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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [ No Fee Required]
For the fiscal year ended: July 31, 1999 or
[ ] 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 (IRS Employer Identification No.)
incorporation or organization)
8 Centennial Drive, Peabody, Massachusetts 01960
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 977-3000
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 require-
ments 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. [ ]
The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant at August 31, 1999 was approximately $265,696,000.
Number of shares of Common Stock outstanding at August 31, 1999: 12,712,556
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
Item 1. Business
(a) Developments During Fiscal 1999
Total revenues of Analogic Corporation (hereinafter, together with its
subsidiaries, referred to as "Analogic" or the "Company") for the fiscal year
ended July 31, 1999, were $279,694,000 as compared to $294,472,000 for fiscal
year 1998, a decrease of 5%. Net income was $19,513,000, or $1.53 per diluted
share as compared to $23,888,000, or $1.87 per diluted share, a decrease of 18%.
The Company acquired the assets of Noranda Advanced Materials' medical
detectors and pure metal businesses on June 28, 1999. 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 Company received a contract from L-3 Communications for one hundred
Explosive Assessment Computed Tomography (EXACTTM ) Systems. The
innovative EXACT is the heart of the EXaminer 3DXTM 6000 Explosive Detection
System (EDS) developed jointly by L-3 and Analogic and distributed exclusively
by L-3 for screening checked luggage at airports.
The Year 2000 issue is the result of computer programs written using two
digits rather than four digits to define the applicable year. The company
decided to replace its internal computer systems to mitigate this problem and
upgrade its technology. The Company also reviewed the Y2K status of its major
vendors and products.
After over a year of testing, training, software conversion and hardware
installation, the Company began implementation of its new Enterprise
Resource Planning (ERP) system in the first quarter of fiscal 2000. Due to the
size and complexity of the system, the Company anticipated and has experienced
problems during August and September of 1999. The Company has resolved many
of these problems and expects the system to be functioning as planned in advance
of January 1, 2000.
The Company surveyed its major vendors for Y2K compliance and ensured all
products currently manufactured by the Company are Y2K compliant.
Mr. Bruce Rusch, President and Chief Operating Officer, resigned
effective July 31, 1999. Mr. Thomas J. Miller Jr. will assume the responsibil-
ities of President and Chief Operating Officer in mid-October of 1999.
(b) Financial Information About Industry Segment
The Company's operations are within a single segment within the
electronics industry: the design, manufacture and sale of high-technology,
high-performance, high-precision, data acquisition, conversion (analog/digital)
and signal processing instruments and systems.
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(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 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 commu-
nications 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 products are classified by product
technology and not by application.
Medical Technology Products, consisting primarily of electronic subsystems
for medical imaging equipment, accounted for approximately 78% of product,
service, engineering and licensing revenue in fiscal 1999.
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 computer assisted tomography (CAT)
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 CAT scanner technology by substan-
tially 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 CAT Scanners incorporating
proprietary technology.
In addition, the Company manufactures key subsystems and phased array
transducers on an OEM basis for ultrasound equipment manufacturers.
The Company also designs and manufactures radiology, surgical and urology
ultrasound equipment 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 CAT scanners and MRI scanners. The Company
also designs and manufactures for OEM customers advanced RF amplifiers, gradient
coil amplifiers and spectrometers for use in 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
both antepartum and intrapartum applications have the capability to measure,
compute, display and print fetal and maternal heart rates, maternal contrac-
tion frequency and relative intensity and other maternal vital sign parameters
to determine both maternal and fetal well being.
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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-ECG,
Respiration, Temperature, NIBP and 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 CAT Scanners and MRI and
ultrasound equipment to attach to local DICOM, PACS and wide area networks.
The line includes Computed Radiography (CR) image processing and viewing work
stations.
The products manufactured by Camtronics, a 77% owned subsidiary,
are included herein as medical technology products. They design and manufacture
state-of-the-art image processing products for diagnostic and interventional
applications in cardiac catheterization laboratories and for other radiology
procedures. They also manufacture the ArchiumTM Cardiac Digital Archive System
that stores and displays in real time images from cardiac labs at multiple
locations.
Signal Processing Technology Products, consisting of A/D and D/A
converters and supporting modules, high-speed digital signal processors such
as Array Processors, and image processing equipment, accounted for approximately
16% of fiscal 1999 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.
A/D converters convert continuously varying "analog" signals
into the numerical "digital" form required by microprocessors and other data
processing equipment. D/A converters transform computer output in digital
form into the analog form required by process control equipment. Analogic
manufactures a wide variety of interconnecting and supporting modules relating
to it's A/D and D/A converters. These include signal conditioning devices,
which amplify, isolate and filter physical analog signals; multiplexing devices
which permit simultaneous processing of a number of analog signals; and
sample and hold devices, which sample rapidly varying phenomena.
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 also manufactures a line of PC/AT-class high
performance data acquisition cards. These plug-in cards provide personal
computer users with data throughput and flexibility. The series of cards has
a library of high level software applications supported by third-party software
houses and proprietary set-up and diagnostic software.
The Company also manufactures a line of high performance data
acquisition products for the PC 104 market. Designed for embedded processor
applications normally used in OEM products, these cards provide precision
measurement capability between real world signals and the measuring instrument
while meeting all of the requirements of the PC 104 form factor and bus
structure.
The Company recently introduced a line of Compact PCI (CPCI) boards.
These products are fully compatible with the CPCI form factor and bus structure
and take advantage of software written for the PCI bus. The boards, which are
designed for OEM embedded application requiring precision measurements and high
sampling rates, perform acquisition, conditioning, multiplexing, as well as
signal processing functions, and are supported by Microsoft Windows NT software.
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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 speech processing, speech compression, 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 full 3-D images of
every object in a package, parcel or bag. Working with its aviation partner,
the Company supplies the EXACT system to the aviation market, while pursuing
other applications such as drug interdiction and the protection of high risk
security buildings.
Industrial Technology Products, consisting of digital panel
instruments, industrial data acquisition and conversion systems, and test and
measurement devices and automation systems, accounted for approximately
6% of fiscal 1999 product, service, engineering and licensing revenue.
Digital panel instruments measure analog inputs and visually
display the result in numerical (digital) form. They are sold to original
equipment manufacturers to be incorporated in products such as precision
thermometers, blood analyzers and automatic test equipment. Certain of
Analogic's digital panel instruments incorporate specialized signal conditioning
and computing capabilities and can transmit the measured value in digital
form to remote displays or to computers. The Company's Monitroller line of
products extends this capability still further by functioning as single loop
process controllers.
Industrial digitizing systems condition analog signals, translate
them to digital form with a high degree of precision, and perform subsequent
computations and calculations. These instruments are available as complete
standard instruments or are customized to particular applications for incorpor-
ation into customers' products. Typical applications for these systems are
in static and dynamic weighing, measurement of pressure, force or temperature,
and engine power measurement as well as factory-wide Distributed Control
Systems.
Analogic's products also include a large number of standard and
customized A/D and D/A systems which can accept up to several thousand channels
of signals, perform precise signal conditioning, translate the data into digital
format and process the information via computer. Certain of the customized
subsystems include computing or computer-interfacing sub-units.
The Company manufactures complete data acquisition and conversion
systems used in a wide variety of industrial applications from process
control to emergency recording systems used in nuclear power plants. Also,
a family of high speed, 16-bit, multichannel data acquisition boards has been
designed to meet the stringent demands of fast and accurate measurements in
precision instrumentation environments.
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Incorporating much of the same technology as the Company's medical
equipment, our sophisticated test instruments include general purpose digital
multimeters, which measure the basic parameters as voltage, current and
resistance, as well as temperature and frequency. The Company's universal
waveform analyzer line combines the features of a digital storage oscilloscope,
spectrum analyzer, array processor and computer. The Company is also a
supplier of power supply test systems, static and dynamic loads and AC sources
used for testing power supplies and other power devices.
The Company manufactures telecommunications products for use in
network monitoring and fault reporting. In addition, original equipment
manufacturers (OEM) purchase the Company's standard A/D, D/A and digital
signal processing products for specific production testing of telecommunications
equipment. The Company also manufactures a line of high performance digital
signal processor (DSP) boards used in the telephony industry.
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 attracted 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.
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 act as its
distributors in England and Denmark. 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
distrutors 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 owns, or is licensee of, a number of patents of
varying durations. In the opinion of management, Analogic's present position
and its future prospects are a function of the level of excellence and
creativity of its engineers; patent protection is useful but of secondary
importance. Management is of the opinion that the loss of patent protection
would not have a material effect on the Company's competitive position.
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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.)
Material Customers
The Company's three largest customers, each of which is a
significant and valued customer, were Philips, Toshiba and General Electric,
which accounted for approximately 18%, 9%, and 8%, respectively, of product,
service, engineering and licensing revenue for the fiscal year ended July 31,
1999. 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 through
normal OEM contracts, with the Company and Philips jointly funding research
and development of some products to be manufactured by Analogic for Philips.
No other individual customer accounted for as much as 7% of the Company's
product, service, engineering and licensing revenue during fiscal 1999. The
Company's ten largest customers, including Philips, Toshiba and General
Electric accounted for approximately 60% of product, service, engineering
and licensing revenue during fiscal 1999.
Backlog
The backlog of orders believed to be firm at July 31, 1999
was approximately $86.6 million compared with approximately $63.8 million at
July 31, 1998. This increase is principally related to Medical Technology
Products and Signal Processing Technology 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, 1999
during fiscal 2000.
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 sufficiently specialized so that
Analogic is not aware of products marketed by others which may be deemed
directly competitive. 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 the individual
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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, measured by total sales dollars, it is a leading manufacturer
of CAT scanner and MRI electronic sub-systems and industrial digitizing systems
for the weighing 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 approximately $39,598,000 in fiscal 1999, $36,177,000 in fiscal 1998, and
$33,948,000 in fiscal 1997. Analogic intends to continue its emphasis on new
product development. As of July 31, 1999, Analogic had approximately 500
employees, including electronic 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 1999, the Company capitalized $2,462,000 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 $1,977,000 in fiscal
1999.
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, 1999, the Company had approximately 1,720 employees.
Financial Information About Foreign and Domestic Operations and
Export Revenue.
Product, service, engineering, and licensing export revenue from
companies, primarily in Europe and Asia, amounted to approximately $95,504,000
(37%) in fiscal 1999 as compared to approximately $92,292,000 (33%) in fiscal
1998, and approximately $81,395,000 (34%) in fiscal 1997. Management believes
that the Company's export revenue is at least as profitable as its domestic
revenue. Most of the Company's foreign revenue is export revenue denominated
in U.S. dollars. Management does not believe the Company's export revenue is
9
subject to significantly greater risks than its domestic revenue. See Note 18
of Notes to Consolidated Financial Statements for further information
regarding foreign and domestic operations.
Item 2. Properties
Analogic's principal executive offices and major manufacturing
facility are located in a building, owned by the Company, which it constructed
on its site in Peabody, Massachusetts (a suburb of Boston). This facility
consists of approximately 404,000 square feet of manufacturing, engineering,
and office space. The Company owns approximately 65 acres of land at this
location, which will accommodate future consolidation and expansion as required.
The Company uses approximately 7.5 acres of this land for Marriott Hotel which
is owned by a wholly-owned subsidiary of the Company and managed by the Marriott
Corporation.
