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, 1998 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 requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant at August 31, 1998 was
approximately
$261,709,169.
Number of shares of Common Stock outstanding at August 31, 1998:
12,651,905
DOCUMENTS INCORPORATED BY REFERENCE: NONE
PART I
Item 1. Business
(a) Developments During Fiscal 1998
Total revenues of Analogic Corporation (hereinafter, together with its
subsidiaries, referred to as "Analogic" or the "Company") for the fiscal
year ended July 31, 1998, were $294,472,000 as compared to $256,729,000 for
fiscal year 1997, an increase of 15%. Net income was $23,888,000, or $1.87
per diluted share as compared to $20,090,000, or $1.58 per diluted share
for fiscal year 1997, an increase of 19%.
As previously reported during a routine audit, the Company was notified
by the Internal Revenue Service (IRS) that it proposed to adjust the
Company's tax returns for the years 1990 through 1992 by increasing its tax
liability for those years by $2,837,473, $2,151,574 and $1,762,849,
respectively. The major claims relate to an alleged forgiveness of debt
arising from the acquisition of property from a subsidiary of the FDIC and
an alleged excess accumulation of earnings. During March 1998, the Company
received notice from the IRS which upheld the Company's position and the
proposed adjustments have been cancelled.
During May 1998, the Company purchased from one of the founders of
Camtronics his entire equity interest in Camtronics for $1,600,000. As a
result of the purchase, the Company's ownership in Camtronics increased to
77%.
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 year 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.
The Company has undertaken considerable effort to assess the impact and
necessary resources required to make its systems Year 2000 compliant.
Currently, the Company is utilizing both internal and external resources to
upgrade its computer hardware and software systems. The Company is also
identifying and implementing changes to other information systems which are
not being replaced in order to make them Year 2000 compliant.
The Company is also assessing the possible effects of Year 2000 issues on
its significant vendors and customers, which could in turn affect the
Company's operations. The Company has not yet been able to determine,
however, whether any of its suppliers or service providers will need to
make any such software modifications or replacements or whether the failure
to make such software corrections will have an adverse effect on the
Company's operations or financial condition.
The Company currently estimates that Year 2000 costs over the next two
fiscal years will range from $4.0 million to $6.0 million. 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 cost of the project will be
funded through operating cash flows.
(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.
(c) Narrative Description of Business
Analogic designs, manufactures and sells standard and customized
high-precision data acquisition, conversion and signal processing
equipment. 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 is a leader in 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 A/D and D/A conversion capabilities, most of
Analogic's products perform calculations on the data being analyzed. Thus,
Analogic's products are an integral part of the communications link between
various analog sensors, detectors or transducers and the people or systems
which interpret or utilize this information.
Analogic's products may be divided for discussion purposes into three
groupings as described below. These 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 74%
of product, service, engineering, and licensing revenue in fiscal 1998.
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 substantially increasing resolution of the image, by reducing
the time necessary to acquire the image, and by reducing the computing time
required to produce the image. Analogic supplies to its medical imaging
customers A/D and D/A conversion equipment and complete data acquisition
systems. The Company also manufactures a complete mobile and other CAT
Scanners incorporating proprietary technology for sale to others.
In addition, the Company manufactures phased array ultrasound systems,
key subsystems, and a family of 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.
The Company manufactures electronics for a family of hard copy laser
multi-format medical cameras in single and multi-user configurations that
address the diagnostic image market. These cameras are used in hospitals
world wide to provide 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 designed for use in both
antepartum and intrapartum applications have the capability to measure,
compute, display and print fetal and maternal heart rates, maternal
contraction frequency and relative intensity and other maternal vital sign
parameters to determine both maternal and fetal well being.
The Company also manufactures a family of lightweight, portable, multi-
functional, custom patient monitor instruments 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, 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 19% of fiscal 1998 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 number of interconnecting and supporting modules relating to
its A/D and D/A converters. These include signal conditioning devices,
which amplify, isolate and filter physical 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 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 CompactPCI (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.
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 in speech
processing, speech compression, Voice Over Internet Protocol (VOIP), X-ray
imaging, manufacturing testing, radar and sonar, geophysical exploration,
and in 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.
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 7%
of fiscal 1998 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
incorporation 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.
