Analogic Corporation
Amendment No. 2
Filed 6/4/01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT NO. 2 TO ANNUAL REPORT
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR: JULY 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8 CENTENNIAL DRIVE, PEABODY, MASSACHUSETTS 01960
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(978) 977-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.05 PAR VALUE
(TITLE OF CLASS)
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant at August 31, 2000 was
approximately $300,986,000.
Number of shares of Common Stock outstanding at August 31, 2000: 12,878,692
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Analogic Corporation ("The Company") hereby amends its Annual Report on Form 10-K/A for the year ended July 31, 2000,
originally filed with the Commission on October 20, 2000 for the purpose of restating the carrying value of the Company's
investment in Shenzhen Anke High-Tech Co., Ltd (SAHCO), formerly known as Analogic Scientific, Inc.. This amendment
amends Part I (Item
1), Part II (Item 6 and 7) and Part IV (Item 14) of the Annual Report on Form 10-K, as amended and filed with the
Commission on December 12, 2000.
The Company recently became aware of certain differences between local statutory accounting practices used by SAHCO and
U.S. Generally Accepted Accounting Principles (GAAP) primarily with respect to the valuation of accounts receivable and
inventory and revenue recognition which had not been fully evaluated. The effect of this change has been to restate all periods
and beginning retained earnings.
Accordingly, during the quarter ended January 31, 2001, the Company evaluated the potential differences in accounting basis
and concluded that adjustments were necessary for prior periods resulting in a reduction in the Company's investment of
SAHCO of $2,375,000 at July 31, 2000 (or $1,808,000 net of tax effect) which reduced the carrying value of the Company's
investment at July 31, 2000 from $6,125,000 to $3,750,000. This has the effect of decreasing the Company's net profit by
$42,000 in fiscal 2000, $328,000 in fiscal 1999, $117,000 in fiscal 1998 as well as a reduction to beginning retained earnings
as of August 1, 1997 of $1,321,000.
| Analogic Corporation ("The Company") hereby amends its Annual Report on
Form 10-K/A for the year ended July 31, 2000, originally filed with the
Commission on October 20, 2000 for the purpose of restating the carrying
value of the Company's investment in Shenzhen Anke High-Tech Co., Ltd (SAHCO),
formerly known as Analogic Scientific, Inc.. This amendment amends Part
I (Item 1), Part II (Item 6 and 7) and Part IV (Item 14) of the Annual Report
on Form 10-K, as amended and filed with the Commission on December 12, 2000.
The Company recently became aware of certain differences between local statutory
accounting practices used by SAHCO and U.S. Generally Accepted Accounting
Principles (GAAP) primarily with respect to the valuation of accounts receivable
and inventory and revenue recognition which had not been fully evaluated.
The effect of this change has been to restate all periods and beginning
retained earnings. Accordingly, during the quarter ended January 31, 2001,
the Company evaluated the potential differences in accounting basis and
concluded that adjustments were necessary for prior periods resulting in
a reduction in the Company's investment of SAHCO of $2,375,000 at July 31,
2000 (or $1,808,000 net of tax effect) which reduced the carrying value
of the Company's investment at July 31, 2000 from $6,125,000 to $3,750,000.
This has the effect of decreasing the Company's net profit by $42,000 in
fiscal 2000, $328,000 in fiscal 1999, $117,000 in fiscal 1998 as well as
a reduction to beginning retained earnings as of August 1, 1997 of $1,321,000.
|
i
PART I
ITEM 1. BUSINESS
(a) Developments During Fiscal 2000
Total revenues of Analogic Corporation (hereinafter, together with its subsidiaries, referred to as "Analogic" or the "Company")
for the fiscal year ended July 31, 2000, were $297,619,000 as compared to $279,694,000 for fiscal 1999, an increase of 6%.
Net income for fiscal 2000 was $14,066,000 (restated), or $1.09 (restated) per diluted share as compared to $19,185,000
(restated), or $1.50 (revised) per diluted share for fiscal 1999.
The Company entered into a strategic alliance with Eastman Kodak Corporation (Rochester, NY) to define, develop and
manufacture state-of-the-art digital radiography (DR) systems. Kodak plans to enter the digital radiography market with three
systems to be supplied by Analogic. These systems employ a reusable flat panel detector consisting of an amorphous selenium
semiconductor X-ray absorber coating over a thin-film transistor array as a basis for X-ray capture and direct digitization.
Digital radiography is designed to provide high quality digital images that optimize radiology workflow through improved patient
scheduling and accelerated access to images.
The Company outlined a five-year strategic plan to accelerate growth and enhance shareholder value based upon three
overlapping phases. The three phases are: 1) refocus on core business and achieve operational excellence; 2) continue
development as a complete system provider for OEM customers; and 3) expand product and engineering services to its
installed base of OEM customers.
In March, 2000 the Company announced the spinout of its Communications Product Group into a new subsidiary, Anatel
Communications Corporation. Anatel designs, manufactures and markets Voice over Internet Protocol (VoIP) resource
boards, network access boards, and Media Gateway systems and software for the Internet Telecommunications market.
The Company successfully completed the testing, training, software conversion and hardware installation of a new Enterprise
Resource Planning (ERP) system.
Mr. Thomas J. Miller was appointed President and Chief Operating Officer in October 1999. Mr. John J. Millerick was
elected Senior Vice President, Chief Financial Officer and Treasurer in January 2000.
(b) Financial Information About Industry Segment
The Company's operations are within a single segment within the electronics industry (Medical Instrumentation Technology
Products). The operations encompass design, manufacture and sale of high technology, high-performance, high-precision data
acquisition, conversion (analog/digital) and signal processing instruments and systems to customers that manufacture products
for medical and industrial use.
(c) Narrative Description of Business
Analogic conceives, designs, manufactures, and sells standard and customized high-precision data acquisition, signal and
imaging processing based medical imaging and industrial systems and subsystems. Analogic's principal customers are original
equipment manufacturers (OEM) who incorporate Analogic's state-of-the art products into systems used in medical, industrial
and scientific applications.
Analogic has been a leader in the application of precision analog-to-digital (A/D) and digital-to-analog (D/A) conversion
technology, which involves the conversion of continuously varying (i.e., "analog") electrical signals, such as those representing
temperature, pressure, voltage, weight, velocity, ultrasound and x-ray intensity into and from the numeric (or "digital") form
required by computers, medical imaging equipment and other data processing equipment and in subsystems and systems based
on such technology.
In addition to their precision measurement capabilities, most of Analogic's products perform very high-speed complex
calculations on the data being analyzed. Thus, Analogic's products are an integral part of the communications link between
various analog sensors, detectors or transducers and the people or systems which interpret or utilize this information.
Analogic's products may be divided for discussion purposes into three groupings as described below. These groupings are
classified by product technology and not by application.
1
Medical Technology Products, consisting primarily of electronic systems and subsystems for medical imaging equipment,
accounted for approximately 73% of product, service, engineering and licensing revenue in fiscal 2000.
Analogic's medical imaging data acquisition systems and related computing equipment are incorporated by U.S., European and
Asian manufacturers into advanced X-ray equipment known as Computed Tomography (CT) scanners. These scanners
generate images of the internal anatomy, which are used primarily in diagnosing medical conditions. Analogic's data acquisition
and signal processing systems have advanced CT scanner technology by substantially increasing resolution of the image, by
reducing the time necessary to acquire the image, and by reducing the computing time required to produce the image. Analogic
supplies to its medical imaging customers A/D and D/A conversion equipment and complete data acquisition systems. The
Company also manufactures a complete mobile and other CT scanners incorporating proprietary technology.
In addition, the Company manufactures key subsystems on an OEM basis for ultrasound equipment manufacturers. The
Company also designs and manufactures radiology, surgical and urology ultrasound systems and probes for the end-user
market. These scanners generate real-time images of the internal anatomy, which are used for diagnosing medical conditions
and for interventional procedures.
The Company manufactures electronics for a family of hard copy laser printers in single and multi-user configurations that
address the diagnostic image market. These printers are used in hospitals world wide to print diagnostic quality images on film
from the electronic data collected by medical imaging equipment such as CT scanners and MRI scanners. The Company also
designs and manufactures for OEM customers advanced RF amplifiers, gradient coil amplifiers and spectrometers for use in
Magnetic Resonance Imaging (MRI) equipment. These MRI scanners are used primarily to create diagnostic medical images.
The Company manufactures fetal monitoring products for conversion and display of biomedical signals. These monitors are
designed for use in antepartum applications and have the capability to measure, compute, display and print fetal heart rates,
maternal contraction frequency and relative intensity to determine both maternal and fetal well being.
The Company also manufactures a lightweight, portable, multi-functional, custom patient monitor instrument which acquire,
calculate and display combinations of the five most common vital sign parameters-Electrocardiogram (ECG), Respiration,
Temperature, Non Invasive Blood Pressure (NIBP) and Pulse Oximetry (SpO2). These monitors are designed to be used in a
variety of hospital settings such as emergency room, step-down general care and surgical centers where ease-of-use,
portability, flexibility and costs are important considerations.
The Company also manufactures a broad line of medical connectivity products that allows medical equipment such as CT
Scanners and MRI and ultrasound equipment to attach to local Digital Imaging and Communications for Medicine (DICOM),
Picture Archive & Communications Systems (PACS) and wide area networks. The line includes Computed Radiography (CR)
image processing and viewing workstations.