The Company's 77% owned subsidiary, Camtronics, owns a 40,000
square foot manufacturing and office building located in Hartland, Wisconsin.
Camtronics owns approximately eleven acres of land at this location which
should accommodate any future expansion requirements.
The Company leases a modern one-story brick building containing
approximately 41,000 square feet of manufacturing, engineering and office
space located in Wakefield, Massachusetts. This building is leased for a
term expiring on July 31, 2003.
The Company leases two modern adjacent brick and concrete block
buildings in Danvers, Massachusetts. These two buildings total approximately
170,000 square feet of manufacturing, engineering and office space and are
leased for a term expiring on July 31, 2001. A total of 155,000 square feet
of these buildings have been sublet on a triple net basis, self renewing lease
to Siemens Medical Electronics, Inc. for a term, which as presently extended
will end on December 1, 2000.
The Company leases approximately 30,200 square feet of
manufacturing, engineering, and office space in Chelmsford, Massachusetts which
is occupied by its wholly owned subsidiary, SKY Computers, Inc. The space is
leased for a three-year term expiring May 31, 2002.
The Company's 100% owned subsidiary, B-K, leases a modern two-story
building containing a total of approximately 54,000 square feet of manufactur-
ing, engineering, and office space. The building is located in Gentofte,
Denmark (a suburb of Copenhagen). The building is leased for a term of ten
years commencing in June 1993. The lease may be cancelled by B-K with six
months notice.
The Company owns a modern two-story building containing approximately 49,000
square feet of manufacturing and office space in Peabody,
Massachusetts, adjacent to the Company's principal executive offices.
This building is presently leased to an unrelated party for a term of five
years expiring September 30, 2002.
In conjunction with the asset purchase of the Noranda Advanced
Materials' medical detectors and pure metals business, ANRAD assumed a lease
for approximately 42,000 square feet of manufacturing, engineering and
office space in St. Laurent, Quebec. The total building contains approx-
imately 50,000 square feet and ANRAD's lease expires on February 28, 2015.
See Item 13 of this Report and Note 7 of Notes to Consolidated
Financial Statements for further information concerning certain of the
aforesaid leases.
Analogic and its subsidiaries lease various other facilities
used for sales and service purposes. The Company does not consider any
of these leases to be material.
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Analogic owns substantially all of the machinery and equipment
used in its business. Management considers that the Company's plant
and equipment are in good condition and are adequate for its current needs.
Item 3. Legal Proceedings
There are no material legal proceedings pending against the
Company or its subsidiaries or of which any of their property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
None
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PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock trades on the NASDAQ Stock Market under
the symbol: ALOG. The following table sets forth the range of high and low
prices for the Common Stock, as reported by NASDAQ during the quarterly
periods indicated:
Fiscal Year High Low
1999 First Quarter $41.63 $31.00
Second Quarter 40.50 31.00
Third Quarter 39.88 32.13
Fourth Quarter 37.88 27.13
1998 First Quarter $41.00 $32.00
Second Quarter 39.00 33.75
Third Quarter 48.00 35.63
Fourth Quarter 47.00 40.00
As of August 31, 1999, there were approximately 916 holders of record
of the Common Stock.
Dividends of $.07 per share were declared for each of the quarters of
fiscal 1999, and $.06 per share for each of the quarters of fiscal 1998.
The policy of the company is to retain sufficient earnings to provide funds
for the operation and expansion of it business.
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Item 6. Selected Financial Data
( In thousands, except per share data)
Year Ended July 31
1999 1998 1997 1996 1995
Total Revenues $279,694 $294,472 $256,729 $230,460 $208,827
Income from
operations 29,991 39,996 32,107 16,981 15,155
Net Income 19,513 23,888 20,090 13,065 12,706
Earnings per
common and common
equivalent share:
Basic $1.54 $1.89 $1.60 $1.05 $1.03
Diluted $1.53 $1.87 $1.58 $1.04 $1.02
Dividends paid per
common share $0.27 $0.23 $0.20 $0.18 $0.08
Number of shares
used in computation
of per share data:
Basic 12,683 12,614 12,554 12,455 12,371
Diluted 12,791 12,793 12,702 12,562 12,475
Working Capital $205,872 $200,718 $186,131 $168,515 $165,799
Total Assets 315,013 302,957 282,359 265,162 260,198
Long-term debt
(including
capitalized
leases) 6,714 7,704 8,614 9,455 10,236
Stockholders'
Equity 267,401 251,255 228,216 211,800 200,893
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Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Results of Operations
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 amounted to $4,780,
000 and $3,488,000 in fiscal 1999 and fiscal 1998, respectively. (See Note 5
of Notes to Consolidated Financial Statements.)
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Fiscal 1999 Compared to Fiscal 1998 (continued)
During fiscal 1998, the Company's investment in Analogic Scientific was
decreased by $575,000 reflecting the Company's share of Analogic Scientific's
equity, for fiscal 1999 no adjustment was necessary. (See Note 5 of Notes to
the 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.
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 of
Consolidated Statements.)
Minority interest in the net income of the Company's consolidated subsidiary,
Camtronics, in 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 $19,513,000, as compared to net income of
$23,888,000 for the same period last year. Basic per-share earnings were
$1.54 down from $1.89. Diluted per-share earnings were $1.53 down from
$1.87.
Fiscal 1998 Compared to Fiscal 1997
Product, service, engineering, and licensing revenues for fiscal 1998 were
$276,562,000 as compared to $239,550,000 for fiscal 1997, an increase of 15%.
The increase of $37,012,000 was principally due to increased sales of Medical
Technology Products of $30,060,000 (primarily due to the continued and
strengthening demand for Digital Laser Imaging Systems, Magnetic Resonance
Imaging products, and new products such as the Digital Ultrasound Subsystems
and Ultrasound Systems from the Danish subsidiary, B-K), Signal Processing
Technology Products of $4,532,000 (primarily due to the Company entering a
new and growing market for DSP resource boards for Computer Telephony
Integration applications, such as automated directory assistance and for
voice over the internet), and Industrial Technology Products of $2,420,000
(primarily due to increased demand of the Company's high frequency ATE
boards). Other operating revenue of $12,036,000 and $11,591,000 represents
revenue from the Hotel operation for fiscal 1998 and 1997, respectively.
The percentage of total cost of sales to total net sales for fiscal 1998
and 1997 was 60% and 59%, respectively. Operating costs associated with
the Hotel for fiscal years 1998 and 1997 were $6,091,000 and $5,959,000,
respectively.
15
General and administrative and selling expenses increased $2,619,000,
primarily due to increases in the bad debt reserve and legal expenditures
related to patent filings. Research and product development expenses
increased $2,229,000 primarily due to the Company's expanding engineering
efforts applicable to developing complex imaging systems, such as the new
Digital Ultrasound Subsystems and the Ultrasound Systems for the Company's
Danish subsidiary, B-K.
Computer Software costs of $1,658.000 and $1,480,000 were capitalized in
fiscal 1998 and 1997, respectively. Amortization of capitalized software
amounted to $2,406,000 and $3,115,000 in fiscal 1998 and 1997, respectively.
A gain of foreign exchange of $1,045,000 was realized during 1997 versus
a loss of $4,000 for fiscal 1998.
The Company's share of losses of a privately held company amount of
$3,488,000 and $1,949,000 during fiscal 1998 and 1997, respectively.
(See note 5 of Notes to Consolidated Financial Statements.)
The amortization of excess of fair value of net assets over cost acquired
from B-K was $335,000 and $645,000 in fiscal 1998 and 1997, respectively.
During fiscal 1998, the Company's investment in another privately held
company was increased by $447,000, reflecting the Company's share of its
equity.
During fiscal 1998, the Company's investment in Analogic Scientific was
decreased by $575,000 reflecting the Company's share of Analogic Scientific's
equity. (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.
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 subsidary,
Camtronics, for fiscal 1998 amounted to $1,098,000 compared to $1,270,000 for
fiscal 1997. 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 1998 was 32% vs. 24% for fiscal 1997.
This increase was primarily due to alternative minimum tax credit carry
forwards utilized in fiscal 1997 not available in fiscal 1998 ( See note
11 of Notes to Consolidated Financial Statements).
Net Income for fiscal 1998 was $23,888,000, as compared to net income of
$20,090,000 for the same period last year. Basic per-share earnings, or net
income divided by weighted average common shares outstanding, were $1.89, up
from $1.60. Diluted per-share earnings, or net income divided by weighted
average common shares and potential new shares from stock options, also
increased to $1.87, up from $1.58. Prior periods per share amounts have been
restated to reflect the adoption of FASB No. 128 (See Notes 1(h), 1(1) & 12
of Notes to Consolidated Financial Statements).
16
Financial Position
The Company's balance sheet at July 31, 1999, reflects a current ratio of
7.0 to 1, compared to 6.5 to 1 at July 31, 1998. Cash, cash equivalents
and marketable securities, along with accounts and notes receivable, constitute
approximately 75% of current assets a July 31, 1999. 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 .18 to 1 at July 31, 1999 compared to .21 to 1 at July 31, 1998.
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 an
cash equivalents, trade receivables, and trade payables approximate fair value
at July 31, 1999 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 1999 funds provided from operations were $37,018,000. The major
components of the $37,018,000 were net income of $19,513,000, depreciation &
amortization of $13,638,000, inventory decrease of $2,493,000 and an increase
in account payable of $2,909,000.
The following investing activities resulted in a cash decrease of $28,066,000.
During 1999, the Company invested an additional $3,950,000 in a privately
held company which designs and manufactures medical imaging equipment. Capital
expenditures for fiscal 1999 of $20,665,000 include approximately $7,100,000
of assets acquired for ANRAD. Capitalized computer software cost were
approximately $2,462,000. The Company also made an additional investment of
$1,085,000 in marketable securities net of maturities.
The following financing activities resulted in a net cash reduction of
$6,329,000. Dividends paid to shareholders during the fiscal year were
$3,425,000. Cash flows from financing activities were decreased by the
payment of an unsecured bank line of credit of $2,600,000 which was offset
by the proceeds from stock options exercised of $1,156,000.
Total investments in and advances to affiliated companies decreased $800,000.
This decrease was primarily due to the Company's share of equity losses from
a privately held company of $4,780,000 partially offset by an additional
investment of $3,950,000 in the privately held company.
Notes Payable decreased by $2,951,000 to $5,982,000 at end of fiscal 1999
primarily due to repayment of borrowing against a line of credit by Camtronics.
Minority Interest in Consolidated Subsidiaries increased $758,000. This
represents the minority interest in Camtronics.
The Company's three largest customers, each of which is a significant and
valued customer, were Philips, Toshiba and General Electric which accounted
for approximately 18%, 9%, and 8%, respectively, of product, service,
engineering, and licensing revenue for the fiscal year ended July 31, 1999.
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 1998.
17
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 1997, the FASB issued Statement No. 130 (SFAS 130), Reporting
Comprehensive Income, which requires disclosure of certain information
displaying comprehensive income and its components. The Company has adopted
SFAS No. 130 in fiscal year 1999.
In June 1997, the FASB issued Statement No. 131 (SFAS 131), Disclosures about
Segments of an Enterprise and Related Information. SFAS 131 requires
disclosure of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. The Company has
adopted SFAS No. 131 in fiscal year 1999. (See Note 17 of Notes to
Consolidated Financial Statements.)
