total other comprehensive (loss) income, net of tax

 

 

(88

)

 

 

3,950

 

 

 

(2,401

)

 

 

737

 

Total comprehensive (loss) income

 

$

(59,752

)

 

$

8,920

 

 

$

(52,019

)

 

$

4,098

 

 

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

5


 

ANALOGIC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

 

 

Nine Months Ended

 

 

 

April 30,

 

 

 

2017

 

 

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(49,618

)

 

$

3,361

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Benefit from deferred income taxes

 

 

(8,402

)

 

 

(2,681

)

Depreciation and amortization

 

 

19,221

 

 

 

17,157

 

Asset impairment charges

 

 

83,474

 

 

 

-

 

Share-based compensation expense

 

 

6,450

 

 

 

7,144

 

Write down of demo equipment to net realizable value

 

 

1,557

 

 

 

2,496

 

Provision for excess and obsolescence inventory

 

 

287

 

 

 

775

 

Excess tax benefit from share-based compensation

 

 

(158

)

 

 

(300

)

Change in fair value of contingent consideration

 

 

(10,238

)

 

 

-

 

Provision for doubtful accounts, net of recovery

 

 

88

 

 

 

67

 

(Gain) loss on sale of property, plant and equipment

 

 

(57

)

 

 

-

 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

18,295

 

 

 

23,518

 

Inventory

 

 

(5,547

)

 

 

(24,160

)

Prepaid expenses and other assets

 

 

596

 

 

 

(2,194

)

Accounts payable

 

 

608

 

 

 

2,006

 

Accrued liabilities

 

 

(2,845

)

 

 

11,573

 

Deferred revenue

 

 

(641

)

 

 

(743

)

Customer deposits

 

 

554

 

 

 

(85

)

Accrued income taxes and income taxes receivable

 

 

1,174

 

 

 

(3,839

)

Other liabilities

 

 

(1,423

)

 

 

796

 

Cash paid for contingent consideration

 

 

(100

)

 

 

-

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

53,275

 

 

 

34,891

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Additions to property, plant, and equipment

 

 

(7,741

)

 

 

(9,664

)

Acquisition of businesses, net of cash acquired

 

 

-

 

 

 

(8,026

)

Proceeds from the sale of property, plant, and equipment

 

 

30

 

 

 

66

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(7,711

)

 

 

(17,624

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of stock pursuant to exercise of stock options, employee stock

   purchase plan, restricted stock plans, and non-employee director stock plan

 

 

3,090

 

 

 

3,397

 

Repurchase of common stock

 

 

(1,584

)

 

 

(11,793

)

Shares repurchased for taxes for vested employee restricted stock grants

 

 

(1,128

)

 

 

(1,774

)

Excess tax benefit from share-based compensation

 

 

158

 

 

 

300

 

Dividends paid to shareholders

 

 

(3,771

)

 

 

(3,726

)

Cash paid for financing cost

 

 

-

 

 

 

(499

)

Contingent consideration paid for business acquisitions

 

 

(1,900

)

 

 

-

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

(5,135

)

 

 

(14,095

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

(493

)

 

 

1,152

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

 

39,936

 

 

 

4,324

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

118,697

 

 

 

123,800

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

158,633

 

 

$

128,124

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Non-cash transfer of demonstration inventory to fixed asset

 

$

3,506

 

 

$

-

 

 

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

6


 

ANALOGIC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited, in millions, except share and per share data)

1. Basis of presentation

Throughout this Quarterly Report on Form 10-Q, unless the context states otherwise, the words “we,” “us,” “our” and “Analogic” refer to Analogic Corporation and all of its subsidiaries taken as a whole, and “our board of directors” refers to the board of directors of Analogic Corporation.

Our unaudited consolidated financial statements presented herein have been prepared pursuant to the rules of the United States Securities and Exchange Commission, or 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. We report our financial condition and results of operations on a fiscal year basis ending on July 31st of each year. The nine months ended April 30, 2017 and 2016 represent the third quarters of fiscal years 2017 and 2016, respectively.

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary for a fair statement of the results for all interim periods presented. The results of operations for the three and nine months ended April 30, 2017 are not necessarily indicative of the operating results for the full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended July 31, 2016, or fiscal year 2016, included in our Annual Report on Form 10-K as filed with the SEC on September 27, 2016. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles, or GAAP, in the United States of America.

Consolidation

The unaudited consolidated financial statements presented herein include our accounts and those of our subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated in consolidation.