Camtronics, an 81% owned subsidiary, manufactures products which are included herein as medical technology products.
Camtronics designs and manufactures multi-modality image and information management systems for cardiology. This system
integrates all cardiac patient data into an enterprise-wide information system. The industry leader in cardiac workstation
technology, Camtronics also designs and manufactures state-of-the-art digital imaging systems for cardiology and radiology.
Anrad, an 100% owned subsidiary, designs and manufactures a state-of-the-art direct conversion series of amorphous
selenium based, X-ray, flat panel detectors for diagnostic and interventional applications in mammography and other digital
radiology application.
Signal Processing Technology Products, consisting of A/D converters and supporting modules, high-speed digital signal
processors such as Array Processors, and image processing equipment, accounted for approximately 17% of fiscal 2000
product, service, engineering and licensing revenue.
The technology developed by Analogic and incorporated within these products is fundamental to all of the Company's other
products.
2
A/D converters convert continuously varying "analog" signals into the numerical "digital" form required by microprocessors and
other data processing equipment. Analogic manufactures a wide variety of high speed 14 and 16 bit low noise converters.
Analogic specializes in the manufacture of high-precision and high performance, rather than lower-cost, low-precision and
minimal performance, data conversion products. Typical applications of these devices include the conversion of industrial and
biomedical signals into computer language.
The Company manufactures a line of Compact Peripheral Computer Interface (CPCI) boards. These products are fully
compatible with the CPCI form factor and bus structure and take advantage of software written for the PCIbus. The boards,
which are designed for OEM embedded applications requiring precision measurements and high sampling rates, perform
acquisition, conditioning, multiplexing, as well as signal processing functions, and are supported by Microsoft Windows NT(R)
software.
Analogic manufactures application accelerator and array processors (special purpose computers) which generally receive
information from a host computer or data source, rapidly perform the desired calculations, and return the processed data or
results to the host computer. The cost per calculation of array processors, which can compute and/or manipulate data at the
rate of hundreds of millions of operations per second, is less than that of general-purpose computers. Analogic believes its
accelerators and array processors have generally been cost effective when compared with competitive products.
The Company is marketing its array processors for applications such as, Voice Over Internet Protocol (VoIP), X-ray imaging,
manufacturing testing, radar and sonar, geophysical exploration, and other technical and scientific areas. In addition, the
Company sells array processors used for image construction in Magnetic Resonance Imaging (MRI) medical diagnostic
systems. The Company also manufactures Digital Signal Processing (DSP) floating point products, which are used in the
above-mentioned markets.
Analogic manufactures the EXACT system, an advanced computed tomography imaging system capable of providing data for
3-D images of every object in a package, parcel, or bag. An OEM customer has exclusive rights to marketing the EXACT as
part of a comprehensive explosive detection system to scan checked luggage for aircraft. Analogic is currently pursuing other
applications for the EXACT system such as drug and other contraband detection, and providing security for high-risk buildings.
Industrial Technology Products, consisting of test instruments and industrial weight measurement equipment accounted for
approximately 10% of fiscal 2000 product, service, engineering and licensing revenues.
Test Instruments are used as components of large Automated Test Equipment (ATE) for the semiconductor test and other
industries. These instruments provide precision signal source and measurement capabilities for testing high performance
mixed-signal and analog semiconductors. Various instruments provide a range of speed and accuracy capabilities. Test
instruments are also used for stand-alone operation on a test bench.
Industrial weighing products are sold to both OEM and end users and are used in many industrial and process control
applications requiring high precision weight measurement.
Anatel Communications, a wholly owned subsidiary formed in March 2000, designs, manufactures, and markets Voice over
Internet Protocol (VoIP) DSP resource boards; network access boards; and Media Gateway development systems and
associated software for the Internet Telephony market. Applications include VoIP Gateways, Softswitch architectures, voice
routers (PBXs) and Call Center systems.
HOTEL OPERATION
The Company owns a hotel, which is located adjacent to the Company's principal executive offices and manufacturing facility in
Peabody, Massachusetts. The hotel is strategically situated in an industrial park, is in close proximity to the historic and tourist
area of Boston's North Shore and is approximately 18 miles from Boston. The hotel has 256 rooms, a ballroom and several
other function rooms and appropriate recreational facilities. The hotel is managed for the Company under a contract with
Marriott Corporation.
3
MARKETING AND DISTRIBUTION
The Company sells its products domestically and abroad directly through the efforts of its officers and employees and through a
network of independent sales representatives and distributors located in principal cities around the world. In addition, Analogic
subsidiaries in England and Denmark act as distributors. Domestically, Analogic has several regional sales offices staffed by
salespeople who sell the Company's products in the surrounding areas and supervise independent sales representatives and
distributors in their regions. Some of Analogic's distributors also represent manufacturers of competing products.
SOURCES OF COMPONENTS/RAW MATERIALS
In general, Analogic's products are composed of company-designed proprietary integrated circuits, printed circuit boards, and
precision resistor networks, manufactured by Analogic and others in accordance with Analogic's specifications, as well as
standard electronic integrated circuits, transistors, displays and other components. Most items procured are believed to be
available from more than one source. However, it may be necessary, if a given component ceases to be available, for Analogic
to incur additional expense in order to modify its product design to adapt to a substitute component or to purchase new tooling
to enable a new supplier to manufacture the component. Also, from time to time the availability of certain electronic
components has been disrupted. Accordingly, Analogic carries a substantial inventory of raw material components in an effort
to assure its ability to make timely delivery to its customers.
PATENTS AND LICENSES
The Company holds approximately 80 patents of varying duration issued in the United States which cover the design and
manufacture of its products. In many instances, the Company holds corresponding foreign patents. The Company regularly files
both foreign and domestic patent applications and continuations to cover both new and improved methods, apparatus,
processes, designs and products. At present, more than 350 U.S. and foreign patents applications are pending.
The Company also relies on a combination of trade secret, copyright and trademark laws, and contractual agreements to
safeguard its proprietary rights in technology and products. In seeking to limit access to sensitive information to the greatest
practical extent, the Company routinely enters into confidentiality and assignment of invention agreements with each of its
employees and nondisclosure agreements with its key customers and vendors.
Management believes that any legal protection afforded by patent, copyright, and trade secret laws are of secondary
importance as a factor in the Company's ability to compete; its future prospects are more a function of the continuing level of
excellence and creativity of engineers in developing products which satisfy customer needs, and the innovative skills,
competence and marketing and managerial skills of its personnel in selling those products. Moreover, the Company believes
that market positioning and rapid market entry are equally important to the success of its products. Management is of the
opinion that the loss of patent protection would not have a material effect on the Company's competitive position.
SEASONAL ASPECT OF BUSINESS
There is no material seasonal element to the Company's business, although plant closings in the summer, particularly in Europe,
tend to decrease the activity of certain buying sources during the first quarter of the Company's fiscal year.
WORKING CAPITAL MATTERS
The Company does not carry a substantial inventory of finished goods but does carry a substantial inventory of raw material
components and work-in-process to enable it to meet its customers' delivery requirements. (See Note 4 of Notes to
Consolidated Financial Statements.)
4
MATERIAL CUSTOMERS
The Company's three largest customers, each of which is a significant and valued customer, were Philips, General Electric and
Toshiba, which accounted for approximately 16%, 10%, and 9%, respectively, of product, service, engineering and licensing
revenue for the fiscal year ended July 31, 2000. Loss of any one of these customers would have a material adverse effect upon
the Company's business. The Company does business with Philips through several of the Company's Product Groups and
Subsidiaries principally under OEM contracts. In addition, Philips funds research and development of some products to be
manufactured by Analogic for Philips. No other individual customer accounted for as much as 6% of the Company's product,
service, engineering and licensing revenue during fiscal 2000. The Company's ten largest customers, including Philips, General
Electric and Toshiba accounted for approximately 60% of product, service, engineering and licensing revenue during fiscal
2000.
BACKLOG
The backlog of orders at July 31, 2000 was approximately $96.4 million compared with approximately $86.6 million at July
31, 1999. This increase is principally related to Medical Technology and Signal Processing products. Many of the orders in the
Company's backlog permit cancellation by the customer under certain circumstances. To date, Analogic has not experienced
material cancellation of orders. The Company reasonably expects to ship most of its July 31, 2000 backlog during fiscal 2001.
GOVERNMENT CONTRACTS
The amount of the Company's business that may be subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the Government is insignificant.
COMPETITION
Analogic is subject to competition based upon product design, performance, pricing, quality and service. Analogic believes that
its innovative engineering and product reliability have been important factors in its growth. While the Company tries to maintain
competitive pricing on those products which are directly comparable to products manufactured by others, in many instances
Analogic's products will conform to more exacting specifications and carry a higher price than analogous products
manufactured by others.
Analogic's medical X-ray imaging systems are highly specialized. The Company considers its selection by its OEM customers
for design and manufacture of these products and its other medical products to be much less a function of other competitors in
the field than it is of the "make-or-buy" decision of its individual OEM customers. Many OEM customers and potential OEM
customers of the Company have the capacity to design and manufacture these products for themselves. In the Company's area
of expertise, the continued signing of new contracts indicates continued strength in the Company's relationship with its major
customers, although some of these customers continue to commit to shorter-term contracts.