In June 1998, the FASB issued Statement No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities", which establishes a new model
of accounting for derivative and hedging activities and supersedes and amends a
number of existing standards. The provisions of SFAS 133 are effective for
all fiscal quarters of years beginning after June 15, 1999. The company
believes that this statement will not have an impact on the financial
position, results of operations, or cash flows, as the Company does not hold
any derivative instruments or engage in hedging activities at the present time.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
programs that have time-sensitive software may recognize a date using "00" as
the 1900 rather than the year 2000. If the Company's internal systems do not
correctly recognize date information when the year changes to 2000, there
could be an adverse impact on the Company's operations.
After over a year of testing, training, software conversion and hardware
installation, the Company began implementation of its new Enterprise Resource
Planning (ERP) system in the first quarter of fiscal 2000. Due to the size
and complexity of the system, the company anticipated and has experienced
problems during August and September of 1999. The Company has resolved many
of these problems and expects the system to be functioning as planned in
advance of January 1, 2000.
The Company surveyed its major vendors for Y2K compliance and ensured all
products currently manufactured by the Company are Y2K compliant.
The company currently estimates that Year 2000 costs will range form $6.0
million to $8.0 million, of which approximately $5.6 million was spent through
July 31, 1999. The estimated costs are based on management's best projections,
yet there can be no guarantee that these forecasts will be achieved and actual
results could differ materially from those anticipated. The costs of the
project will be funded through operating cash flows.
Item 8. Financial Statements and Supplementary Data
The financial statement and supplementary data are listed under PART IV,
Item 14 in this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
18
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors
Other Offices Held
Director Expiration As of
Name Age Since of Term* August 31, 1999
Bernard M. Gordon 72 1969 2001 Chairman of the
Board and Chief
Executive Officer
Bruce R. Rusch** 56 1993 ----- -----
John A. Tarello 68 1979 2001 Senior Vice
President and
Treasurer
M. Ross Brown 65 1984 2002 Vice President
Edward F. Voboril 56 1990 2002 ----
Gerald L. Wilson 60 1980 2001 ----
Bruce W. Steinhauer 64 1993 2000 ----
*The Board of Directors is divided into three classes, each having a three
year term of office. The term of one class expires each year. Directors
hold office until the Annual Meeting of Stockholders held during the year
noted and until their respective successors have been duly elected and
qualified.
**Mr. Rusch resigned effective July 31, 1999.
19
(b) Executive Officers
Date Since Office
Name Age Office Held has been Held
Bernard M. Gordon 72 Chairman of the Board and 1969
Chief Executive Officer
Bruce R. Rusch* 56 President and Chief 1995
Operating Officer
John A. Tarello 68 Senior Vice President 1980 & 1985
and Treasurer respectively
M. Ross Brown 65 Vice President 1984
Julian Soshnick 67 Vice President 1982
General Counsel,
and Clerk
*Mr. Rusch resigned effective July 31, 1999.
Each such officer is elected for a term continuing until the first
meeting of the Board of Directors following the annual meeting of stock-
holders, and in the case of the President, Treasurer and Clerk, until their
successors are chosen and qualified; provided that the Board may remove any
officer with or without cause.
(c) Identification of certain significant employees:
None
(d) Family relationships:
None
(e) Business Experience:
Bernard M. Gordon has been the Chairman of the Board of Directors of
the Company since 1969 and, was President from 1980 to 1995.
Bruce R. Rusch was appointed a Vice President of the Company in January
1993 and President in January 1995. Mr. Rusch has been President of SKY
Computers, Inc. since 1987. SKY Computers, Inc. was acquired by Analogic
effective April 1, 1992. Mr. Rusch is a director of Astea International, Inc.
Mr. Rusch resigned effective July 31, 1999.
20
John A. Tarello was the Company's Controller from May 1970 through July
1982, a Vice President of the Company from 1971 to 1980, a Senior Vice
President since 1980, and Treasurer since 1985. He is also a director of
Spire Corporation.
M. Ross Brown joined the Company in August 1984 and is responsible for
managing its manufacturing operations. He was elected a Vice President in
October 1984.
Julian Soshnick joined the Company in October 1981 as General Counsel
and has served as a Vice President since July 1982 and Clerk since 1988.
Edward F. Voboril has been President and CEO of Wilson Greatbatch Ltd.
of Clarence, New York since December 1990.
Dr. Gerald L. Wilson is the former Dean of the School of Engineering at
Massachusetts Institute of Technology and the Vannevar Bush Professor of
Engineering at the Massachusetts Institute of Technology. Dr. Wilson has
served on MIT's faculty since 1965 and currently serves as a Professor of
Electrical and Mechanical Engineering. He is a trustee of Commonwealth
Energy Systems and a director of ASECO Corporation.
Dr. Bruce W. Steinhauer became the President and Chief Executive
Officer of the Regional Medical Center at Memphis in 1998. Prior to this
position, he was the Chief Executive Officer of the Lahey-Hitchcock Clinic
from 1992 to 1998. Prior to that he was Senior Vice President for Medical
Affairs and Chairman of the Board of Governors for the Medical Group Practice
of the Henry Ford Hospital form 1988 to 1992.
(f) Involvement in certain legal proceedings:
None
(g) Promoters and Control Persons
Inapplicable
Compliance with Section 16(a) of the Exchange Act
Upon review of the forms and representations furnished to the Company
pursuant to Item 405 of Regulation S-K, the Company identifies M. Ross Brown
as the only "reporting person", (as defined in said Item 405) who failed to
file on a timely basis a report required by Section 16(a) of the Exchange Act.
Mr. Brown failed to timely file three (3) Form 4 on which nine (9) transactions
were reported.
21
Item 11. Executive Compensation
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information for the
Chief Executive Officer and each of the next four most highly compensated
executive officers of the Company during the last fiscal year ("Named
Officers") for services rendered in all capacities for the last three fiscal
years.
ANNUAL COMPENSATION
Principal Position Year Salary Bonuses Compensation
Bernard M. Gordon 1999 $350,000 $25,000 $375,000
Chairman (CEO) 1998 339,000 50,000 389,400
1997 325,000 50,000 375,000
Bruce R. Rusch* 1999 250,000 $ -0- $250,000
President (COO) 1998 239,400 50,000 289,400
1997 225,000 50,000 275,000
John A. Tarello 1999 $230,000 $25,000 $255,000
Senior Vice President 1998 226,000 50,000 276,000
and Treasurer 1997 210,000 50,000 260,000
M. Ross Brown 1999 $200,000 $20,000 $220,000
Vice President 1998 193,000 30,000 223,000
1997 185,000 30,000 215,000
Julian Soshnick 1999 $200,000 $20,000 $220,000
Vice President and 1998 193,000 30,000 223,000
General Counsel 1997 185,000 40,000 225,000
22
Item 11. Executive Compensation (continued)
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE (continued)
LONG TERM COMPENSATION AWARDS
Name and Restricted All Other
Principal Position Year Stock Awards Stock Options Compensation
(A)
Bernard M. Gordon 1999 --- --- $3,437
Chairman(CEO) 1998 --- --- 3,848
1997 --- --- 3,645
Bruce R. Rusch* 1999 --- --- ---
President (COO) 1998 --- --- $3,646
1997 --- --- 3,442
John A. Tarello 1999 --- --- $3,487
Senior Vice President 1998 --- --- 3,892
and Treasurer 1997 --- --- 3,691
M. Ross Brown 1999 --- --- $3,337
Vice President 1998 --- --- 3,725
1997 --- --- 3,521
Julian Soshnick 1999 --- --- $3,367
Vice President and 1998 --- --- 3,758
General Counsel 1997 --- --- 3,555
(A) Represents amounts allocated to the Named Officers pursuant to the Company's
profit sharing plan under which it may, but is not required to, make contribu-
tions to a trust for the purpose of providing retirement benefits to employees.
*Mr. Rusch resigned effective July 31, 1999.
23
STOCK OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options awarded to named officers under the Company's
Key Employee Stock Option Plans during the last fiscal year.
STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table indicates (i) stock options exercised by the Named
Officers during the last fiscal year; (ii) the number of shares subject to
exercisable (vested) and unexercisable (unvested) stock options as of July
31, 1999; and (iii) the fiscal year-end value of "in-the-money" unexercised
options.
Number of
Shares Acquired Value
On Exercise Realized (A)
Bernard M. Gordon --- ---
Bruce R. Rusch --- ---
John A. Tarello --- ---
M. Ross Brown 2,500 $45,314
Julian Soshnick --- ---
24
STOCK OPTION GRANTS IN LAST FISCAL YEAR (continued)
Number of Value of Unexercised
Unexercised Options In-The-Money Options
at Fiscal Year End At Fiscal Year End(A)(B)
Exercisable Unexercisable Exercisable Unexercisable
Bernard M. Gordon --- --- --- ---
Bruce R. Rusch --- --- --- ---
John A. Tarello --- --- --- ---
M. Ross Brown --- --- --- ---
Julian Soshnick 5,000 --- $96,875 ---
(A)The value realized or the unrealized value of in-the-money optons at year-
end represents the aggregate difference between the market value on the date of
grant and, either the market value on the date of exercise or, in the case of
unrealized value, the market value at July 31, 1999.
(B)"In-the-money" options are options whose exercise price was less than the
market price of Common Shares at July 31, 1999.
25
Compensation of Directors
Each director who is not an employee of the Company is entitled to an annual
fee of $10,000 plus a fee of $1,000 per meeting for each of the first four
meetings of the Board or any Board Committee attended by him, together with
reimbursement of travel expenses under certain circumstances.
In February 1988, the Board of Directors adopted and stockholders approved
at the January 1989 Annual Meeting of Stockholders, the 1988 Non-Qualified
Stock Option Plan for Non-Employee Directors (the "1988 Plan"). Pursuant to
the 1988 Plan, options to purchase 50,000 shares of common stock may be
granted only to directors of the Company or any subsidiary who are not
otherwise employees of the Company or any subsidiary. The exercise price of
options granted under the 1988 Plan is the fair market value of the Common Stock
on the date of grant. The 1988 Plan provides that each Non-Employee director
as of the date on which the Board of Directors adopted the 1988 Plan shall be
granted an option to acquire 5,000 shares. Each new Non-Employee director
who is subsequently elected to the Board of Directors shall be granted an
option to acquire 5,000 shares after one year of service. In June, 1996 the
Board of Directors amended the 1988 plan to increase the number options that
could be granted to each Non-Employee director to 10,000 shares. As of February
1998, no additional options may be granted unde the 1988 plan.
In June 1996, the Board of Director's adopted and stockholders approved at the
January 1997 Annual Meeting of Stockholders, the 1997 Non-Qualified Stock
Option Plan for Non-Employee Directors (the "1997 Plan"). Pursuant to the
1997 Plan, options to purchase 50,000 shares of common stock may be granted
only to directors of the Company or any subsidiary who are not otherwise
employees of the Company and any subsidiary. The exercise price of options
granted under the 1997 Plan is the fair market value of the Common Stock on the
date of grant. The 1997 Plan provides each new Non-Employee Director who is
elected to the Board shall be granted an option to acquire 5,000 shares,
effective as of the date he or shee is first elected to the Board; provided,
however, that upon such first election, a new Non-Employee Director shall not
receive a grant under both this Plan and the 1988 Plan.
The Board of Directors shall determine under which Plans grants shall be made.