In determining whether we are the primary beneficiary of an entity and therefore required to consolidate, we apply a qualitative approach that determines whether we have both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. We have not been required to consolidate the activity of any entity due to these considerations.

Reclassifications and revisions to prior period financial statements

Certain financial statement items have been reclassified to conform to the current period presentation. We separately presented write down of demo equipment to net realizable value and provision for excess and obsolescence inventory on our April 30, 2016 Consolidated Statements of Cash Flows to conform to the current period presentation. There was no impact on our Consolidated Statements of Operations as a result of these reclassifications.

2. Recent accounting pronouncements

Accounting pronouncements issued and recently adopted

None.

Accounting pronouncements issued and not yet effective

Clarifying the Definition of a Business

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments provide the requirements needed for a set to be a business and establish a practical way to determine when a set is not a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. An output is the result of inputs and substantive processes that provide goods or services to customers, other revenue, or investment income, such as dividends and interest. The amendments narrow the definition of outputs and align it with how outputs are described in Topic 606 “Revenue from Contracts with Customers”. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The standard will be effective for us in fiscal years beginning August 1, 2018. We are currently evaluating the impact of the adoption of this update on our consolidated financial statements.

7


 

Classification of Ce rtain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU No. 2016-15, “ Statement of Cash Flows (Topic 230).”  The amendments provide guidance on the eight specific cash flow statement presentation and classification issues as follows: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The standard will be effective for us in the first quarter of our fiscal year ending July 31, 2019. We are currently evaluating the impact of the adoption of this update on our consolidated financial statements.

Improvements to employee share-based payment accounting

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which amends ASC 718, “Stock Based Compensation.” The amendments require that all excess tax benefits be recorded as an income tax benefit or expense in the income statement and be classified as an operating activity in the statement of cash flows. Entities may also elect to estimate the amount of forfeitures or recognize them as they occur. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The standard will be effective for us in the first quarter of our fiscal year ending July 31, 2018 and early adoption is permitted. We are currently evaluating the impact of the adoption of this update on our consolidated financial statements.

Leases

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. The standard requires lessees to recognize assets and liabilities for most leases on the balance sheet. For income statement purposes, the standard requires leases to be classified as either operating or finance. The standard is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The standard will be effective for us in the first quarter of our fiscal year ending July 31, 2020. Adoption requires application of the new guidance for all periods presented. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.

Revenue from contracts with customers

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. This update will supersede existing revenue recognition requirements and most industry-specific guidance. This update also supersedes some cost guidance, including revenue recognition guidance for construction-type and production-type contracts. The update’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This update should be applied either on a retrospective or modified retrospective basis. This update was originally effective for us in the first quarter of our fiscal year ending July 31, 2018. Early adoption was not permitted. In August 2015, the FASB approved a one year delay of the effective date of the new revenue standard for public entities. Therefore, this update would be effective for us in the first quarter of our fiscal year ending July 31, 2019. The standard permits entities to early adopt, but only as of the original effective date (i.e. one year earlier). We are expected to adopt the new standard in the first quarter of our fiscal year 2019 effective August 01, 2018. We are still in the early stage of assessing the adoption method and analyzing the impact of the adoption of this update on our consolidated financial statements. We are unable to quantify the impact at this time. We established a project plan and an implementation team. The implementation team continues to apprise both management and the Audit Committee of project status on a recurring basis.

3. Accounts receivable, net

Our accounts receivable arise primarily from products sold and services provided in North America, Europe and Asia. The balance in accounts receivable represents the amount due from our domestic and foreign original equipment manufacturers, or OEM, customers, distributors and end users. We perform ongoing credit evaluations of our customers’ financial condition and continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon specific customer collection issues that have been identified. We accrue reserves against trade receivables for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written off against the reserve. To date, our historical write-offs of accounts receivable have been minimal.

8


 

Our top ten customers combined accounted for approximately 61% and 62% of our total net revenue for each of the three months ended April 30, 2017 and 2016, respectively and 63% and 62% of our total net revenue for the nine months ended April 30, 2017 and 2016 respectively. Set forth in the table below are customers which individually accounted for 10% or more of our net revenue.  