Analogic's competitors include divisions of some larger, more diversified organizations, as well as several specialized
companies. Some of them have greater resources and larger staffs than Analogic. The Company believes that, it is a leading
manufacturer of CT scanner and MRI electronic sub-systems in the medical industry.
RESEARCH AND PRODUCT DEVELOPMENT
Research and product development is a significant factor in Analogic's business. The Company maintains a constant and
comprehensive research and development program directed toward the creation of new products as well as toward the
improvement and refinement of its present products and the expansion of their uses and applications.
Company funds expended for research and product development amounted to $38,260,000 in fiscal 2000, $39,598,000 in
fiscal 1999, and $36,177,000 in fiscal 1998. Analogic intends to continue its emphasis on new product development. As of
July 31, 2000, Analogic had approximately 530 employees, including electronic
5
development engineers, software engineers, physicists, mathematicians, and technicians engaged in research and product
development activities. These individuals, in conjunction with the Company's salespeople, also devote a portion of their time
assisting customers in utilizing the Company's products, developing new uses for these products, and anticipating customer
requirements for new products.
During fiscal 2000, the Company capitalized $2,972,000 of computer software testing and coding costs incurred after
technological feasibility was established. These costs will be amortized by the straight-line method over the estimated economic
life of the related products, not to exceed three years. Amortization of capitalized software amounted to $1,778,000 in fiscal
2000.
ENVIRONMENTAL PROTECTION
The Company does not anticipate any material effect upon its capital expenditures, earnings or competitive position resulting
from compliance by it and its subsidiaries with presently enacted or adopted Federal, State and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the protection of the environment.
EMPLOYEES
As of July 31, 2000, the Company had approximately 1,830 employees.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT REVENUE
Domestic and foreign revenues were $266,641,000 and $30,978,000 respectively for fiscal 2000 compared to $255,142,000
and $24,552,000 in fiscal 1999 and $264,280,000 and $30,192,000 in fiscal 1998. (See Note 16 of Notes to Consolidated
Financial Statements for further information regarding foreign and domestic operations.)
Export revenue, primarily from sales of products and services to companies in Europe and Asia, amounted to approximately
$93,911,000 (34%) in fiscal 2000 as compared to approximately $95,504,000 (37%) in fiscal 1999, and approximately
$92,292,000 (33%) in fiscal 1998. Management believes that the Company's export revenue is at least as profitable as its
domestic revenue. The Company's export revenue is primarily denominated in U.S. dollars.
Management does not believe the Company's foreign and export revenue is subject to significantly greater risks than its
domestic revenue.
6
ITEM 6. SELECTED FINANCIAL DATA
RESTATED
YEAR ENDED JULY 31
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total Revenue....................... $297,619 $279,694 $294,472 $256,729 $230,460
Income from operations and interest
and dividend income............... 22,488 29,991 39,996 32,107 16,981
Net Income.......................... 14,066 19,185 23,771 18,769 13,065
Earnings per common and common
equivalent share:
Basic............................. $ 1.10 $ 1.51 $ 1.88 $ 1.49 $ 1.05
Diluted........................... 1.09 1.50 1.86 1.48 1.04
Dividends paid per common share..... $ 0.28 $ 0.27 $ 0.23 $ 0.20 $ 0.18
Number of shares used in computation
of per share data:
Basic............................. 12,817 12,683 12,614 12,554 12,455
Diluted........................... 12,883 12,791 12,793 12,702 12,562
Cash, Cash equivalents, and
marketable securities............. $116,374 $124,202 $121,800 $114,450 $100,549
Working Capital..................... 212,977 205,872 200,718 186,131 168,515
Total Assets........................ 333,201 312,699 301,053 280,628 265,162
Long-term debt (including
capitalized leases)............... 5,639 6,714 7,704 8,614 9,455
Stockholders' Equity................ 277,701 265,635 249,817 226,895 211,800
The selected financial data has been restated for the change in the carrying value of the Company's investment in Shenzhen
Anke High-Tech Co., Ltd (SAHCO) formerly known as Analogic Scientific, Inc. for differences between local statutory
accounting practice used by SAHCO and U.S. Generally Accepted Accounting Principles (GAAP). Please see Footnote 5 to
the consolidated financial statements for the changes made to Fiscal Years 1998, 1999 and 2000. For fiscal 1997, the
following changes were made:
YEAR ENDED
JULY 31, 1997
-------------
Net income
As restated............................................ $18,769
As reported............................................ $20,090
Net income per share
As restated -- Basic................................... $ 1.49
As reported -- Basic................................... $ 1.60
As restated -- Diluted................................. $ 1.48
As reported -- Diluted................................. $ 1.58
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 2000 Compared to Fiscal 1999
Product, service, engineering, and licensing revenues for fiscal 2000 were $278,543,000 as compared to $260,945,000 for
fiscal 1999, an increase of 7%. The increase of $17,598,000 was principally due to an increase in sales of Industrial
Technology Products of $11,133,000, as a result of higher demand for the Company's high frequency Automatic Test
Equipment (ATE) boards and an increase in sales of $6,492,000 in the Signal Processing Technology Products primarily due to
sales of EXACT (Explosive Assessment Computed Tomography) systems. Revenues of Medical Technology Products were
level with the prior year. Other operating revenue of $13,038,000 and $12,015,000 represents revenue from the Hotel
operation for fiscal 2000 and 1999, respectively. The increase of $1,023,000 in the hotel revenue was due to an increase in
occupancy and room rates over the prior year.
Interest and dividend income for fiscal 2000 was $6,038,000 as compared to $6,734,000 for fiscal 1999. The decrease of
$696,000 was primarily due to interest earned from the City of Peabody on real estate tax abatement recorded in fiscal year
2000 of $282,000 versus $842,000 recorded in fiscal year 1999.
Cost of sales compared to total net sales for fiscal 2000 and 1999 increased 3% to 63% from 60%. The increase was
primarily due to reduction in selling prices and higher manufacturing costs. Operating costs associated with the Hotel for fiscal
years 2000 and 1999 were $6,203,000 and $6,098,000, respectively.
General and administrative expenses were $27,526,000 in the year ended July 31, 2000 compared to $21,230,000 in the year
ended July 31, 1999. The increase of $6,296,000 was due primarily to additional expenses associated with our Canadian
subsidiary, ANRAD, acquired in June 1999; increased personnel expenses; additions to the bad debt provision; and costs
associated with a new Enterprise Resource Planning (ERP) system, partially offset by a decrease in staffing in the B-K
subsidiary.
Selling expenses were $26,207,000 in the year ended July 31, 2000 versus $25,735,000 in the year ended July 31, 1999. The
increase of $472,000 was primarily due to increase in sales personnel and marketing programs, partially offset by reduced
staffing in the B-K subsidiary.
Research and product development expenses were $38,260,000 in the year ended July 31, 2000, compared to $39,598,000
in the year ended July 31, 1999. The decrease of $1,338,000 is fiscal year 2000 versus fiscal year 1999, was primarily due to
higher capitalized software costs and lower expenses in the B-K subsidiary.
Computer software costs of $2,972,000 and $2,462,000 were capitalized in fiscal 2000 and 1999, respectively. Amortization
of capitalized software amounted to $1,778,000 and $1,977,000 in fiscal 2000 and 1999, respectively.
A loss of foreign exchange for fiscal 2000 amounted to $159,000, compared to $59,000 loss for fiscal 1999, primarily from
the Company's B-K subsidiary.
The amortization of excess of fair value of net assets over cost acquired from B-K was $113,000 each year for fiscal 2000 and
1999.
The Company's share of losses of a privately held company amounted to $2,225,000 and $4,780,000 in fiscal 2000 and fiscal
1999, respectively. (See Note 5 of Notes to Consolidated Financial Statements.)
During fiscal 2000, the Company's investment in Analogic Scientific was increased by $864,000 (restated) reflecting the
Company's share of Analogic Scientific's profit. During fiscal 1999, the Company's investment in Analogic Scientific was
decreased by $410,000 (restated) reflecting the Company's share of Analogic Scientific's loss. (See Note 5 of Notes to the
Consolidated Financial Statements.)
In fiscal 2000, the Company received the final distribution of 1,771,802 shares of restricted securities in a publicly traded
company from a limited partnership. At July 31, 2000, the Company recognized a loss of
8
approximately $110,000 on the value of these shares. (See Note 5 of Notes to the Consolidated Financial Statements.)
Minority interest in the net income of the Company's consolidated subsidiary, Camtronics, in fiscal 2000 amounted to
$487,000 compared to $758,000 for fiscal 1999. During Fiscal Year 2000 the Founders and employees of Camtronics
exercised their rights to sell their shares back to Camtronics. Subsequent to these transactions, the Company's share in
Camtronics increased to approximately 81%. (See Note 2 of Notes to Consolidated Financial Statements.)
The effective tax rate increased from 20% to 31% in fiscal 2000 primarily as a result of net losses of foreign subsidiaries for
which there were no tax benefits in fiscal 2000. Also, in fiscal 1999 the effective tax rate reflected the benefit of a reversal of
prior year tax provisions.
Net income for fiscal 2000 was $14,066,000 (restated), as compared to net income of $19,185,000 (restated) for the prior
year. Basic per-share earnings were $1.10 compared to $1.51 (restated) for fiscal 1999. Diluted per-share earnings were
$1.09 (restated) compared to $1.50 (restated) for fiscal 1999.