Every four (4) years from the date on which a Non-Enployee Director was last
granted a Non-Employee Director option, whether under either Plan, that Non-
Employee Director shall be granted an option to acquire 5,000 shares, effective
as of the date of that fourth anniversary.
Options granted under the both Plans are exercisable for a nine-year period
commencing one year after the date of grant. During that exercise period,
subject to the occurrence of certain events, options may be exercised only
to the extent of (a) 33 1/3% of the number of shares covered by the option
one or more years after the date of grant, (b) 66 2/3% of the number of shares
subject to the option two or more years after the date of grant, and (c) 100%
of the number of shares subject to the option three or more years after the
date of grant.
The 1988 and 1997 Plans are administered by members of the Company's Board of
Directors. There were no options granted pursuant to the 1997 Plan as of July
31, 1999.
26
The following table sets forth options granted pursuant to the 1988 plan
as of July 31, 1999:
Date of Options Option Options Options Options
Grant Granted Price Exercised Exercisable Unexercisable
Dr. Wilson 2/01/88 5,000 $ 7.375 5,000 --- ----
Dr. Wilson 6/12/96 5,000 $27.750 --- 5,000 ----
Mr. Voboril 6/12/91 5,000 $10.875 5,000 --- ----
Mr. Voboril 6/12/96 5,000 $27.750 --- 5,000 ----
Dr. Steinhauer 10/08/93 5,000 $14.750 5,000 --- ----
Dr. Steinhauer 6/12/96 5,000 $27.750 --- 5,000 ----
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The following table sets forth information as to all persons (including
any "group", as defined in section 13(d)(3) of the Exchange Act) known by the
Company to have owned beneficially 5% or more of its Common Stock, $.05 par
value, as of August 31, 1999:
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
Bernard M. Gordon Charitable 4,723,092 shares(1)(2) 37.2%(1)(2)
Remainder Unitrust
Bernard M. Gordon
Julian Soshnick
Gerald P. Bonder, Trustees
8 Centennial Drive
Peabody, MA 01960
T. Rowe Price 1,782,480 shares (3) 14.0%(3)
100 East Pratt Street
Baltimore, MD 21202
Private Capital Management Inc. 884,490 shares (3) 7.0%(3)
3003 Ninth Street
Naples, FL 33940
__________________________________
(1) Exclusive of 6,000 shares owned by Mr. Gordon's wife, as to which he
disclaims any beneficial interest.
(2) Mr. Gordon serves as Trustee of the Bernard Gordon Charitable Remainder
Unitrust (the "Trust") along with Julian Soshnick and Gerald P. Bonder. The
three Trustees, acting by a majority, have full power to vote or dispose of
the shares held by the Trust. Upon the death of Mr. Gordon, all of the
assets of the Trust, in general, will be distributed to The Gordon Foundation,
a Section 501(c)(3) trust formed by Mr. Gordon with its principal office
located at 8 Centennial Drive, Peabody, Massachusetts. The total shares
reported above includes 12,900 shares owned by the Gordon Foundation.
(3) The Company has been advised informally by T. Rowe Price and Private
Capital Management Inc. that in their capacity as investment advisors they
may be deemed a beneficial owner on August 31, 1999, of 1,782,480 shares, or
14.0% of the Company's Common Stock and 884,490 shares, or 7.0% of the
Company's Common Stock, respectively.
26
(b) The following table sets forth information as to ownership of the
Company's Common Stock, $.05 par value, by its directors and by all directors
and executive officers as a group, as of August 31 1999:
Amount and Nature of Percent
Identity of Person Beneficial Ownership(1) of Class
Bernard M. Gordon 4,723,092 shares(2)(3) 37.2%
John A. Tarello 5,000 shares *
M. Ross Brown 0 shares *
Gerald L. Wilson 7,000 shares (4) *
Edward F. Voboril 5,000 shares (4) *
Bruce W. Steinhauer 10,000 shares (4) *
All Directors and Executive
Officers as a group
(7 persons) 4,761,342 shares (4) 37.6%
*Represents less than 1% ownership
______________________________
(1) The amounts shown are based upon information furnished by the individual
directors and officers. Unless otherwise noted, the beneficial owners have
sole voting and investment power with respect to the shares listed.
(2) Exclusive of 6,000 shares owned by Mrs. Gordon, in which Mr. Gordon
disclaims all beneficial interest.
(3) Mr. Gordon serves as Trustee of the Bernard Gordon Charitable Remainder
Unitrust (the "Trust") along with Julian Soshnick and Gerald P. Bonder. The
three Trustees, acting by a majority, have full power to vote or dispose of
the shares held by the Trust. Upon the death of Mr. Gordon, all of the
assets of the Trust, in general, will be distributed to the Gordon Foundation,
a Section 501(c)(3) trust formed by Mr. Gordon with its principal office
located at 8 Centennial Drive, Peabody, Massachusetts.
The total shares reported above includes 12,900 shares owned by the
Gordon Foundation.
(4) These amounts include certain shares deemed beneficially owned under
Exchange Act Rule 13d-3(d)(1).
27
Item 13. Certain Relationships and Related Transactions
(a) Mr. Bernard M. Gordon owns a 48% interest and Mr. Bernard L. Friedman,
the Company's former Vice Chairman of the Board (Mr. Friedman resigned on
July 31, 1993), own 52% interest in a limited partnership (Audubon Realty),
which owns the Danvers, Massachusetts facilities leased by the Company for a
term to July 31, 2001. These facilities include a 50,000 square foot
building completed in 1978; a 40,000 square foot addition to that building,
completed in 1982; and an 80,000 square foot building which the Company moved
into during 1980. The fixed annual rent on the entire 170,000 square feet was
increased from $1,164,000 to $1,219,000 effect8ive March 1, 1998, and shall be
adjusted as of March 1 every third year to reflect increases in the cost of
living. A total of 155,000 square feet of the facilities are sublet to Siemens
Medical Electronics, Inc. for a term which will end on December 1, 2000.
Mr. Gordon owns a 48% interest and Mr. Friedman own a 52% interest in a
limited partnership which owns the facility located at 360 Audubon Road,
Wakefield, Massachusetts, which is leased by the Company for a term to July
31, 2003. This facility has been utilized by the Company for manufacturing
and office space since May 1, 1981. The fixed annual rent for this facility
was increased from $333,000 to $357,000 effective May 1, 1999, and shall be
adjusted as of May 1 every third year to reflect increases in the cost of
living.
All of the foregoing rents are on a net lease basis, and accordingly the
Company pays, in addition to the above rental payments, all taxes,
maintenance, insurance, and other costs relating to the leased premises.
The terms of the several lease agreements, at the time they were executed,
were at least as favorable as those that could have been obtained from
unaffiliated third parties. Prior to execution of each such lease, two
independent appraisals were obtained in order to establish the fair market
rate for subject premises. A rent, in each case discounted below the fair
market rate established by the appraisals, was then agreed upon by the
parties.
The leases each incorporated periodic rent escalation clauses, based upon
the CPI. At the present time, the rents that the Company is paying under
the several leases reflect fair rental value for the properties.
See Item 2 of this Report for information as to the character of the leased
premises, and Note 7 of Notes to Consolidated Financial Statements for
further information as to the leases.
(b) Certain Business Relationships:
None
c) Indebtedness of Management:
None
(d) Transactions with Promoters:
None
28
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
Number
(a) 1. Financial Statements
Report of independent accountants 29
Consolidated balance sheets at July 31, 1999 and 1998 30
Consolidated statements of income for the years ended July 31,
1999, 1998, and 1997 31
Consolidated statements of stockholders' equity for the years
ended July 31, 1999, 1998, and 1997 32
Consolidated statements of cash flows for the years ended
July 31, 1999, 1998, and 1997 33
Notes to consolidated financial statements 34 - 51
II - Valuation and qualifying accounts 53
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 54 - 59
(b) Report on Form 8-K
No reports on Form 8-K were filed by the registrant during
the quarter ended July 31, 1999.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANALOGIC CORPORATION
Date: October 7, 1999 By: /s/ Bernard M. Gordon
Bernard M. Gordon
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: October 7, 1999 /s/ Bernard M. Gordon
Bernard M. Gordon
Chairman of the Board,
Chief Executive Officer and Director
Date: October 7, 1999 /s/ John A. Tarello
John A. Tarello
Senior Vice President, Treasurer
and Director
Date: October 7, 1999 /s/ M. Ross Brown
M. Ross Brown
Vice President and Director
Date: October 7, 1999 /s/ Bruce W. Steinhauer
Bruce W. Steinhauer
Director
Date: October 7, 1999 /s/ Edward F. Voboril
Edward F. Voboril
Director
Date: October 7, 1999 /s/ Gerald L. Wilson
Gerald L. Wilson
Director
30
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 27 present fairly, in all material
respects, the financial position of Analogic Corporation and its subsidiaries
at July 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended July 31, 1999, in
conformity with generally accepted accounting principles. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)(2)on page 27 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 generally accepted auditing
standards 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 financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 27, 1999
31
Analogic Corporation and Subsidiaries
Consolidated Balance Sheets (in thousands)
JULY 31,
1999 1998
Assets
Current assets:
Cash and cash equivalents $30,017 $27,644
Marketable securities, at market 94,185 94,156
Accounts and notes receivable,
net of allowance for doubtful accounts
(1999,$1,123; 1998, $2,643) 51,455 51,834
Accounts receivable, affiliates 4,945 2,559
Inventories 52,423 54,916
Prepaid expenses and other current assets 7,445 6,305
Total current assets 240,470 237,414
Property, plant and equipment, at cost:
Land and land improvements 4,252 4,252
Buildings 44,323 37,092
Property under capital leases 6,251 6,251
Leasehold and capital lease improvements 2,451 2,417
Manufacturing equipment 81,117 74,639
Furniture, fixtures and computer equipment 30,059 24,290
Motor vehicles 1,136 1,105
169,589 150,046
Less accumulated depreciation and
amortization 106,075 95,469
63,514 54,547
Investments in and advances to
affiliated companies 5,572 6,372
Other assets, including unamortized
software costs (1999, $4,174; 1998,
$3,689) 5,457 4,594
$315,013 $302,957
The accompanying notes are an integral part of these financial statements.
32
Analogic Corporation and Subsidiaries
Consolidated Balance Sheets(in thousands)
JULY 31,
1999 1998
Liabilities and Stockholder'Equity
Current liabilities:
Mortgage and other notes payable $ 356 $ 2,950
Obligations under capital leases 633 560
Accounts payable, trade 14,526 11,617
Accrued employee compensation
and benefits 10,349 12,441
Accrued warranty 3,840 3,729
Accrued expenses 4,826 4,079
Accrued income taxes 68 1,320
Total current liabilities 34,598 36,696
Long-term debt:
Mortgage and other notes payable 5,626 5,983
Obligations under capital leases 1,088 1,721
6,714 7,704
Deferred income taxes 1,497 3,144
Excess of acquired net assets over cost, net 217 330
Minority interest in subsidiaries 4,586 3,828
Commitments
Stockholders' equity:
Common stock, $.05 par; authorized
30,000,000 shares; issued 1999, 13,884,127
shares; issued 1998, 13,852,127 shares 694 693
Capital in excess of par value 24,718 23,567
Retained earnings 257,417 241,329
Accumulated Other Comprehensive Income (1,023) 283
Total 281,806 265,872
Less:
Treasury stock, at cost (1999;1,169,070
shares; 1998; 1,205,347 shares) 13,100 13,515
Unearned compensation 1,305 1,102
Total stockholders' equity 267,401 251,255
$315,013 $302,957
The accompanying notes are an integral part of these financial statements.