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

April 30,

 

 

April 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Koninklijke Philips Electronics N.V., or Philips

 

 

14

%

 

 

14

%

 

 

14

%

 

 

13

%

Siemens AG

 

 

11

%

 

 

11

%

 

 

12

%

 

 

13

%

L-3 Communications Corporation, or L-3

 

 

11

%

 

 

10

%

 

 

10

%

 

*

 

Toshiba Corporation, or Toshiba

 

*

 

 

*

 

 

*

 

 

 

11

%

 

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

The following table summarizes our customers with net accounts receivable balances greater than or equal to 10% of our total net accounts receivable balance:  

 

 

 

As of

 

 

As of

 

 

 

April 30,

 

 

July 31,

 

 

 

2017

 

 

2016

 

L-3

 

 

12

%

 

 

17

%

Philips

 

 

21

%

 

 

15

%

 

4. Inventory

The components of inventory, net of allowance for obsolete, unmarketable or slow-moving inventories, are summarized as follows:  

 

 

 

As of

 

 

As of

 

 

 

April 30,

 

 

July 31,

 

(in millions)

 

2017

 

 

2016

 

Raw materials

 

$

68.4

 

 

$

68.6

 

Work in process

 

 

47.5

 

 

 

45.6

 

Finished goods

 

 

28.4

 

 

 

31.3

 

Total inventory

 

$

144.3

 

 

$

145.5

 

 

5. Intangible assets and goodwill

Intangible assets

Intangible assets include the value assigned to intellectual property and other technology, patents, customer contracts and relationships, and trade names. The estimated useful lives for all of these intangible assets, excluding a trade name determined to have an indefinite life, range between 1 to 14 years. Indefinite-lived intangible assets consist of trade names acquired in business combinations. The carrying values of our indefinite-lived intangible assets were $7.6 million at both nine months ended April 30, 2017 and July 31, 2016.

Finite-lived intangible assets are summarized as follows:

 

 

 

 

 

As of April 30, 2017

 

 

As of July 31, 2016

 

(in millions)

 

Weighted

Average

Amortization

Period

 

Cost

 

 

Accumulated

Amortization/

Write-Offs

 

 

Net

 

 

Cost

 

 

Accumulated

Amortization

 

 

Net

 

Developed technologies

 

10 years

 

$

17.7

 

 

$

13.9

 

 

$

3.8

 

 

$

29.9

 

 

$

15.1

 

 

$

14.8

 

Customer relationships

 

13 years

 

 

43.7

 

 

 

27.7

 

 

 

16.0

 

 

 

47.1

 

 

 

25.2

 

 

 

21.9

 

Trade names

 

3 years

 

 

0.9

 

 

 

0.9

 

 

 

-

 

 

 

1.9

 

 

 

1.0

 

 

 

0.9

 

Total finite-lived intangible assets

 

 

 

$

62.3

 

 

$

42.5

 

 

$

19.8

 

 

$

78.9

 

 

$

41.3

 

 

$

37.6

 

 

Amortization expense related to acquired intangible assets was $1.9 million and $5.9 million for the three and nine months ended April 30, 2017, respectively. Amortization expense related to acquired intangible assets was $2.3 million and $6.3 for the three and nine months ended April 30, 2016, respectively.

9


 

During the three months ended April 30, 2017, management noted impairment indicators related to the Oncura intangible assets which had a carrying value of $3.1 million. Oncura is part of our Ultrasound operating segment. Management performed an impairment test based on the projected future cash flows. Further disruption in the sales channel of our vet business in the third quarter of fiscal year 2017 resulted in lower revenues than anticipated for the quarter and a reduce d revenue forecast of our Oncura reporting unit, as compared with our prior estimates resulting in the recording of an impairment charge of $3.1 million, including a write-off of customer relationship of $2.4 million and a write-off of trade name of $0.7 m illion. We recorded these amounts in the asset impairment charges caption in our accompanying unaudited consolidated statements of operations. For   more information on the acquisition of Oncura, please refer to Note 3. Business combination in our Annual Rep ort on Form 10-K for fiscal year 2016, as filed with the SEC on September 27, 2016.     

During the three months ended April 30, 2017, management noted impairment indicators related to the PocketSonics intangible assets which had a carrying value of $8.1 million. PocketSonics is part of our Ultrasound operating segment. Management performed an impairment test based on the projected future cash flows and based on a decision during the third quarter of fiscal year 2017 to forgo further investment in the business, the Company recorded an impairment charge of $8.1 million, consisting of technology of $8.1 million. We recorded these amounts in the asset impairment charges caption in our accompanying unaudited consolidated statements of operations. For   more information on the acquisition of PocketSonics, please refer to Note 3. Business combination in our Annual Report on Form 10-K for fiscal year 2016, as filed with the SEC on September 27, 2016.  