Fiscal 1999 Compared to Fiscal 1998
Product, service, engineering, and licensing revenues for fiscal 1999 were $260,945,000 as compared to $276,562,000 for
fiscal 1998, a decrease of 6%. The decrease of $15,617,000 was principally due to the completion of a foreign government
contract with our Danish subsidiary as well as softness in the Asian and South American markets, which adversely impacted
our OEM customers. Reduced demand for products for the Computer Telephony and Semiconductor industries contributed
approximately $6,000,000 to the revenue shortfall. Partially offsetting these revenue declines were initial fourth quarter
shipments of the EXACT system used for airport security. Other operating revenue of $12,015,000 and $12,036,000
represents revenue from the Hotel operation for fiscal 1999 and 1998, respectively.
Interest and dividend income increased $860,000 primarily due to interest earned from the City of Peabody on a real estate tax
abatement.
The percentage of total cost of sales to total net sales for fiscal 1999 and 1998 was 60%. Operating costs associated with the
Hotel for fiscal years 1999 and 1998 were $6,098,000 and $6,091,000, respectively.
General and administrative and selling expenses increased $825,000 or 2%, primarily due to higher operating costs in the
Company's Danish subsidiary, partially offset by lower staffing requirements within the Company's domestic operations.
Research and product development expenses increased $3,421,000 primarily due to the expanding effort applicable to
developing a new class of complex medical imaging systems.
Computer Software costs of $2,462,000 and $1,658,000 were capitalized in fiscal 1999 and 1998, respectively. Amortization
of capitalized software amounted to $1,977,000 and $2,406,000 in fiscal 1999 and 1998, respectively.
A loss of foreign exchange for fiscal 1999 amounted to $59,000, compared to $4,000 loss for fiscal 1998, primarily from the
Company's subsidiary in Denmark.
The amortization of excess of fair value of net assets over cost acquired from B-K was $113,000 and $335,000 in fiscal 1999
and 1998, respectively.
The Company's share of losses of a privately held company amount of $4,780,000 and $3,488,000 during fiscal 1999 and
1998, respectively. (See note 5 of Notes to Consolidated Financial Statements.)
The Company's investment in Analogic Scientific was decreased by $410,000 (restated) and $748,000 (revised) reflecting the
Company's share of Analogic Scientific's losses in fiscal 1999 and 1998, respectively. (See Note 5 of Notes to Consolidated
Financial Statements.)
During fiscal 1998, the Company recorded a write down of $400,000, reflecting a partial impairment of its 19% investment in
another privately held company. There were no adjustments in fiscal 1999.
9
During fiscal 1998, the Company sold 140,560 common shares of a publicly traded company, resulting in a gain of $997,000.
(See Note 5 of Notes to Consolidated Statements.)
Minority interest in the net income of the Company's consolidated subsidiary, Camtronics, for fiscal 1999 amounted to
$758,000 compared to $1,098,000 for fiscal 1998. During the fourth quarter of fiscal 1998, the Company purchased from one
of the founders of Camtronics his entire equity interest in Camtronics for $1,600,000. After this transaction, the Company's
share in Camtronics increased to approximately 77% (See Note 2 of Notes to Consolidated Financial Statements.)
The effective tax rate for fiscal 1999 was 20% vs. 32% for fiscal 1998. This decrease was due to the increased benefits of tax
exempt interest, increased general business credits, the impact of the resolution of prior year tax audit and increased FSC
(Foreign Sales Corporation) benefit.
Net Income for fiscal 1999 was $19,185,000 (restated), as compared to net income of $23,771,000 (restated) for the prior
year. Basic per-share earnings were $1.51 (restated) down from $1.88 (restated). Diluted per-share earnings were $1.50
(restated) down from $1.86 (restated).
FINANCIAL POSITION
The Company's balance sheet at July 31, 2000, reflects a current ratio of
6.0 to 1, compared to 7.0 to 1 at July 31, 1999. Cash, cash equivalents and marketable securities, as well as accounts and
notes receivable, constitute approximately 70% of current assets at July 31, 2000. Liquidity is sustained principally through
funds provided from operations, with short-term time deposits and marketable securities available to provide additional sources
of cash. The Company places its cash investments in high credit quality financial instruments and, by policy, limits the amount of
credit exposure to any one financial institution. Management does not anticipate any difficulties in financing operations at
anticipated levels. The Company's debt to equity ratio was .20 to 1 at July 31, 2000 compared to .18 to 1 at July 31, 1999.
The Company faces limited exposure to financial market risks, including adverse movements in foreign currency exchange rates
and changes in interest rates. These exposures may change over time as business practices evolve and could have a material
adverse impact on the Company's financial results. The Company's primary exposure has been related to local currency
revenue and operating expenses in Europe.
The carrying amounts reflected in the consolidated balance sheets of cash and cash equivalents, trade receivables, and trade
payables approximate fair value at July 31, 2000 due to the short maturities of these instruments.
The Company maintains a bond investment portfolio of various issuers, types, and maturities. The Company's cash and
investments include cash equivalents, which the Company considers to be investments purchased with original maturities of
three months or less. Investments having original maturities in excess of three months are stated at amortized cost, which
approximates fair value, and are classified as available for sale. A rise in interest rates could have an adverse impact on the fair
value of the Company's investment portfolio. The Company does not currently hedge these interest rate exposures.
In fiscal 2000 funds provided from operations were $14,260,000. The major components of the $14,260,000 were net
income of $14,066,000 (restated) and depreciation and amortization of $13,787,000 offset by increases in inventories of
$9,903,000 and accounts, notes, and affiliates receivables of $6,924,000.
The following investing activities resulted in a cash decrease of $12,030,000. During fiscal 2000, the Company invested an
additional $3,068,000 in a privately held company, which funded research and development for the design and manufacture of
medical imaging equipment. Capital expenditures for fiscal 2000 amounted to $12,998,000 and capitalized computer software
costs were approximately $2,972,000. The Company also decreased its investment in marketable securities by $6,035,000,
net of maturities.
Financing activities resulted in a net cash reduction of $2,806,000 primarily due to dividends paid to shareholders of
$3,590,000 and payments of debt and capital lease obligations of $987,000 partially offset by the proceeds from stock options
exercised of $1,771,000.
10
Total investments in and advances to affiliated companies increased by $2,007,000 (restated). This increase was primarily due
to an additional investment of $3,068,000 in a privately held company and $864,000 (restated) in the Company's share of
Analogic Scientific's profits, partially offset by $2,225,000 in the Company's share of equity losses from a privately held
company.
Notes Payable decreased by $1,075,000 to $5,639,000 at the end of fiscal 2000 primarily due to repayment of notes payable
of $361,000 and obligations under capital leases of $714,000.
Minority Interest in Consolidated Subsidiary decreased $318,000. This represents the minority interest in Camtronics.
The Company's three largest customers, each of which is a significant and valued customer, were Philips, General Electric and
Toshiba, which accounted for approximately 16%, 10%, and 9%, respectively, of product, service, engineering, and licensing
revenue for the fiscal year ended July 31, 2000. Loss of any one of these customers would have a material adverse effect upon
the Company's business.
As part of a stock repurchase program authorized by the Board of Directors, the Company purchased 16,000 shares of
common stock for its treasury during fiscal 1999 at an aggregate cost of $549,000. No shares were repurchased during fiscal
2000.
IMPACT OF INFLATION
Overall, inflation has not had a material impact on the Company's operations during the past three fiscal years.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board, ("FASB") issued Statement of Financial Accounting Standards
(SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities." The standard established accounting and
reporting standards requiring the recognition of all derivative instruments as either assets or liabilities in the statement of financial
position and the measure of those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, which defers the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
which amends certain derivative instruments and certain hedging activities in SFAS No. 133. Because the company does not
currently hold any derivative instruments and does not currently engage in hedging activities, we expect the adoption of SFAS
No. 133 and SFAS No 138 will not have a material impact on our financial position or operating results.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue
Recognition in Financial Statements," as amended by SAB 101A and SAB No. 101B ("SAB 101"), which is effective no later
than the quarter ending July 31, 2001. SAB 101 clarifies the Securities and Exchange Commission's views regarding the
recognition of revenue. The Company will adopt SAB 101 in the fourth quarter of 2001. The Company is currently evaluating
the impact SAB 101 will have on the Company's financial position and results of operations.
In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation -- an interpretation of Accounting Principles Board (APB) Opinion No. 25" (FIN 44). FIN 44
clarifies the application of APB Opinion No. 25 including: the definition of an employee for purposes of applying APB Opinion
No. 25, the criteria for determining whether a plan qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of previously fixed stock options or awards, and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover
specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the
application of FIN 44 to have a material impact on its results of operations or financial position.
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
NUMBER
------
(a) 1. Financial Statements
Report of Independent Accountants........................... 13
Consolidated Balance Sheets at July 31, 2000 and 1999....... 14
Consolidated Statements of Income for the years ended July
31, 2000, 1999 and 1998..................................... 15
Consolidated Statements of Stockholders' Equity for the
years ended July 31, 2000, 1999 and 1998.................... 16
Consolidated Statements of Cash Flows for the years ended
July 31, 2000, 1999 and 1998................................ 16
Notes to Consolidated Financial Statements.................. 18-33
2. Financial Statement Schedule II. -- Valuation and Qualifying
Accounts.................................................... 34
Other schedules have been omitted because they are not
required, not applicable, or the required information is
furnished in the consolidated statements or notes thereto
3. Exhibits -- See Index to Exhibits........................... 35-38
(b) Report on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter ended July 31, 2000.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this
Amendment to be signed on its behalf by the undersigned, thereunto duly authorized.