33
Analogic Corporation and Subsidiaries
Consolidated Statements of Income (in thousands, except per share data)
YEARS ENDED JULY 31,
Revenues: 1999 1998 1997
Product and service, net $242,853 $260,517 $222,033
Engineering and licensing 18,092 16,045 17,517
Other operating revenue 12,015 12,036 11,591
Interest and dividend income 6,734 5,874 5,588
Total revenues 279,694 294,472 256,729
Cost of sales and expenses:
Cost of sales:
Product and service 144,120 151,536 131,937
Engineering and licensing 12,612 14,355 10,136
Other operating expenses 6,098 6,091 5,959
General and administrative 21,230 20,326 18,070
Selling 25,735 25,814 25,451
Research and product development 39,598 36,177 33,948
Interest expense 364 508 607
(Gain) loss on foreign exchange 59 4 (1,045)
Amortization of excess of cost
over acquired net assets 204
Amortization of excess of acquired
net assets over cost (113) (335) (645)
Total cost of sales and expenses 249,703 254,476 224,622
Income from operations 29,991 39,996 32,107
Gain on sale of marketable
securities 997
Equity in loss of unconsolidated
affiliates (4,657) (3,616) (2,374)
Loss on investment (400) (1,742)
Income before income taxes and
minority interest 25,334 36,977 27,991
Provision for income taxes 5,063 11,991 6,631
Minority interest in net income
(loss) of consolidated subsidiaries 758 1,098 1,270
Net income $19,513 $23,888 $20,090
Earnings per common and common
equivalent share:
Basic $ 1.54 $ 1.89 $ 1.60
Diluted 1.53 1.87 1.58
The accompanying notes are an integral part of these financial statements.
34
Analogic Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity - Years Ended July 31, 1999,
1998 and 1997 (in thousands, except share data)
Capital in
Common stock excess of
Shares Amount par value
Balance, July 31, 1996 13,767,614 $688 $21,413
Shares issued pursuant to stock
grants, net of cancellations 10,500 1 231
Shares issued pursuant to
stock options 57,250 3 904
Purchases of treasury stock
Amortization of
unearned compensation
Amounts related to employee
stock purchase plan 84
Income tax reduction relating
to stock options 284
Dividends paid ($0.20 per share)
Other
Comprehensive Income:
Net income for the year
Translation adjustments
Unrealized holding gains and losses
Comprehensive Income
Balance, July 31, 1997 13,835,364 692 22,916
Shares issued pursuant to
stock grants, net of cancellations 3,000 (70)
Shares issued pursuant to
stock options 13,763 1 176
Purchases of treasury stock
Amortization of
unearned compensation
Amounts related to employee
stock purchase plan 81
Income tax reduction relating
to stock options 255
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
Shares issued pursuant to
stock grants, net of cancellations 22,000 1 729
Shares issued pursuant to
stock options 10,000 97
Purchase of Treasury Stock
Amortization of
unearned compensation
Amounts related to employee
stock purchase plan 94
Income tax reduction relating
to stock options 123
Dividends paid ($0.27 per share)
Other 108
Comprehensive Income:
Net income for the year
Translation adjustments
Unrealized holding gains and losses
Comprehensive Income
Balnace, July 31, 1999 13,884,127 694 24,718
35
Analogic Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity - Years Ended July 31, 1999,
1998 and 1997 (in thousands, except per share data)(continued)
Treasury Stock
Unearned Retained
Shares Amount Compensation Earnings
Balance, July 31, 1996 (1,273,073) $(14,550) $ (2,143) $ 202,761
Shares issued pursuant to
stock grants, net of
cancellations (6,500) (231)
Shares issued pursuant to
stock options 39,249 369
Purchases of treasury stock
Amortization of
unearned compensation 664
Amounts related to employee
stock purchase plan 5,671 60
Income tax reduction relating
to stock options
Dividends paid ($0.20 per share) (2,508)
Other
Comprehensive Income:
Net income for the year
Translation adjustments 20,090
Unrealized holding gains
and losses
Comprehensive Income
Balance, July 31, 1997 (1,234,653) (14,121) (1,710) $220,343
Shares issued pursuant to
stock grants, net of
cancellations (10,000) 70
Shares issued pursuant to
stock options 33,299 500
Purchases of treasury stock
Amortization of
unearned compensation 538
Amounts realted to employee
stock purchase plan 6,007 106
Income tax reduction relating
to stock options
Dividends paid ($0.23 per share) (2,902)
Other
Comprehensive Income:
Net income for the year 23,888
Translation adjustments
Unrealized holding gains
and losses
Comprehensive Income
Balance, July 31, 1998 (1,205,347) ($13,515) (1,102) $241,329
Shares issued pursuant to
stock grants, net of
cancellations 730
Shares issued pursuant to
stock options 39,888 699
Purchases of treasury stock (16,000) (549)
Amortization of
unearned compensation 527
Amounts related to employee
stock purchase plan 12,389 265
Income tax reduction relating
to stock options
Dividends paid ($0.27 per share) (3,425)
Other
Comprehensive Income:
Net income for the year 19,513
Translation adjustments
Unrealized holding gains
and losses
Comprehensive Income
Balance, July 31, 1999 (1,169,070) ($13,100) ($1,305) $257,417
36
Analogic Corporation and Subsidiaries
Consolidated Statements of Stockholder's Equity - Years Ended July 31, 1999,
1998 and 1997 (in thousands, except per share data)(continued)
Accumulated
Other Total
Comprehensive Comprehensive Stockholders'
Income Income Equity
Balance, July 31, 1996 $ 3,631 $ 211,800
Shares issued pursuant to
stock grants, net of
cancellations 1
Shares issued pursuant to
stock options 1,276
Purchases of treasury stock
Amortization of
unearned compensation 664
Amounts related to employee
stock purchase plan 144
Income tax reduction relating
to stock options 284
Dividends paid ($0.20 per share) (2,508)
Other
Comprehensive Income:
Net income for the year 20,090 20,090
Translation adjustments (3,156) (3,156) (3,156)
Unrealized holding gains
and losses (379) (379) (379)
Comprehensive Income 16,555
Balance, July 31, 1997 $ 96 $228,216
Shares issued pursuant to
stock grants, net of
cancellations
Shares issued pursuant to
stock options 677
Purchases of treasury stock
Amortization of
unearned compensation 538
Amounts related to employee
stock purchase plan 187
Income tax reduction relating
to stock options 255
Dividends paid ($0.23 per share) (2,902)
Other 209
Comprehensive Income:
Net income for the year 23,888 23,888
Translation adjustments 244 244 244
Unrealized holding gains
and losses (57) (57) (57)
Comprehensive Income 24,075
Balance, July 31, 1998 $ 283 $251,255
Shares issued pursuant to
stock grants, net of
cancellations
Shares issued pursuant to
stock options 796
Purchase of Treasury Stock (549)
Amortization of
unearned compensation 527
Amounts related to employee
stock purchase plan 359
Income tax reduction relating
to stock options 123
Dividends paid ($0.27 per share) (3,425)
Other 108
Comprehensive Income:
Net income for the year 19,513 19,513
Translation adjustments (250) (250) (250)
Unrealized holding gains
and losses (1,056) (1,056) (1,056)
Comprehensive Income 18,207
Balance, July 31, 1999 ($1,023) $267,401
The accompanying notes are an integral part of these financial statements.
37
Analogic Corporation and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)
Years Ended July 31,
1999 1998 1997
Cash flows from operating activities: --------- --------- -------
Net income $ 19,513 $ 23,888 $ 20,090
Adjustments to reconcile net
income to net cash provided --------- --------- -------
by operating activities:
Deferred income taxes (2,563) 465 (3,153)
Depreciation 11,661 8,244 5,805
Amortization of capitalized software 1,977 2,406 3,115
Amortization of excess of cost over
net acquired assets 204
Amortization of excess of acquired net
assets over cost (113) (335) (645)
Amortization of other assets
(deferred charges) 32
Minority interest in net income
(losses) of consolidated subsidiaries 758 1,098 1,270
Provision for losses on accounts
receivable 367 1,273 (56)
Provision for loss on marketable securities 1,742
Gain on sale of marketable securities (997)
Gain on sale of equipment (59) (25) (62)
Equity in loss of unconsolidated affiliates 4,657 3,616 2,374
Impairment on investment 400
Compensation from stock grants 526 538 664
Changes in operating assets & liabilities
Decrease (increase) in assets:
Accounts and notes receivable (2,128) (3,281) (5,766)
Inventories 2,493 (7,116) 2,432
Prepaid expenses and other current assets (471) (512) (124)
Other assets (255) (52) (21)
Increase (decrease) in liabilities:
Accounts payable, trade 2,909 (1,567) 1,746
Accrued expenses and other current
liabilities (1,126) 1,425 2,022
Accrued income taxes (1,128) (1,875) 1,735
-------- -------- ------
Total adjustments 17,505 3,705 13,314
-------- -------- ------
Net cash provided by operating activities 37,018 27,593 33,404
-------- -------- ------
38
Analogic Corporation and Subsidiaries
Consolidated Statements of Cash Flows (in thousands)(continued)
Years Ended July 31,
1999 1998 1997
------- ------- ------
Cash flows from investing activities:
Investments in and advances to
affiliated companies (3,980) (3,340) (1,340)
Additions to property, plant and
equipment (20,655) (14,598) (6,301)
Capitalized software (2,462) (1,658) (1,480)
Proceeds from sale of property,
plant and equipment 116 49 67
Purchases of marketable securities (11,205) (29,770) (19,460)
Maturities of marketable securities 10,120 25,053 10,352
Proceeds from sale of marketable securities 997
-------- -------- --------
Net cash used by investing activities (28,066) (23,267) (18,162)
-------- -------- --------
Cash flows from financing activities:
Proceeds from (payment of) overdraft
facility (2,600) 2,600 (3,305)
Payments on debt and capital lease
obligations (911) (841) (780)
Purchase of common stock for treasury (549)
Issuance of common stock pursuant to
stock options and employee stock
purchase plan 1,156 863 1,421
Dividends paid to shareholders (3,425) (2,902) (2,508)
Purchase of minority interest (1,600)
-------- --------- -------
Net cash used by financing activities (6,329) (1,880) (5,172)
-------- --------- -------
Effect of exchange rate changes on cash (250) 244 (3,156)
-------- --------- -------
Net increase (decrease) in cash and
cash equivalents 2,373 2,690 6,914
-------- --------- -------
Cash and cash equivalents, beginning of year 27,644 24,954 18,040
-------- --------- -------
Cash and cash equivalents, end of year $30,017 $27,644 $24,954
The accompanying notes are an integral part of these financial statements.
39
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-precision analog/digital signal processing
instruments and systems to customers in the medical and industrial
industry.
Product, service, engineering and licensing export revenue, primarily
from customers in Europe and Asia, amounted to approximately $95,504,000
or 37%, $92,292,000 or 33%, and $81,395,000 or 34% of total product,
service, engineering and licensing revenue for the years ended July 31,
1999, 1998 and 1997, respectively.
Significant accounting policies are as follows:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the
Company, 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. Cost is
determined on a first-in, first-out basis.