During the nine months ended April 30, 2017, intangible asset impairment charges were $11.9 million.

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

 

 

 

Estimated

 

 

 

Future

 

 

 

Amortization

 

(in millions)

 

Expense

 

Remaining 2017

 

$

1.5

 

2018

 

$

5.0

 

2019

 

$

3.8

 

2020

 

$

3.4

 

2021

 

$

3.0

 

Thereafter

 

$

3.1

 

 

 

$

19.8

 

 

Goodwill

Analogic has goodwill balances of $2.3 million at April 30, 2017 and $73.9 million at July 31, 2016. We review periodically or more frequently if indicators are present or changes in circumstances suggest that it is more likely than not that impairment may exist and we perform a formal goodwill impairment test in the second quarter of each fiscal year.

Changes in the carrying amount of goodwill by reportable segments for the nine months ended April 30, 2017 are as follows:

 

(in millions)

 

Medical

Imaging

 

 

Ultrasound

 

 

Security and

Detection

 

 

Total

Goodwill

 

Balance as of July 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

1.8

 

 

$

71.6

 

 

$

0.5

 

 

$

73.9

 

Impairment losses

 

 

-

 

 

 

(71.6

)

 

 

-

 

 

 

(71.6

)

Balance as of April 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

1.8

 

 

 

71.6

 

 

 

0.5

 

 

 

73.9

 

Accumulated impairment losses

 

 

-

 

 

 

(71.6

)

 

 

-

 

 

 

(71.6

)

 

 

$

1.8

 

 

$

-

 

 

$

0.5

 

 

$

2.3

 

 

We have four reporting units with goodwill—Medical Imaging, Ultrasound, Oncura, and Security and Detection and three reportable segments—Medical Imaging, Ultrasound, and Security and Detection. We performed the annual impairment test for our goodwill and other intangible assets with indefinite lives as of December 31, 2016. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value and as a basis for determining whether it is necessary to perform the quantitative impairment test. Alternatively, we may elect to bypass the qualitative assessment and proceed to the two-step quantitative impairment test. If we choose to perform a qualitative assessment and determine it is more

10


 

likely than not that the carrying value of the net assets is more than the fair value of the related oper ations, the two-step impairment process is then performed; otherwise, no further testing is required.

Our quantitative impairment assessment considered both the market approach and income approach to calculate the fair value of the reporting unit, with different weights assigned to each. Under the market approach, the fair value of the reporting unit is based on trading multiples of a peer group of companies, which was determined based on an analysis of the selected guideline public companies’ business enterprise value (“BEV”) plus  a control premium, which was determined based on an analysis of control premiums for recent relevant acquisitions. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows, which are determined, based upon the Company’s most recent strategic operating plan and considering market participant assumptions. The income approach is dependent on a number of significant management assumptions including estimates of future revenues, costs and expenses, and a number of significant valuation inputs including discount rates, working capital rates and tax rates. During the second quarter of fiscal year 2017, for our Medical Imaging, Ultrasound, Oncura, and Security and Detection reporting units, we used the two-step quantitative impairment test. For the Security and Detection reporting unit, we performed the market approach and determined that the fair value of our Security and Detection reporting unit was in excess of its carrying value, and concluded that there was no impairment during the annual impairment test of goodwill and other intangible assets with indefinite lives as of December 31, 2016. For our Medical Imaging and Ultrasound reporting units, we used both the market approach and income approach and determined that there was no impairment of goodwill during the annual impairment test of goodwill and other intangible assets with indefinite lives as of December 31, 2016. For our Medical Imaging reporting unit, we determined that the estimated fair value of the Medical Imaging reporting unit substantially exceeds its carrying value. For our Ultrasound reporting unit, we determined that our Ultrasound reporting unit was at risk of failing the first step of the goodwill impairment test in future reporting periods due to forecast revisions and changes in strategy in our ultrasound business. For example, an increase in the discount rate applied to the Ultrasound cash flows of 300 basis points could result in a failure of Step 1 of the impairment test. Also, a decrease in the revenue compound annual growth rate within the Ultrasound cash flow forecast of 200 basis points could result in a failure of Step 1 of the impairment test. Our Ultrasound reporting unit had excess fair value over carrying value of approximately 25% as of our annual test date and held $55.1 million of allocated goodwill as of December 31, 2016.