ANALOGIC CORPORATION
Date: June 4, 2001 By /s/ JOHN J. MILLERICK
------------------------------------
John J. Millerick
Senior Vice President,
Chief Financial Officer and
Treasurer
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Analogic Corporation:
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 22 present fairly,
in all material respects, the financial position of Analogic Corporation and its subsidiaries at July 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in the period ended July 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(a)(2) on page 12, presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on
these financial statements and the financial statement schedule based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 5, the Company has revised its financial statements with respect to its accounting for its investment in and
advances to affiliated companies.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 21, 2000, except as to Section A of Note 5 as
to which the date is March 15, 2001.
14
ANALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
(RESTATED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 29,132 $ 30,017
Marketable securities, at market (Note 3)................. 87,242 94,185
Accounts and notes receivable net of allowance for
doubtful accounts ($1,010 in 2000 and $1,123 in 1999)... 60,374 51,455
Accounts receivable affiliates, net (Note 5).............. 3,063 4,945
Inventories (Note 4)...................................... 62,326 52,423
Deferred income taxes (Note 10)........................... 8,511 4,317
Other current assets...................................... 5,239 3,128
-------- --------
Total current assets.................................... 255,887 240,470
Property, plant and equipment, net (Note 4)............... 63,524 63,514
Investments in and advances to affiliated companies (Note
5)...................................................... 4,855 3,258
Capitalized software, net................................. 5,368 4,174
Other assets.............................................. 3,567 1,283
-------- --------
Total Assets............................................ $333,201 $312,699
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Mortgage and other notes payable (Note 6)................. $ 363 $ 356
Obligations under capital leases (Note 7)................. 714 633
Accounts payable, trade................................... 20,015 14,526
Accrued expenses (Note 4)................................. 20,038 19,015
Accrued income taxes (Note 10)............................ 1,780 68
-------- --------
Total current liabilities............................... 42,910 34,598
Long term debt:
Mortgage and other notes payable (Note 6)................. 5,265 5,626
Obligations under capital leases (Note 7)................. 374 1,088
-------- --------
5,639 6,714
Deferred income taxes (Note 10)............................. 2,519 949
Excess of acquired net assets over cost, net................ 104 217
Minority interest in subsidiary............................. 4,268 4,586
Commitments (Note 7)
Stockholders' equity:
Common stock, $.05 par; authorized 30,000,000 shares;
issued 13,980,502 shares in 2000; 13,884,127 shares in
1999.................................................... 699 694
Capital in excess of par value............................ 27,703 24,718
Retained earnings......................................... 266,127 255,651
Accumulated other comprehensive income.................... (2,118) (1,023)
Treasury stock, at cost (1,102,135 shares in 2000,
1,169,070 shares in 1999)............................... (11,869) (13,100)
Unearned compensation..................................... (2,781) (1,305)
-------- --------
Total stockholders equity............................... 277,761 265,635
-------- --------
Total Liabilities and Stockholders' Equity.............. $333,201 $312,699
======== ========
The accompanying notes are an integral part of these financial statements.
15
ANALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JULY 31, (RESTATED)
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Product and service, net................................. $255,250 $242,853 $260,517
Engineering and licensing................................ 23,293 18,092 16,045
Other operating revenue.................................. 13,038 12,015 12,036
Interest and dividend income............................. 6,038 6,734 5,874
-------- -------- --------
Total revenues........................................... 297,619 279,694 294,472
-------- -------- --------
Cost of sales and expenses:
Cost of sales:
Product and service................................... 159,175 144,120 151,536
Engineering and licensing............................. 17,413 12,612 14,355
Other operating expenses.............................. 6,203 6,098 6,091
General and administrative............................... 27,526 21,230 20,326
Selling.................................................. 26,207 25,735 25,814
Research and product development......................... 38,260 39,598 36,177
Interest expense (Note 6)................................ 301 364 508
Loss on foreign exchange................................. 159 59 4
Amortization of excess of acquired net assets over
cost.................................................. (113) (113) (335)
-------- -------- --------
Total cost of sales and expenses......................... 275,131 249,703 254,476
-------- -------- --------
Income from operations and interest and dividend income 22,488 29,991 39,996
Gain on sale of marketable securities...................... 997
Equity in loss of unconsolidated affiliates................ (1,286) (5,067) (3,789)
Loss on investment......................................... (110) (400)
-------- -------- --------
Income before income taxes and minority interest........... 21,092 24,924 36,804
Provision for income taxes (Note 10)....................... 6,539 4,981 11,935
Minority interest in net income of consolidated
Subsidiary............................................... 487 758 1,098
-------- -------- --------
Net Income................................................. $ 14,066 $ 19,185 $ 23,771
======== ======== ========
Earnings per share (Note 14):
Basic.................................................... $ 1.10 $ 1.51 $ 1.88
Diluted.................................................. $ 1.09 $ 1.50 $ 1.86
The accompanying notes are an integral part of these financial statements.
16
ANALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JULY 31, 2000, 1999 AND 1998
COMMON STOCK CAPITAL IN TREASURY STOCK
------------------- EXCESS OF ---------------------
SHARES AMOUNT PAR VALUE SHARES AMOUNT
---------- ------ ---------- ---------- --------
(000 OMITTED, EXCEPT SHARE DATA)
Balance, July 31, 1997............................ 13,835,364 $692 $22,916 (1,234,653) $(14,121)
Shares issued for employee stock options, grants,
and stock purchase plan, net of cancellations
and income tax benefit.......................... 16,763 1 442 29,306 606
Amortization of unearned compensation.............
Dividends paid ($0.23 per share)..................
Other............................................. 209
Comprehensive Income:
Net income for the year.........................
Translation adjustments.......................
Unrealized holding gains and losses...........
Comprehensive Income..........................
---------- ---- ------- ---------- --------
Balance, July 31, 1998............................ 13,852,127 $693 $23,567 (1,205,347) $(13,515)
========== ==== ======= ========== ========
Shares issued for employee stock options, grants,
and stock purchase plan, net of cancellations
and income tax benefit.......................... 32,000 1 1,043 52,277 964
Purchases of treasury stock....................... (16,000) (549)
Amortization of unearned compensation.............
Dividends paid ($0.27 per share)..................
Other............................................. 108
Comprehensive Income:
Net income for the year.........................
Translation adjustments.......................
Unrealized holding gains and losses...........
Comprehensive Income..........................
---------- ---- ------- ---------- --------
Balance, July 31, 1999............................ 13,884,127 $694 $24,718 (1,169,070) $(13,100)
========== ==== ======= ========== ========
Shares issued for employee stock options, grants,
and stock purchase plan, net of cancellations
and income tax benefit.......................... 96,375 5 2,915 66,935 1,231
Amortization of unearned compensation.............
Dividends paid ($0.28 per share)..................
Other............................................. 70
Comprehensive Income:
Net income for the year.........................
Translation adjustments.......................
Net of tax of $1,265
Unrealized holding gains and losses...........
Net of tax of $122
Comprehensive Income:.........................
========== ==== ======= ========== ========
Balance, July 31, 2000............................ 13,980,502 $699 $27,703 (1,102,135) $(11,869)
========== ==== ======= ========== ========
ACCUMULATED RESTATED
RESTATED OTHER TOTAL
UNEARNED RETAINED COMPREHENSIVE STOCKHOLDERS'
COMPENSATION EARNINGS INCOME EQUITY
------------ -------- ------------- -------------
(000 OMITTED, EXCEPT SHARE DATA)
Balance, July 31, 1997............................ $(1,710) $219,022 $ 96 $226,895
Shares issued for employee stock options, grants,
and stock purchase plan, net of cancellations
and income tax benefit.......................... 70 1,119
Amortization of unearned compensation............. 538 538
Dividends paid ($0.23 per share).................. (2,902) (2,902)
Other............................................. 209
Comprehensive Income:
Net income for the year......................... 23,771 23,771
Translation adjustments....................... 244 244
Unrealized holding gains and losses........... (57) (57)
--------
Comprehensive Income.......................... 23,958
------- -------- ------- --------
Balance, July 31, 1998............................ $(1,102) $239,891 $ 283 $249,817
======= ======== ======= ========
Shares issued for employee stock options, grants,
and stock purchase plan, net of cancellations
and income tax benefit.......................... (730) 1,278
Purchases of treasury stock....................... (549)
Amortization of unearned compensation............. 527 527
Dividends paid ($0.27 per share).................. (3,425) (3,425)
Other............................................. 108
Comprehensive Income:
Net income for the year......................... 19,185 19,185
Translation adjustments....................... (250) (250)
Unrealized holding gains and losses........... (1,056) (1,056)
--------
Comprehensive Income.......................... 17,879
------- -------- ------- --------
Balance, July 31, 1999............................ $(1,305) $255,651 $(1,023) $265,635
======= ======== ======= ========
Shares issued for employee stock options, grants,
and stock purchase plan, net of cancellations
and income tax benefit.......................... (2,120) 2,031
Amortization of unearned compensation............. 644 644
Dividends paid ($0.28 per share).................. (3,590) (3,590)
Other............................................. 70
Comprehensive Income:
Net income for the year......................... 14,066 14,066
Translation adjustments....................... (309) (309)
Net of tax of $1,265
Unrealized holding gains and losses........... (786) (786)
Net of tax of $122
--------
Comprehensive Income:......................... 12,971
======= ======== ======= ========
Balance, July 31, 2000............................ $(2,781) $266,127 $(2,118) $277,761
======= ======== ======= ========
The accompanying notes are an integral part of these financial statements.