(c) Property, plant and equipment:
For financial reporting purposes, depreciation and amortization are
provided utilizing the straight-line method over the estimated useful
lives of the assets or lease terms, whichever is shorter, and are
computed principally utilizing accelerated methods for income
tax purposes. Property under capital leases is amortized over the
lease terms. 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 3 to 10 years
Motor Vehicles 3 years
40
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of business operations and significant accounting policies:
(continued)
(d) Revenue recognition:
Revenues are recognized when a product is shipped or a service is
performed. For certain transactions, at the request of the customer
and upon completion of the manufacturing process and acceptance
of title by the customer, the Company stores inventory pending
shipping instructions and recognizes revenue. Accounts receivables
related to such sales were approximately $2,049,000 and $668,000
at July 31, 1999 and 1998, respectively.
(e) Capitalized software costs:
The Company capitalizes certain computer software costs, after
technological feasability 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 $17,104,000 and $15,127,000 at July 31, 1999 and 1998,
respectively.
(f) Warranty costs:
The Company provides for estimated warranty costs as products are shipped.
(g) Income taxes:
The Company does not provide for U.S. Federal income taxes on
undistributed earnings of consolidated foreign subsidiaries as such
earnings are intended to be permanently reinvested in those operations.
(h) Earnings per share:
Basic per-share earnings is based upon the weighted average common
shares outstanding during the year. Diluted per-share earnings is
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 12,683,326, 12,614,303 and 12,553,628 in fiscal 1999,
1998 and 1997. The number of shares utilized in the diluted per-share
computations are 12,790,836, 12,793,027 and 12,701,800 in fiscal 1999,
1998, and 1997 respectively.
(i) 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 $29,258,000 and $28,684,000
at July 31, 1999 and 1998, respectively.
(j) 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.
41
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of business operations and significant accounting policies:
(continued)
(k) 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 identification basis.
(l) Accounting Standards:
Statements of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," and Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information," have been adopted in fiscal
1999. SFAS 130 establishes new standards for reporting and displaying
comprehensive income and its components. SFAS 131 requires disclosure
of certain information regarding operating segments, products and serives
geographic areas of operation and major customers. Adoption of these
Statements has no impact on the Company's consolidated financial
position, results, results of operations, or business practices. (See
Note 17 or Notes to Consolidated Financial Statements)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which established a new model
of accounting for derivative and hedging activities and supersedes and
amends a number of existing standards. The provisions of SFAS 133
are effective for all fiscal quarters of years beginning after
June 15, 1999. The Company believes that this statement will not
have an impact on the financial position, results of operations, or
cash flows, as the Company does not hold any derivative instruments or
engage in hedging activities at the present time.
(m) 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.
42
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Business combinations:
The company's subsidiary, Camtronics, has entered into an agreement with
the three founding stockholders ("Founder") who are also active employees
of Camtronics. The agreement requires Camtronics to purchase up to 5% of
the shares of 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. The Company's ownership of
Camtronics increased from approximately 65% in fiscal 1992 to approximately
77% in fiscal 1998, as a result of the Founders exercising their rights to
sell 5% of their shares during this period, and in addition during May 1998,
the Company purchased from one of the founders of Camtronics his entire
equity interest in Camtronics for $1,600,000. 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 Ultrasound 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 in 1998. As of July 1, 1996, the Company acquired the remaining
41% interest in B-K 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 $349,000
and $236,000 as of July 31, 1999 and 1998, respectively.
On June 28, 1999, the Company acquired the 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 purchase and ANRAD operations have been included in the
Company's consolidated financial statements since June 28, 1999.
43
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Marketable securities:
Marketable securities are categorized as available-for-sale securities
and summarized as follows:
Gross Unrealized
July 31, 1999 Cost Fair Value Gain Loss
Debt securities issued
by various state and
local municipalities
and agencies $93,585,000 $94,185,000 $901,000 ($301,000)
July 31, 1998
Debt securities issued
by various state and
local municipalities
and agencies $92,500,000 $94,156,000 $1,688,000 ($32,000)
Contractual maturities range from one to seven years, with the majority
five years or less.
4. Inventories:
The components of inventory are as follows:
July 31,
1999 1998
Raw materials $20,918,000 $25,226,000
Work-in-process 20,621,000 18,845,000
Finished goods 10,884,000 10,845,000
$52,423,000 $54,916,000
44
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Investments in and advances to affiliated companies:
The Company owns 50% of Analogic Scientific, Inc. ("Scientific"), 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. The Company's
share of Scientific's Loss amounted to $575,000 and $425,000 in fiscal
years 1998 and 1997, respectively. The Company did not record any income
or loss associated with this investment in fiscal 1999. During fiscal
1996 the Company additional $500,000 in Scientific. The carrying value
of this investment was $5,200,000 at July 31, 1999 and 1998. Transactions
with Scientific for fiscal years 1999, 1998 and 1997 consisted of revenues
of approximately $2,610,000, $1,116,000 and $526,000, respectively.
At July 31, 1999 and 1998, accounts receivable from this affiliate were
$1,884,000, and $977,000, respectively.
On February 13, 1996, the Company acquired 1,715,384 shares of Park
Meditech Inc. Common Stock and an 11% Convertible Unsecured Subordinated
Debenture in the principal amount of $750,000 in consideration of the
cancellation of the Convertible Subordinated Promissory Note in the
amount of $1,500,000 and 200,000 Common Share purchase warrants. With
certain restrictions, the Convertible Unsecured Subordinated Debenture
may be converted into Common Shares at a price of $1.20 (Canadian) per
Common Share. The Company loaned Park Meditech, Inc. $221,000 in December
1996, and an additional $294,000 in February, 1997, both were structured
as promissory notes with interest at 11% secured by all of the assets
of Park Meditech, Inc.. The debenture and both promissory notes were
written off in fiscal 1998. On July 3, 1997 Park Meditech, Inc.'s
subsidary, Park Medical Systems, filed for assignment in bankruptcy. A
trustee was appointed to sell the assets of Park Medical Systems, which
includes patents on imaging technology. In view of this filing, the
Company recognized the impairment of its investment in Park Meditech, Inc.
and wrote off $1,742,000 in Fiscal 1997.
On February 22, 1996, the Company invested $2,000,000 for a 33% interest
in a privately held company which designs and will manufacture medical
imaging equipment. Effective May 1, 1997, the Company increased its
interest from 33% to 50% with an investment of $340,000. During June,
1997 the Company and the other investor each invested an additional
$1,000,000. During fiscal year 1999, the Company and the other investor
each invested $3,950,000. The carrying value of this investment was
negative $408,000 at July 31, 1999 and $422,000 at July 31, 1998.
Transactions with this privately held company for fiscal years 1999 and 1998
consisted of revenues of approximately $10,177,000 and $8,678,000,
respectively. At July 31, 1999 and 1998, accounts receivable form this
company were $3,061,000 and $1,582,000, respectively.
The Company's $780,000 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. In fiscal 1999,
the Company invested $30,000 in the limited partnership for general
administrative purposes. During fiscal 1998, the Company received
a distribution of stock in a publicly traded company from the limited
partnership. The Company sold this stock for a gain of $997,000 in fiscal
1998.
45
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Mortgage and other notes payable:
Mortgage and other notes payable consists of the following:
July 31,
1999 1998
3% mortgage note payable,
due 2017, payable quarterly,
collateralized by land, office
and manufacturing facilities $4,932,000 $5,133,000
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 1,050,000 1,200,000
Bank line of credit with monthly
interest indexed to LIBOR Funds
Index (1/2% below prime) 2,600,000
5,982,000 8,933,000
Less current portion 356,000 2,950,000
$ 5,626,000 $ 5,983,000
Principal maturities in each of the next five fiscal years on the
above notes are as follows: 2000, $356,000; 2001, $363,000; 2002,
$369,000; 2003, $376,000; 2004, $383,000.
7. Lease commitments and related party transactions:
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 1999, 1998 and 1997.
Property under capital leases is included in property, plant and
equipment, as follows:
July 31,
1999 1998
Land and buildings $ 6,251,000 $ 6,251,000
Less accumulated amortization 5,636,000 5,389,000
Net capital lease assets $ 615,000 $ 862,000
46
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Lease commitments and related party transactions: (continued)
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 $764,000, $513,000, and $531,000 (net of
sublease income of $1,108,000, $1,144,000, and $1,188,000) in fiscal 1999,
1998 and 1997, respectively.
The following is a schedule by year of future minimum lease payments
at July 31, 1999:
Capital Operating
Fiscal Year Leases Leases
2000 $812,000 $1,367,000
2001 812,000 941,000
2002 213,000 679,000
2003 213,000 404,000
2004 379,000
2,050,000 $3,770,000
Less amount representing
interest, at 9.5% - 17.6% 329,000
Present value of minimum lease
payments (includes current
portion of $633,000) $1,721,000
Future minimum lease payments under capital leases have not been
reduced for sublease rental income of approximately $1,108,000.
Included in accounts and notes receivable for fiscal year 1998 are
$200,000 of convertible debentures from UltraAnalog, Inc., a manufacturer of
analog-to-digital and digital-to-analog converters. This note was paid in full
in fiscal 1999. Bernard M. Gordon, the Company's Chairman, sold his 72%
interest in the outstanding common stock of UltraAnalog, Inc., during fiscal
year 1999.
8. Stock option and stock bonus plans:
At July 31, 1999, 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.
47
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Stock option and stock bonus plans: (continued)
Options granted under the five stock option plans become exercisable
in installments commencing no earlier than one year from the date of grant
and no later than five years from the 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.
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 stock-
holders' equity and subsequently amortized over the periods during which
the restriction lapse (up to six years). Amortization of $527,000, $538,000,
and $663,000 was recorded in fiscal 1999, 1998, and 1997, 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 12,389 in 1999, 6,007 in 1998, and 5,671
in 1997.
At July 31, 1999, 1,211,376 shares were reserved for grant under the
above stock option, bonus and purchase plans.