During the second quarter of fiscal year 2017, for our Oncura reporting unit, recent changes in our strategy caused us to decrease future forecasted revenues from our prior estimates. As a result, we determined that the associated goodwill was impaired and we recorded an estimated charge of $9.8 million in the second quarter of fiscal year 2017 during the annual impairment test of goodwill and other intangible assets with indefinite lives as of December 31, 2016. We recorded this amount in the asset impairment charges caption in our accompanying unaudited consolidated statements of operations. The amount of this charge was finalized in the third quarter of fiscal year 2017, as we have completed the second step of the goodwill impairment test, in accordance with ASC Topic 350,  Intangibles-Goodwill and Other .

During the second quarter of fiscal year 2017, subsequent to the annual impairment test of goodwill and other intangible assets with indefinite lives as of December 31, 2016, we elected early adoption of ASU 2017-04 as of January 01, 2017, “Intangibles─Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” As a result, we removed Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

During the third quarter of fiscal year 2017, the Company noted impairment indicators related to our Ultrasound reporting unit. Additional delays related to the introduction and commercialization of our general imaging platform sold through our technology partner in general imaging caused the Company to reassess our revenue expectations for the product. This significant change, as well as a further reduction in revenue estimates for our fiscal 2017 impacted our overall revenue growth expectations in Ultrasound in future periods. Management performed an interim impairment test based on both the market approach and income approach and recorded an estimated impairment charge of $55.1 million. The amount of this charge is subject to finalization in the fourth quarter of fiscal year 2017. As a result, the aggregate amount of goodwill associated with our Ultrasound reporting unit was taken down to zero as of April 30, 2017. In addition, the remaining book value of the intangible assets allocated to our Ultrasound reporting unit was $9.3 million as of April 30, 2017.

During the third quarter of fiscal year 2017, for our Oncura reporting unit, as a result of decreased forecasted revenue as compared with our prior estimates, which was caused by the further disruption in our sales channel in our vet business, w e determined that the remaining goodwill was impaired and recorded a charge of $6.7 million in the third quarter of fiscal year 2017. We recorded this amount in the asset impairment charges caption in our accompanying unaudited consolidated statements of operations. The aggregate amount of goodwill associated with our Oncura reporting unit was taken to zero as of April 30, 2017. Also as a result of our decreased revenue forecast for Oncura, we recorded an adjustment to the associated contingent consideration liability, which resulted in a gain of $2.1 million and $10.2 million for the three and nine months as of April 30, 2017, respectively, recorded within General and Administrative expenses. As of April 30, 2017, the fair value of the contingent consideration obligation associated with the Oncura acquisition was taken to zero.

11


 

We compared the fair value of a tradename that has an indefinite life using t he relief from royalty approach to its carrying value as of December 31, 2016. The relief from royalty approach utilized an after-tax royalty rate and a discount rate. The after-tax royalty rate was determined based on royalty research and margin analysis, while the discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital, and the risk associated with achieving forecasted sales for the tradename. We determined that the fair value of the tradename was in excess of its carrying value.

The current economic environment and the uncertainties regarding its impact on our business and our estimates for forecasted revenue and spending levels made for purposes of our goodwill and trade name impairment testing may not be accurate predictions of the future. If our assumptions regarding forecasted revenue or margin growth rates of each reporting unit and trade name are not achieved, we may be required to record an impairment charge for the goodwill and trade name in future periods, whether in connection with our next annual impairment testing in the second quarter of the fiscal year ending July 31, 2018, or prior to that if any such change constitutes a triggering event outside of the quarter from when the annual goodwill and trade name impairment test is performed.  Changes in our forecasts, or decreases in the value of our common stock could cause book values of certain operations to exceed their fair values which may result in goodwill impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

6. Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

 

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

 

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

 

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

The following tables provide the assets and liabilities carried at fair value and measured on a recurring basis at April 30, 2017 and July 31, 2016:  

 

 

 

Fair Value Measurements at April 30, 2017

 

(in millions)

 

Total

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

158.6

 

 

$

158.6

 

 

$

-

 

 

$

-

 

Plan assets for deferred compensation

 

 

6.7

 

 

 

6.7

 

 

 

-

 

 

 

-

 

Total assets at fair value

 

$

165.3

 

 

$

165.3

 

 

$

-

 

 

$

-

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

 

0.5

 

 

 

-

 

 

 

0.5

 

 

 

-

 

Total liabilities at fair value

 

$

0.5

 

 

$

-

 

 

$

0.5

 

 

$

-

 

12


 

 

 

 

Fair Value Measurements at July 31, 2016

 

(in millions)

 

Total

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

118.7

 

 

$