17
ANALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED JULY 31, (RESTATED)
--------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income................................................. $ 14,066 $ 19,185 $ 23,771
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income taxes.................................... (2,624) (2,645) 409
Depreciation and amortization............................ 13,787 13,525 10,315
Minority interest in net income of consolidated
subsidiaries.......................................... 487 758 1,098
Allowance for doubtful accounts.......................... (113) 367 1,273
Gain on sale of marketable securities.................... (997)
Gain on sale of equipment................................ (106) (59) (25)
Excess of equity in loss of unconsolidated affiliates.... 1,287 5,067 3,789
Impairment on investment................................. 110 400
Compensation from stock grants........................... 644 526 538
Net changes in operating assets and liabilities (Note
13)................................................... (13,278) 294 (12,978)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 14,260 37,018 27,593
-------- -------- --------
INVESTING ACTIVITIES:
Investments in an advances to affiliated companies......... (3,068) (3,980) (3,340)
Additions to property, plant and equipment................. (12,998) (20,655) (14,598)
Capitalized software....................................... (2,972) (2,462) (1,658)
Proceeds from sale of property, plant and equipment........ 973 116 49
Purchases of marketable securities......................... (8,805) (11,205) (29,770)
Maturities of marketable securities........................ 14,840 10,120 25,053
Proceeds from sale of marketable securities................ 997
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES...................... (12,030) (28,066) (23,267)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from (payment of) overdraft facility.............. (2,600) 2,600
Payments on debt and capital lease obligations............. (987) (911) (841)
Purchase of common stock for treasury...................... (549)
Issuance of common stock pursuant to stock options and
employee stock purchase plan............................. 1,771 1,156 863
Dividends paid to shareholders............................. (3,590) (3,425) (2,902)
Purchase of minority interest.............................. (1,600)
-------- -------- --------
NET CASH USED BY FINANCING ACTIVITIES...................... (2,806) (6,329) (1,880)
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................... (309) (250) 244
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (885) 2,373 2,690
-------- -------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............... 30,017 27,644 24,954
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR..................... $ 29,132 $ 30,017 $ 27,644
======== ======== ========
The accompanying notes are an integral part of these financial statements.
18
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Business operations:
The Company's operations consist of the design, manufacture and sale of high technology, high performance, high-precision
data acquisition, conversion (analog/digital) and signal processing instruments and systems to customers that manufacture
products for medical and industrial use. The Company is subject to risks common to companies in the medical instrumentation
technology industry, including, but not limited to, development by its competitors of new technological innovations, dependence
on key personnel, loss of any significant OEM customer, protection of proprietary technology, and compliance with regulations
of domestic and foreign regulatory authorities and agencies.
Product, service, engineering and licensing export revenue, primarily from customers in Europe and Asia, amounted to
approximately $93,911,000 or 34%, $95,504,000 or 37%, and $92,292,000 or 33% of total product, service, engineering
and licensing revenue for the years ended July 31, 2000, 1999 and 1998, respectively.
Significant accounting policies are as follows:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the Company and all wholly owned and majority-owned
subsidiaries. Investments in companies in which ownership interests range from 20 to 50 percent and the Company exercises
significant influence over operating and financial policies are accounted for using the equity method. Other investments are
accounted for using the cost method. All significant intercompany accounts and transactions have been eliminated.
(b) Inventories:
Inventories are stated at the lower of cost or market. Costs are determined using standard cost which approximates the first-in,
first-out (FIFO) method.
(c) Property, plant and equipment:
Fixed assets are recorded at cost. Provisions for depreciation are based on their estimated useful lives using the straight-line
method. Leasehold improvements are depreciated over the shorter of the remainder of the lease's term or the life of the
improvements. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are
removed from the accounts and any gain or loss is reflected in income.
The annual provisions for depreciation and amortization have been computed in accordance with the following ranges of
estimated useful lives:
Buildings............................................. 35 years
Property under capital lease.......................... 14 to 23 years
Manufacturing equipment............................... 4 to 7 years
Furniture, fixtures and computer equipment............ 4 to 8 years
Leasehold and capital lease improvements.............. 1 to 15 years
Motor vehicles........................................ 3 years
(d) Revenue recognition:
Revenue from product sales is recognized at shipment provided that no significant obligations remain outstanding and the
resulting receivable is deemed collectible by management. Service revenues are recognized at the time the services are rendered
and the Company has no significant further obligations to the
19
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
customer. For certain transactions, at the request of the customer, revenue is recognized on a bill and hold basis after
completion of manufacture. All bill and hold transactions meet specified revenue recognition criteria which include normal billing,
credit and payment terms, firm commitment and transfer to the customers of all risks and rewards of ownership. Total revenue
related to bill and hold transactions were approximately $1,806,000, $2,049,000 and $668,000 for the years ended July 31,
2000,1999, and 1998 respectively.
(e) Capitalized software costs:
The Company capitalizes certain computer software costs, after technological feasibility has been established, which are
amortized utilizing the straight-line method over the economic lives of the related products not to exceed three years.
Accumulated amortization approximated $18,883,000 and $17,104,000 at July 31, 2000 and 1999, respectively.
(f) Warranty costs:
The Company provides for estimated warranty costs as products are shipped.
(g) Research and product development costs:
Research and product development costs are expensed as incurred.
(h) Income taxes:
The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets, subject
to valuation allowances, and liabilities for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of asset and liabilities for financial reporting and income tax purposes. A valuation allowance is established if it is more
likely than not that all or a portion of the net deferred tax assets will not be realized.
(i) Earnings per share:
Basic per-share earnings are based upon the weighted average common shares outstanding during the year. Diluted per-share
earnings are based upon the weighted average common shares and potential new shares from stock options. The number of
shares utilized in the basic per-share computations were 12,817,129, 12,683,326 and 12,614,303 in fiscal 2000, 1999 and
1998. The number of shares utilized in the diluted per-share computations are 12,883,368, 12,790,836 and 12,793,027 in
fiscal 2000, 1999, and 1998 respectively.
(j) Cash and cash equivalents:
The Company considers all short-term deposits with an original maturity of three months or less at acquisition date to be cash
equivalents. Cash equivalents amounted to approximately $26,372,000 and $29,258,000 at July 31, 2000 and 1999,
respectively.
(k) Concentration of credit risk:
The Company grants credit to domestic and foreign original equipment manufacturers, distributors and end users. The
Company places its cash investments in high credit quality financial instruments and, by policy, limits the amount of credit
exposure to any one financial institution.
20
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(l) Marketable securities:
The Company's marketable securities are categorized as available-for-sale securities, as defined by the Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Unrealized holding gains
and losses are reflected as a net amount in a separate component of stockholders' equity until realized. For the purpose of
computing realized gains and losses cost is identified on a specific identification basis.
(m) Accounting Standards
In June 1998, the Financial Accounting Standards Board, ("FASB") issued Statement of Financial Accounting Standards
(SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities." The standard established accounting and
reporting standards requiring the recognition of all derivative instruments as either assets or liabilities in the statement of financial
position and the measure of those instruments at fair value. In June 1999, the FASB issued SFAS No. 137, which defers the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138,
which amends certain derivative instruments and certain hedging activities in SFAS No. 133. Because the company does not
currently hold any derivative instruments and does not currently engage in hedging activities, we expect the adoption of SFAS
No. 133 and SFAS No. 138 will not have a material impact on our financial position or operating results.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue
Recognition in Financial Statements," as amended by SAB 101A and SAB No. 101B ("SAB101"), which is effective no later
than the quarter ending July 31, 2001. SAB 101 clarifies the Securities and Exchange Commission's views regarding the
recognition of revenue. The Company will adopt SAB 101 in the fourth quarter of 2001. The Company is currently evaluating
the impact SAB 101 will have on the Company's financial position and results of operations.
In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation -- an interpretation of Accounting Principles Board (APB) Opinion No. 25" (FIN 44). FIN 44
clarifies the application of APB Opinion No. 25 including: the definition of an employee for purposes of applying APB Opinion
No. 25, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of
various modifications to the terms of previously fixed stock options or awards, and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover
specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the
application of FIN 44 to have a material impact on its result of operations or financial position.
(n) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Actual
results could differ from those estimates.
(o) Comprehensive income
Statement of Financial Accounting Standards No. 130, ("SFAS 130"), "Reporting Comprehensive Income" establishes new
rules for reporting and display of comprehensive income and its components. Components of comprehensive income include
net income and certain transactions that have generally been reported in the consolidated statements of shareholders' equity.
Other comprehensive income consists of unrealized gains and losses on investments and foreign currency translation
adjustments.
21
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(p) Stock-based compensation:
Statement of Financial Accounting Standards No. 123, ("SFAS 123"), "Accounting for Stock-based Compensation"
encourages, but does not require, recognition of compensation expense based on the fair value of employee stock-based
compensation instruments. The Company has not adopted the fair value method of accounting for employee stock-based
compensation, but instead complies with the pro forma disclosure requirements.