48
ANALOGIC CORPORATION SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Stock option and stock bonus plans: (continued)
The following table sets forth the stock option transactions
for the years ended July 31, 1999 and 1998:
1999 1998
Weighted Weighted
Average Number Average Number
price per of Price per of of
share shares share shares
Options outstanding,
beginning of year $ 27.25 477,752 $22.41 460,814
Options granted 35.17 121,400 39.18 125,225
Options exercised 15.96 (49,888) 14.39 (47,062)
Options cancelled 33.06 (37,875) (61,225)
Options outstanding, 29.80 511,389 27.25 477,752
end of year
Options exercisable, 19.87 111,656 17.06 91,739
end of year
49
ANALOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Stock option and stock bonus plans: (continued)
The following table sets forth the stock option transactions for the
years ended July 31, 1997:
1997
Weighted
Average Number
price per of
share shares
Options outstanding,
beginning of year $ 18.42 489,788
Options granted 30.98 111,400
Options exercised 13.22 (96,499)
Options cancelled (43,875)
Options outstanding,
end of year 22.41 460,814
Options exercisable,
end of year 15.44 66,934
50
The following table summarizes information about stock options outstanding
at July 31, 1999:
Options Outstanding
Weighted-Avg
Number Remaining Number
Range Outstanding Contractual Weighted-Avg
Exercise Prices As of 7/31/99 Life (years) Exercise Price
$10.38-$14.86 11,575 1.13 $12.73
16.50- 18.25 24,575 .32 17.25
16.50- 44.00 438,239 5.65 30.79
29.44- 37.75 22,000 7.63 34.54
27.75- 27.75 15,000 6.87 27.75
$10.38-$44.00 511,389 5.41 $29.80
The following table summarized information about stock options exercisable at
July 31, 1999:
Options Exercisable
Exercisable Weighted-Avg
As of 7/31/99 Exercise Price
11,575 $ 12.73
24,575 17.25
60,506 20.35
0 0
15,000 27.75
111,656 $ 19.87
51
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Stock option and stock bonus plans: (continued)
Statement of Financial Accounting Standards ("SFAS") No. 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 will not adopt the fair value method of
accounting for employee stock-based compensation but will instead comply with
the pro forma disclosure requirements. 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 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 character-
istics 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 the exisitng model
does not nessarily 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:
1999 1998 1997
Expected life (in years) 7 8 7
Volatility 38% 38% 38%
Risk-free interest rate 4.89% 5.78% 6.54%
Dividend yield .8% .6% .5%
The weighted-average estimated fair value of stock options granted during
fiscal 1999, 1998 and 1997 was $19.13,$19.17 and $15.30 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, (in thousands, except per share amounts)
1999 1998 1997
Net income
As reported $19,513 $23,888 $20,090
Pro forma $18,987 $23,521 $19,847
Net income per share
As reported - Basic $1.54 $1.89 $1.60
Pro forma - Basic $1.50 $1.86 $1.58
As reported - Diluted $1.53 $1.87 $1.58
Pro forma - Diluted $1.48 $1.84 $1.56
Because SFAS 123 is applicable only to options granted subsequent to July 31,
1995, its pro forma effect will not be fully reflected until approximately
2000.
52
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 from current or accumulated earnings as determined by the
Board of Directors. The contribution each year shall in no event exceed the
maximum allowable under applicable provisions of the Internal Revenue Code.
Profit sharing expense amounted to $1,000,000 in 1999, $1,000,000 in 1998,
and $900,000 in 1997.
The Company has 401(K) plans under which employees can contribute up to 15%
of their annual base income, not to exceed the maximum amount allowable under
the Internal Revenue Code in any one calendar year.
10. Interest:
Total interest incurred amounted to $518,000, $659,000, and $779,000, in
1999, 1998, and 1997, respectively, of which $154,000 in 1999, $151,000 in
1998, and $172,000 in 1997 was capitalized.
11. Income taxes:
The components of the provision for income taxes are as follows:
July 31
1999 1998 1997
Current income taxes:
Federal $6,743,000 $8,606,000 $7,495,000
State and foreign 883,000 2,920,000 2,289,000
7,626,000 11,526,000 9,784,000
Deferred income taxes (benefit):
Federal (2,110,000) 67,000 (2,594,000)
State and foreign ( 453,000) 398,000 (559,000)
(2,563,000) 465,000 (3,153,000)
$ 5,063,000 $ 11,991,000 $ 6,631,000
53
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Income taxes: (continued)
The tax effects of the principal temporary differences resulting in deferred
tax expense (benefit) are as follows:
July 31
1999 1998 1997
Unrealized equity gain/loss ($1,930,000) $1,036,000 ($1,642,000)
Capitalized software 75,000 (411,000) (494,000)
Depreciation 197,000 436,000 264,000
Bad debts 16,000 (25,000) 23,000
Inventory valuation (876,000) ( 219,000) (379,000)
Benefit plans (202,000) 49,000 ( 6,000)
Net capital and operating
loss carryforwards 145,000 85,000 (368,000)
Other items, net 12,000 (486,000) (551,000)
($2,563,000) $ 465,000 ($3,153,000)
Income (loss) before income taxes from domestic and foreign operations is
as follows:
July 31
1999 1998 1997
Domestic $26,397,000 $32,833,000 $27,382,000
Foreign ( 1,063,000) 4,144,000 609,000
$25,334,000 $36,977,000 $27,991,000
The components of the deferred tax assets and liabilities are as follows:
Deferred Tax Deferred Tax
July 31, 1999 Assets Liabilities
Depreciation $ 4,109,000
Bad debt allowance $ 190,000
Capitalized interest and other costs 558,000 430,000
Inventory 1,496,000
Warranty 1,027,000
Benefit plans 1,499,000
Lease transactions 444,000
Unrealized equity gain/loss 4,368,000 2,692,000
Capitalized software 1,048,000
Net capital loss carryforwards 640,000
Miscellaneous 877,000
$11,099,000 $8,279,000
54
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Income taxes: (continued)
Deferred Tax Deferred Tax
July 31, 1998 Assets Liabilities
Depreciation $ 3,912,000
Bad debt allowance $ 206,000
Capitalized interest
and other costs 539,000 447,000
Inventory 619,000
Warranty 1,050,000
Benefit plans 1,297,000
Lease transactions 568,000
Unrealized equity
gain/loss 2,476,000 2,731,000
Capitalized software 973,000
Net capital loss
carryforwards 785,000
Miscellaneous 780,000
$8,320,000 $8,063,000
Included in prepaid expenses and other current assets is $4,317,000
and $3,402,000 of current deferred tax assets at July 31, 1999 and 1998,
respectively.
A reconciliation of income taxes at the United States statutory rate to
the effective tax rate follows:
Year Ended July 31,
1999 1998 1997
U.S. federal statutory tax rate 35% 35% 35%
Foreign sales corporation tax benefit ( 3 ) ( 2 ) ( 2 )
State income taxes, net of
federal tax benefit 1 2 2
Tax exempt interest ( 6 ) ( 4 ) ( 4 )
Prior year tax provision ( 2 )
General business credit utilized ( 2 ) ( 1 ) ( 1 )
Alternative minimum tax ( 2 )
Other items, net ( 3 ) 2 ( 4 )
Effective tax rate 20% 32% 24%
Two of the Company's subsidiaries have elected to be taxed as Foreign Sales
Corporation (FSC).
55
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Quarterly results of operations (unaudited):
The following is a summary of unaudited quarterly results of operations
for the years ended July 31, 1999 and 1998.
Basic Diluted
Earnings Earnings
1999 Total revenues Net income per share per share
quarters
First $ 67,166,000 $ 4,757,000 $ .38 $ .37
Second 72,689,000 5,565,000 .44 .44
Third 70,862,000 5,330,000 .42 .42
Fourth 68,977,000 3,861,000 .30 .30
Total $279,694,000 $19,513,000 $1.54 $1.53
1998
quarters
First $ 63,929,000 $ 4,634,000 $ .37 $ .36
Second 71,648,000 5,681,000 .45 .45
Third 77,377,000 6,362,000 .50 .50
Fourth 81,518,000 7,211,000 .57 .56
Total $294,472,000 $23,888,000 $1.89 $1.87
13. Transactions with major customers and industries:
One export customer accounted for approximately $47,000,000 and 45,000,000
or 18% and 16% of total product, service, engineering and licensing revenue
in 1999 and 1998, respectively. Of the total product, service, engineering
and licensing revenue, one domestic customer accounted for approximately
$20,000,000 or 8% and $21,000,000 or 8% in 1999 and 1998, respectively.
The Company's ten largest customers accounted for approximately 60% of
product, service, engineering, and licensing revenue during fiscal 1999.
Medical Technology Products, consisting primarily of electronic subsystems
for medical imaging equipment, accounted for approximately 78% of product,
service, engineering, and licensing revenue in fiscal 1999.
56
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Supplemental disclosure of cash flow information:
During fiscal years 1999, 1998 and 1997, interest paid amounted to $505,000,
586,000 and $745,000, respectively.
Income taxes paid during fiscal years 1999, 1998 and 1997 amounted to $9,092,
000, $13,114,000 and $8,103,000, respectively.
15. 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
value of marketable securities are estimated based on quoted market prices
for these securities.
16. Earnings per share:
Earnings per share information has been restated to conform to SFAS No. 128,
"earnings per share" which the Company adopted effective in fiscal year 1999.
Basic earnings per common share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share was calculated by dividing net income by the sum
of weighted average number of common shares that would have been outstanding if
potentially dilutive common shares had been issued. The following table
indicates the number of shares utilized in the earnings per shares calculations
for the fiscal years enidng July 31, 1999, 1998 and 1997, respectively.
1999 1998 1997
Net Income $19,513,000 $23,888,000 $20,090,000
Common Shares
outstanding-basic 12,683,326 12,614,303 12,553,628
Effect of dilutive
securities:
Stock Options 108,000 179,000 148,000
Common Shares
outstanding-Diluted 12,790,836 12,793,027 12,701,800
Earnings per Common
Share:
Basic $1.54 $1.89 $1.60
Diluted 1.53 1.87 1.58
58
17. Segment information:
Effective July 31, 1999, the Company adopted SFAS No. 131 "Disclosures
about Segments of an enterprise and Selected Information". SFAS No. 131
supersedes previously issued segment reporting disclosures and requires
reporting of segment information that is consistent with the way in which
management operates the Company. The adoption of SFAS No. 131 did not have
any impact on the Company's financial portion or the results of operations.
The Company's operations are primarily within a single segment within the
electronics industry (Medical Technology Products): the design, manufacture
and sale of high, technology, high-performance, high precision, data
acquisition, conversion (analog/digital) and signal processing instruments
and systems. The (corporate and other ) segment represents the Company's
Hotel operation, interest and dividend income and other Company's operations
which do not meet the materiality requirements of the statement and thus are
not required to be separately disclosed. The segment disclosures presented
for prior years have been restated to conform with the presentation adopted
for the current fiscal year. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.