(q) Fair value of financial instruments:
The carrying amounts of cash, cash equivalents, receivables, mortgages and other notes payable approximate fair value. The
Company believes similar terms for mortgage and other notes payable would be attainable. The fair values of marketable
securities are estimated based on quoted market price for these securities.
(r) Impairment of Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets, primarily fixed assets, in accordance with Statement of
Financial Accounting Standards No. 121, (SFAS 121), "Accounting for the Impairment of Long-Lived Assets to be Disposed
of". SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds
the estimated future undiscounted cash flows attributable to such assets. No impairments were required to be recognized during
the years ended July 31, 2000, 1999 and 1998.
(s) Basis of presentation:
Certain financial statement items have been reclassified to conform to the current year's format.
2. BUSINESS COMBINATIONS:
The Company's subsidiary, Camtronics, entered into an agreement with the three founding stockholders ("Founders") two of
whom remain active employees of Camtronics. The agreement requires Camtronics to purchase up to 5% of the shares of
Camtronics common stock originally issued to the Founders at their option during each fiscal year beginning in 1992 pursuant to
a predetermined formula. If a Founder does not exercise his right to cause Camtronics to purchase his outstanding shares, such
rights shall not lapse, but shall be cumulative and may be exercised hereafter. At July 31, 2000 the Founders' remaining shares
when valued at the predetermined formula price have a total value of $2.8 million. The Company's ownership of Camtronics
increased from approximately 65% in fiscal 1992 to approximately 81% in fiscal 2000, as a result of one of the Founders
selling his entire equity interest in Camtronics to the Company for $1,600,000, and the other Founders exercising their rights to
sell 5% of their shares during this period. The carrying value of the Company's total investment in Camtronics exceeded its
portion of underlying equity in net assets by approximately $1,453,000 which has been fully amortized.
As of January 1, 1993, the Company acquired an interest of approximately 57% in a newly formed company, B-K Medical
Systems A/S ("B-K"), for $3,607,000 in cash and a subordinated interest free short-term loan of $3,500,000, which was
converted into equity on July 31, 1993. The Company's ownership interest was adjusted upward to 59% in fiscal 1994 in
accordance with the shareholders' agreement. B-K, a Danish Corporation, is primarily engaged in the design and manufacture
of ultrasound imaging devices used in urology and various sonographic techniques. The acquisition was accounted for as a
purchase and B-K's operations have been included in the Company's consolidated financial statements since January 1, 1993.
The Company's equity in net assets of B-K exceeded the purchase price by approximately $2,662,000, and was fully
amortized by July 31, 1998. As of July 1, 1996, the Company acquired the remaining 41% interest in B-K
22
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for $3,416,000 in cash. The Company's equity in net assets of B-K exceeded the purchase price for this portion of the
investment by approximately $565,000. This excess is being amortized over a five-year period beginning July 1, 1996.
Accumulated amortization amounted to $462,000 and $349,000 as of July 31, 2000 and 1999, respectively.
On June 28, 1999, the Company acquired the fixed assets of Noranda Advanced Materials' medical detectors and pure metal
businesses for approximately $5.5 million. The company was renamed ANRAD and is located in St. Laurent, Quebec.
ANRAD's objective is to develop and manufacture selenium-based flat panel x-ray detectors for the medical and industrial
markets. The acquisition was accounted for as a purchase and ANRAD operations have been included in the Company's
consolidated financial statements since June 28, 1999. During the fourth quarter of fiscal 2000, ANRAD sold the assets of its
pure metal business at cost for approximately $700,000 in cash to former employees. No gain or loss was recognized by the
Company in connection with the sale.
3. MARKETABLE SECURITIES:
Marketable securities are categorized as available-for-sale securities and summarized as follows:
GROSS UNREALIZED
--------------------
JULY 31, 2000 COST FAIR VALUE GAIN LOSS
------------- ----------- ----------- -------- ---------
Debt securities issued by various state
and local municipalities and
agencies.............................. $87,550,000 $87,242,000 $384,000 $(692,000)
JULY 31, 1999
----------------------------------------
Debt securities issued by various state
and local municipalities and
agencies.............................. $93,585,000 $94,185,000 $901,000 $(301,000)
Contractual maturities range from one to seven years, with the majority five years or less.
23
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. BALANCE SHEET INFORMATION
Additional information for certain balance sheet accounts is as follows for the years ended:
JULY 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Inventories:
Raw materials............................................. $ 31,728 $ 20,918
Work-in-process........................................... 20,724 20,621
Finished goods............................................ 9,874 10,884
--------- ---------
$ 62,326 $ 52,423
========= =========
Property, plant and equipment:
Land and land improvements................................ $ 4,253 $ 4,252
Buildings................................................. 37,531 37,209
Property under capital lease.............................. 4,865 6,251
Leasehold and capital lease improvements.................. 3,464 5,201
Manufacturing equipment................................... 90,621 84,770
Furniture, fixtures and computer equipment................ 32,118 30,770
Motor vehicles............................................ 834 1,136
--------- ---------
173,686 169,589
Less accumulated depreciation and amortization............ (110,162) (106,075)
--------- ---------
$ 63,524 $ 63,514
========= =========
Accrued expenses:
Accrued employee compensation and benefits................ $ 10,562 $ 10,349
Accrued warranty.......................................... 3,636 3,840
Accrued expenses.......................................... 5,840 4,826
--------- ---------
$ 20,038 $ 19,015
========= =========
5. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES:
A) Investment in Shenzhen Anke High-Tech Co., Ltd:
The Company owned 50% of Analogic Scientific, Inc. (ASI), a joint venture corporation with Kejian Corporation of The
People's Republic of China. The Company's original investment of $1,500,000 has been accounted for using the equity method
of accounting. During October, 2000, Analogic Scientific, Inc. entered into separate agreements with four investors which
resulted in these investors buying an 11.8% equity interest in ASI. As a result, the Company's ownership in ASI was reduced
to 44.6%. On January 18, 2001, the company name was changed from "Analogic Scientific, Inc." to "Shenzen Anke
High-Tech Co., Ltd" (SAHCO).
During the quarter ended October 31, 2000, the Company became aware of certain differences between local statutory
accounting practice used by SAHCO and U.S. Generally Accepted Accounting Principles (GAAP) primarily with respect to
the valuation of accounts receivable and inventory and revenue recognition. The effect of this change has been to restate all
periods and beginning retained earnings.
Accordingly, the Company evaluated the potential differences in accounting basis and concluded that adjustments were
necessary for prior periods resulting in a reduction in the Company's investment of SAHCO of $2,375,000 at July 31, 2000
(or $1,838,000 net of tax effect) which reduced the carrying value of the
24
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's investment at July 31, 2000 from $6,125,000 to $3,750,000. This restatement resulted in the following changes to
the investment in and advances to affiliated companies account and to the consolidated statements of income and stockholders'
equity:
YEAR ENDED JULY 31,
------------------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Equity on loss of unconsolidated affiliates
As restated.................................. $(1,286) $(5,067) $(3,789)
As reported.................................. $(1,225) $(4,657) $(3,616)
Provision for income taxes
As restated.................................. $ 6,539 $ 4,981 $11,935
As reported.................................. $ 6,558 $ 5,063 $11,991
Net income
As restated.................................. $14,066 $19,185 $23,771
As reported.................................. $14,108 $19,513 $23,888
Net income per share
As restated -- Basic......................... $ 1.10 $ 1.51 $ 1.88
As reported -- Basic......................... $ 1.10 $ 1.54 $ 1.89
As restated -- Diluted....................... $ 1.09 $ 1.50 $ 1.86
As reported -- Diluted....................... $ 1.10 $ 1.53 $ 1.87
JULY 31,
--------------------------------------------
2000 1999 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
Retained earnings
As restated........................ $266,127 $255,651 $239,891 $219,022
As reported........................ $267,935 $257,417 $241,329 $220,343
Investments in and advances to
affiliated companies
As restated........................ $ 4,855 $ 3,258 $ 4,468 $ 5,364
As reported........................ $ 7,230 $ 5,572 $ 6,372 $ 7,095
The Company's share of Scientific's profit amounted to $864,000 in fiscal year 2000, after restatement. The Company's share
of Scientific's loss amounted to $410,000 and $748,000 in fiscal year 1999 and 1998, after restatement respectively. The
carrying value of this investment was $3,750,000 at July 31, 2000 and $2,886,000 at July 31, 1999. Transactions with
Scientific for fiscal years 2000, 1999 and 1998 consisted of revenues of approximately $5,575,000, $2,610,000 and
$1,116,000, respectively. At July 31, 2000 and 1999, net accounts receivable from this affiliate were $3,063,000, and
$1,884,000, respectively.
B) Other Investments:
During fiscal 2000, the Company made an additional investment of $3,068,000 ($3,950,000 in fiscal 1999) in a privately held
company, which funded research and development for the design and manufacture of medical imaging equipment. Since fiscal
1996, the Company has made a cumulative investment of $13,698,000 in return for a 50% equity position in the privately held
company. During fiscal 2000 and 1999,
25
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transactions with this privately held company consisted of revenues of $3,559,000 and $10,177,000, respectively.
Upon completion of the research and development phase, the private company sold its intellectual property to a new company
in the form of a license; distributed its assets to the Company and the other original investor; and ceased operations. The
Company, in conjunction with its original investor, retains a 50% interest in the new company, which will receive license related
royalties based upon future sales of medical imaging equipment.
In fiscal 2000, the Company received a final distribution of 1,771,802 shares of restricted securities in a publicly traded
company from the limited partnership. The restriction on 620,865 shares will be withdrawn on January 1, 2001 and on the
balance of 1,150,937 shares on March 29, 2001. At July 31, 2000 the Company recognized a loss of approximately
$110,000 on the value of these shares. During fiscal 1998, the Company received a distribution of stock from this limited
partnership, which was sold for a gain of $997,000. The Company's investment in a limited partnership is accounted for using
the cost method, as the Company is a limited partner, and accordingly, has no influence over the partnership. The carrying value
of this investment at July 31, 2000 is $664,000.
6. MORTGAGE AND OTHER NOTES PAYABLE:
Mortgage and other notes payable consists of the following:
JULY 31,
-----------------------
2000 1999
---------- ----------
3% mortgage note payable, due 2017, payable quarterly,
collateralized by land, office and manufacturing
facilities................................................ $4,728,000 $4,932,000
Business Development Revenue Bonds, interest of
approximately 5% payable quarterly, annual principal
payments of $150,000 through September 1, 2005,
collateralized by land, office and manufacturing
facilities................................................ 900,000 1,050,000
---------- ----------
5,628,000 5,982,000
Less current portion........................................ 363,000 356,000
---------- ----------
$5,265,000 $5,626,000
========== ==========
Principal maturities in each of the next five fiscal years on the above notes are as follows: 2001, $363,000; 2002, $369,000;
2003, $376,000; 2004, $383,000; 2005, $390,000.
Total interest incurred amounted to $472,000, $518,000, and $659,000, in 2000, 1999, and 1998, respectively, of which
$171,000 in 2000, $154,000 in 1999, and $151,000 in 1998 was capitalized.
7. LEASE COMMITMENTS WITH RELATED AND NON-RELATED THIRD PARTIES:
The Company leases three operating facilities from a partnership in which the Chairman and the former Vice Chairman are
partners under leases that have been accounted for as capital leases. Certain leases contain contingent rentals based upon
cost-of-living adjustments. Contingent rentals were not significant in 2000, 1999 and 1998.
26
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property under capital leases is included in property, plant and equipment, as follows:
JULY 31,
-----------------------
2000 1999
---------- ----------
Land and Buildings.......................................... $4,865,000 $6,251,000
Less accumulated amortization............................... 4,485,000 5,636,000
---------- ----------
Net capital lease assets.................................... $ 380,000 $ 615,000
========== ==========
Certain of the Company's subsidiaries lease manufacturing and office space under non-cancelable operating leases. These
leases contain renewal options. The Company leases certain other real property and equipment under operating leases which, in
the aggregate, are not significant.
Rent expense approximated $989,000, $764,000, and $513,000 (net of sublease income of $1,143,000, $1,108,000, and
$1,144,000) in fiscal 2000, 1999 and 1998, respectively.
The following is a schedule by year of future minimum lease payments at July 31, 2000:
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ---------- ----------
2001........................................................ $ 812,000 $1,397,000
2002........................................................ 213,000 848,000
2003........................................................ 213,000 493,000
2004........................................................ 421,000
2005........................................................ 616,000
---------- ----------
$1,238,000 $3,775,000
==========
Less amount representing interest,
At 9.5% - 17.6%........................................... 150,000
----------
Present value of minimum lease payments (includes current
portion of $714,000)...................................... $1,088,000
----------
Future minimum lease payments under capital leases have not been reduced for sublease rental income of approximately
$1,143,000.
8. STOCK OPTION AND STOCK BONUS PLANS:
At July 31, 2000, the Company had four key employee stock option plans; two of which have lapsed as to the granting of
options. In addition, the Company has one key employee stock bonus plan, two non-employee director stock option plans
(one of which has lapsed as to the granting of options), and one employee stock purchase plan.
Options granted under the four key employee stock option plans become exercisable in installments commencing no earlier than
three years from the date of grant and no later than seven years from the date of grant. Unexercised options expire eight years
from date of grant. Options issued under the plans are non-qualified options or incentive stock options and are issued at prices
of not less than 100% of the fair market value at the date of grant. Tax benefits from early disposition of the stock by optionees
under incentive stock options, and from exercise of non-qualified options are credited to capital in excess of par value.
Options granted under two non-employee director stock option plans become exercisable in installments commencing one year
from the date of grant and remain exercisable for ten years from the date of grant. Options issued under the plans are non
qualified options and are issued at prices of 100% of the fair market value at the date of grant.
27
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the Company's key employee stock bonus plan, common stock may be granted to key employees under terms and
conditions as determined by the Board of Directors. Generally, participants under the stock bonus plan may not dispose or
otherwise transfer stock granted for three years from date of grant. Upon issuance of stock under the plan, unearned
compensation equivalent to the market value at the date of grant is charged to stockholders' equity and subsequently amortized
over the periods during which the restrictions lapse (up to six years). Shares granted under the Company's key employee stock
bonus plan were 87,000 at a weighted average fair market value of $2,426,000 in fiscal 2000; 22,000 shares at a weighted
average fair market value of $736,000 in fiscal 1999; and 3000 shares at a weighted average fair market value of $109,000 in
fiscal 1998. Amortization of unearned compensation of $644,000, $527,000, and $538,000 was recorded in fiscal 2000,
1999, and 1998, respectively.
Under the employee stock purchase plan, participants are granted options to purchase the Company's common stock twice a
year at the lower of 85% of market value at the beginning or end of each period. Calculation of the number of options granted,
and subsequent purchase of these shares, is based upon voluntary payroll deductions during each six-month period. The
number of options granted to each employee under this plan, when combined with options issued under other plans, is limited to
a maximum outstanding fair market value of $25,000 during each calendar year. The number of shares issued pursuant to this
plan totaled 11,940 in 2000, 12,389 in 1999, and 6,007 in 1998.
At July 31, 2000, 1,018,384 shares were reserved for grant under the above stock option, bonus and purchase plans.
The following table sets forth the stock option transactions for the years ended July 31, 2000, 1999, and 1998:
2000 1999 1998
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER
PRICE PER OF PRICE PER OF PRICE PER OF
SHARE SHARES SHARE SHARES SHARE SHARES
--------- ------- --------- ------- --------- -------
Options outstanding, beginning of year.... $29.80 511,389 $27.25 477,752 $22.41 460,814
Options granted........................... 35.53 149,850 35.17 121,400 39.18 125,225
Options exercised......................... 18.32 (73,370) 15.96 (49,888) 14.39 (47,062)
Options cancelled......................... 32.92 (86,326) 33.06 (37,875) 25.08 (61,225)
------- ------- -------
Options outstanding end of year........... 32.60 501,543 29.80 511,389 27.25 477,752
======= ======= =======
Options exercisable, end of year.......... 23.60 84,374 19.87 111,656 17.06 91,739
======= ======= =======
The following table summarizes information about stock options outstanding at July 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ----------------------------
WEIGHTED-AVG
NUMBER REMAINING WEIGHTED-AVG NUMBER WEIGHTED-AVG
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AS OF 7/31/00 LIFE (YEARS) PRICE AS OF 7/31/00 PRICE
-------------------- ------------- ------------ ------------ ------------- ------------
$14.88 - $27.75 139,693 3.60 $23.97 78,249 $22.97
27.76 - 36.00 170,975 6.88 33.14 6,125 31.61
36.01 - 37.75 149,625 6.53 37.19 0 0
37.76 - 44.00 41,250 6.11 42.99 0 0
---------------- ------- ---- ------ ------ ------
$14.88 - $44.00 501,543 5.80 $32.60 84,374 $23.60
---------------- ----------- -------- --------- ---------- ---------
---------------- ----------- -------- --------- ---------- ---------
The fair value method of the Company's stock options was estimated using the Black-Scholes option-pricing model. This
model was developed for use in estimating fair value of traded options that have no vesting
28
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restrictions and are fully transferable. This model requires the input of highly subjective assumptions including the expected
stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single measure of the fair value of its stock options. The fair
value of the Company's stock options was estimated using the following weighted-average assumptions:
2000 1999 1998
---- ---- ----
Expected life (in years).................................... 8 7 8
Volatility.................................................. 41% 38% 38%
Risk-free interest rate..................................... 6.45% 4.89% 5.78%
Dividend yield.............................................. .6% .8% .6%
The weighted-average estimated fair value of stock options granted during fiscal 2000, 1999 and 1998, was $19.11, $19.13
and $19.71 per share, respectively. For pro forma purposes, the estimated fair value of the Company's stock options is
amortized over the options' vesting period. The Company's pro forma information is as follows:
YEARS ENDED JULY 31, (RESTATED)
------------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income
As reported..................................... $14,066 $19,185 $23,771
Pro forma....................................... 13,567 18,659 23,404
Net income per share
As reported -- Basic............................ 1.10 1.51 1.88
Pro forma -- Basic.............................. 1.06 1.47 1.86
As reported -- Diluted.......................... 1.09 1.50 1.87
Pro forma -- Diluted............................ 1.05 1.46 1.83
9. PROFIT SHARING RETIREMENT PLAN:
The Company has a qualified Profit Sharing Retirement Plan for the benefit of eligible employees. The plan provides that the
Company shall make contributions