The table below presents information about the Company's reportable segments:
Year Ended July 31,
1999 1998 1997
Revenues:
Medical Technology Products $250,333,000 $263,817,000 $225,734,000
Corporate and Other 29,361,000 30,655,000 30,995,000
Total Revenues $279,694,000 $294,472,000 $256,729,000
Income (Loss) before income taxes and minority interest:
Medical Technology Products $19,674,000 $29,328,000 $19,366,000
Corporate and Other 5,660,000 7,649,000 8,625,000
Total Income (Loss) before
income taxes and minority $25,334,000 $36,977,000 $27,991,000
interest
Identifiable Assets:
Medical Technology Products $191,700,000 $184,579,000 $167,436,000
Corporate and Other 123,313,000 118,378,000 114,923,000
Total Identifiable Assets $315,013,000 $302,957,000 $282,359,000
59
18. Foreign operations:
Financial information relating to the Company's foreign and domestic
operations for fiscal years 1999, 1998 and 1997 are as follows:
FY 1999 Foreign Domestic Total
Revenue $24,552,000 $255,142,000 $279,694,000
Income(Loss)
from operations (1,186,000) 31,177,000 29,991,000
Identifiable
assets 30,533,000 284,480,000 315,013,000
FY 1998 Foreign Domestic Total
Revenue $30,192,000 $264,280,000 $294,472,000
Income(Loss)
from operations 3,697,000 36,299,000 39,996,000
Identifiable
assets 25,733,000 277,224,000 302,957,000
FY 1997 Foreign Domestic Total
Revenue $25,697,000 $231,032,000 $256,729,000
Income(Loss)
from operations 609,000 31,498,000 32,107,000
Identifiable
assets 20,370,000 261,989,000 282,359,000
60
ANALOGIC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D
charged to Additions
Balance at profit and charged Deductions
beginning loss or to other from
Description of Period income accounts reserves
Year ended
July 31, 1999
Allowance for
doubtful
accounts $2,643,000 $367,000 ($1,887,000)
Year ended
July 31, 1998
Allowance for
doubtful
accounts $1,370,000 $1,329,000 ($56,000)
Deferred tax
valuation
allowance 1,592,000 (1,592,000)
Year ended
July 31, 1997
Allowance for
doubtful
accounts $1,426,000 $252,000 ($308,000)
Deferred tax
valuation
allowance 4,231,000 ( 2,639,000)
61
ANALOGIC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column E Column F
Balance
at end
Description Recoveries of period
Year ended
July 31, 1999
Allowance for
doubtful accounts $ 1,123,000
Year ended
July 31, 1998
Allowance for
doubtful accounts 2,643,000
Deferred tax
valuation
allowance
Year ended
July 31, 1997
Allowance for
doubtful accounts 1,370,000
Deferred tax
valuation
allowance 1,592,000
62
INDEX TO EXHIBITS
TITLE INCORPORATED BY REFERENCE TO
3.1 Restated Articles of Organization, Exhibit 3.1 to the Company's Annual
as amended March 15, 1988 Report on Form 10-K for the fiscal
year ended July 31,1988
3.2 By-laws, as amended January 27, Exhibit 3.2 to the Company's Annual
1988 Report on Form 10-K for the fiscal
year ended July 31, 1988
10.1 Lease dated March 5, 1976 from Exhibit 6(e) to the Company's
Bernard M. Gordon to Analogic Registration Statement on Form S-14
(File No. 2-61959)
10.2 Amendment of Lease dated Exhibit to the Company's Report on
dated May 1, 1977 between Bernard Form 8-K May 1, 1977
M. Gordon and Analogic
10.3 Lease dated January 16, 1976 Exhibit to the Company's Annual
from Bernard M. Gordon to Data Report on Form 10-K for the fiscal
Precision Corporation and year ended July 31, 1977
related Assignment of Lease
dated October 31, 1979 from
Data Precision Corporation to
Analogic
10.4 (a)Lease dated October 31, 1977 Exhibit 6(d) to the Company's
from Audubon Realty, Ltd. Registration Statement on Form
to Data Precision Corporation S-14 (File No. 2-61959)
and related letter agreement
dated January 18, 1978
(b)Amendment of Lease dated Exhibit I to the Company's Annual
July 19, 1979 between Audubon Report on Form 10-K for the fiscal
Realty, Ltd. and Analogic year ended July 31, 1982.
(c)Third Amendment of Lease Exhibit to the Company's Annual
dated August 2, 1982 Report on Form 10-K for the fiscal
year ended July 31, 1982
(d)Fourth Amendment of Lease Exhibit 19.1 to Quarterly Report on
dated Dedember 31, 1982 Form 10-K for three months ended
January 31, 1983
10.5 (a)Lease dated March 16,1981 Exhibit II to the Company's Quarterly
from Audubon Realty Ltd. to Report on Form 10-Q for the three
Analogic months ended April 30, 1981
(b)Amendment of Lease dated Exhibit to the Company's Annual Report
October 31, 1984 on Form 10-K for the fiscal year
ended July 31, 1985
10.6 Land Disposition Agreement by Exhibit to the Company's Annual Report
and between City of Peabody on Form 10-K for the fiscal year ended
Community Development Authority July 31,1981
and Analogic Corporation
62
10.7 Loan Agreement among the City of Exhibit to the Company's Annual
Peabody, its Community Develop- Report on Form 10-K for the fiscal
ment Authority, and Analogic year ended July 31,1981
Corporation
10.8 Amendments to Urban Development Exhibit 10.13 to the Company's
Action Grant Agreement dated Annual Report on Form 10-K for the
August 28,1986 and September 30, fiscal year ended July 31, 1986
1986
10.9 Promissory Note of Analogic pay- Exhibit to the Company's Annual
able to Peabody Community Develop- Report on Form 10-K for the fiscal
ment Authority year ended July 31,1981
10.10(a)Stockholder Agreement as of Exhibits to the Company's Report on
July 9, 1986 by and among Siemens Form 8-K dated July 31, 1986
AG, SCC, and Analogic including the
following exhibits thereto
(b)Development Agreement dated as "
of July 28, 1986 between Siemens
AG and Medical Electronics
Laboratories, Inc.
(c)Manufacturing Agreement dated "
as of July 28, 1986 between
Analogic and Medical Electronics
Laboratories, Inc.
(d)License Agreement dated as of "
July 28, 1986 between Analogic
and Medical Electronics
Laboratories, Inc.
(e)License Agreement I dated as Exhibits to the Company's Report on
of July 28, 1986 between Siemens Form 8-K dated July 31, 1986
AG and Medical Electronics
Laboratories, Inc.
(f)License Agreement II dated as "
of July 28, 1986 between Siemens
AG and Medical Electronics
Laboratories, Inc.
(g)Sublease dated as of July 28, "
1986 between Analogic as sub-
lessor and Medical Electronics
Laboratories, Inc. as sublessee
63
10.11 Stock Purchase Agreement as of Exhibit 10.11 to the Company's Annual
March 11, 1988 by and among Report on Form 10-K for fiscal year
Siemens AG, SCC, SMS, MEL, ended July 31,1988
and Analogic
10.12(a)Anamass Partnership Agreement Exhibit 10.12(a) to the Company's
dated as of July 5, 1988 between Annual Report on Form 10-K for fiscal
Ana/dventure Corporation and year ended July 31, 1988
Massapea, Inc.
(b)Ground Lease Agreement dated Exhibit 10.12(b) to the Company's
July 5, 1988 between Analogic Annual Report on Form 10-K for fiscal
and Anamass Partnership year ended July 31, 1988
(c)Equity Infusion Agreement Exhibit 10.12(c) to the Quarterly
Report on Form 10-Q for the three
months ended January 31, 1991
(d)Resolution Agreement dated Exhibit 10.12(d) to the Company's
July 31, 1991 and ratified on Annual Report on Form 10-K for fiscal
August 8, 1991 year ended July 31, 1991
10.13Key Employee Stock Option Plan Exhibit 10.7 to the Company's Annual
dated April 21, 1978, as amend- Report on Form 10-K for the fiscal
ed and restated December 4, year ended July 31, 1987
1981, and further amended on
October 9, 1984 and January 28,
1987
10.14Key Employee Stock Option Plan Exhibit 10.8 to the Company's Annual
dated August 8, 1980, as amend- Report on Form 10-K for the fiscal
ed and restated December 4, 1981, year ended July 31, 1987
and further amended on October
9, 1984 and January 28, 1987
10.15(a)Analogic Corporation Profit Exhibit 6(c) to the Company's
Sharing Plan dated July 26, 1977 Registration Statement on Form S-14
(File No. 2-61959)
(b)Amendments 2,3,4 and 5 to Exhibit 10.10(b) to the Company's
said Profit Sharing Plan Annual Report on Form 10-K for the
fiscal year ended July 31, 1980
(c)Restated Analogic Corpora- Exhibit 10.9(c) to the Company's
tion Profit Sharing Plan dated Annual Report on Form 10-K for the
July 31, 1985 and Amendment year ended July 31, 1985
No. 1 thereto dated August 20,
1985
10.16Key Employee Stock Bonus Plan Exhibit A to definitive proxy state-
dated March 14, 1983, as ment for the Company's Special Meeting
amended on January 27, 1988 in lieu of Annual Meeting of
Stockholders held January 25, 1984
(File Nol 33-27372)
64
10.17 Key Employee Incentive Stock Exhibit 10.15 to the Company's Annual
Option Plan dated March 14, Report on Form 10-K for the fiscal
1983, as amended and restated year ended July 31, 1987 (File No.
on January 28, 1987 2-95091)
10.18 1985 Non-Qualified Stock Option Exhibit 10.19 to the Company's Annual
Plan dated May 13, 1985 Report on Form 10-K for the fiscal
year ended July 31, 1985 (File No.
33-6835)
10.19 (a) Employee Qualified Stock Exhibit G to the Company's definitive
Purchase Plan dated June 10, proxy statement dated December 9, 1985
1986 for the Company's Special Meeting in
lieu of Annual Meeting of Stockholders
held January 22, 1986 (File No.33-5913)
(b) Said Employee Stock Exhibit A to the Company's definitive
Purchase Plan (as amended Proxy statement dated December 1, 1997
on October 9, 1997) for the Company's Annual Meeting to
Shareholders held January 23, 1998.
10.20 Proposed 1988 Non-Qualified Exhibit 10.20 to the Company's Annual
Stock Option Plan for Non- Report on Form 10-K for the fiscal
Employee Directors year ended July 31, 1988 (File No.
33-27372)
10.21 Form of Indemnification Exhibit 10.19 to the Company's Annual
Contract Report on Form 10-K for the fiscal
year ended July 31, 1987
10.22 Agreement and Plan of Merger Exhibit 10.22 to the Company's Annual
between SKY COMPUTERS, Inc., Report on Form 10-K for the fiscal
and Analogic Corporation year ended July 31, 1992
10.23(a)Agreement between B-K Medical Exhibits to the Company's Report on
Holding A/S and Analogic Corp- Form 8-K dated December 18, 1992
oration dated October 20, 1992
(b)Addendum dated December 11, "
1992 to Agreement between B-K
Medical Holding A/S and Analogic
Corporation dated October 20,
1992
(c)Shareholders Agreement "
between B-K Medical Holding
A/S and Analogic Corporation
dated December 11, 1992
10.24 Key Employee Incentive Stock Exhibit A to the Company's definitive
Option Plan dated June 11, Proxy Statement dated December 1, 1993
1983 for the Company's Annual Meeting of
Stockholders held January 21, 1994
(File No. 33-53381)
65
10.25 Non-Qualified Stock Option Plan Exhibit A to the Company's
for Non-Employee Directors dated definitive Proxy Statement dated
January 31, 1997 December 2, 1996 for the Company's
Annual Meeting of Stockholders
held January 24, 1997.
10.26 Key Employee Incentive Stock Exhibit A to the Company's
Option Plan dated June 11, 1998 definitive Proxy Statement dated
December 1, 1998 for the Company's
Annual Meeting of Stockholders
held January 22, 1999.
66
EXHIBITS
TITLE
21. List of Subsidiaries
23. Consent of PricewaterhouseCoopers LLP
27. Financial Data Schedule
67
EXHIBIT 21
JURISDICTION OF
NAME INCORPORATION
Analogic Limited Massachusetts
Analogic Foreign Sales Corporation Virgin Islands
Analogic Securities Corporation Massachusetts
Anadventure II Corporation Massachusetts
Anadventure 3 Corporation Massachusetts
Anadventure Delaware Corporation Delaware
ANRAD Corporation Province of Nova Scotia
B-K Ultrasound Systems A/S Denmark
Camtronics Foreign Sales Corporation Virgin Islands
Camtronics, Ltd. Wisconsin
International Security Systems Corporation Massachusetts
SKY COMPUTERS, Incorporated Massachusetts
SKY Limited England
68
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Analogic Corporation on Form S-8 (File Nos. 2-95091, 33-5913, 33-6835,
33-53381 and 33-27372) of our report dated August 27, 1999 on our audits of
the consolidated financial statements and financial statement schedule of
Analogic Corporation at July 31, 1999 and 1998, and for each of three years
ended July 31, 1999, 1998, and 1997, which report is included in the Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
October 4, 1999