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.
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. The hotel operation does not meet the
criteria for disclosure as a separate business segment, but is being
presented here only for information purposes.
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 distributors in their regions. Some of Analogic's
distributors also represent manufacturers of competing products.
Sources of Components/Raw Materials
In general, Analogic's products are composed of company-designed
proprietary integrated circuits, printed circuit boards, and precision
resistor networks, all manufactured by 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.
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, General Electric, and Imation, which
accounted for approximately 16.1%, 7.7%, and 7.2%, respectively, of
product, service, engineering, and licensing revenue for the fiscal year
ended July 31, 1998. 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 customer accounted for as
much as 7.2% of the Company's product, service, engineering, and licensing
revenue during fiscal 1998. The Company's ten largest customers, including
Philips, General Electric and Imation, accounted for approximately 56% of
product, service, engineering, and licensing revenue during fiscal 1998.
Backlog
The backlog of orders believed to be firm at July 31, 1998 was
approximately $63.8 million compared with approximately $74.3 million at
July 31, 1997. This decrease is principally related to shorter release
times for Medical 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, 1998 backlog during
fiscal 1999.
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 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 $36,177,000 in fiscal 1998, $33,948,000 in fiscal 1997, and
$29,017,000 in fiscal 1996. Analogic intends to continue its emphasis on
new product development. As of July 31, 1998, Analogic had approximately
465 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 1998, the Company capitalized $1,658,000 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 $2,406,000
in fiscal 1998.
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, 1998, the Company had approximately 1,650 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
$92,292,000 (33%) in fiscal 1998 as compared to approximately $81,395,000
(34%) in fiscal 1997, and approximately $77,600,000 (36%) in fiscal 1996.
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 foreign export revenue is subject to significantly greater
risks than its domestic revenue. It is possible that the current crisis in
Asia and South America might have an adverse affect on our customers' sales
and therefore have a reciprocal affect on the Company's export revenue.
See Note 16 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 1/2 acres of this
land for the Peabody 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 on a 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 ten-year term expiring June 1, 1999.
The Company's 100% owned subsidiary, B - K, leases a modern two-story
building containing a total of approximately 54,000 square feet of
manufacturing, 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.
On August 25, 1993 the Company purchased 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.
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.
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
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:
<TABLE>
<CAPTION>
Fiscal Year High Low
<S> <C> <C> <C>
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
1997 First Quarter $29.75 $22.75
Second Quarter 34.50 26.00
Third Quarter 36.75 28.12
Fourth Quarter 40.12 29.25
</TABLE>
As of August 31, 1998, there were approximately 911 holders of record
of the Common Stock.
Dividends of $.05 per share were declared for the first quarter, and
$.06 per share for the second, third, and fourth quarters of fiscal 1998.
Dividends of $.05 per share were declared for each quarter of fiscal 1997.
The policy of the Company is to retain sufficient earnings to provide funds
for the operation and expansion of its business.
Item 6. Selected Financial Data
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Year Ended July 31
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
Total Revenues $294,472 $256,729 $230,460 $208,827 $193,745
Income from
operations 39,996 32,107 16,981 15,155 18,205
Net Income 23,888 20,090 13,065 12,706 14,657
Earnings per
common and common
equivalent share:
Basic $1.89 $1.60 $1.05 $1.03 $1.19
Diluted $1.87 $1.58 $1.04 $1.02 $1.18
Dividends paid per
common share $0.23 $0.20 $0.18 $0.08 None
Number of shares
used in computation
of per share data:
Basic 12,614 12,554 12,455 12,371 12,339
Diluted 12,793 12,702 12,562 12,475 12,434
Working Capital $200,718 $186,131 $168,515 $165,799 $150,571
Total Assets 302,957 282,359 265,162 260,198 239,620
Long-term debt
(including
capitalized
leases) 7,704 8,614 9,455 10,236 10,993
Stockholders'
Equity 251,255 228,216 211,800 200,893 184,391
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 Company's 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.
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 to
$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.
Fiscal 1998 Compared to Fiscal 1997 (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. (See Note 5 of Notes to Consolidated Financial
Statements.)
During fiscal 1998, the Company recorded a reserve 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
subsidiary, 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
carryforwards 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(e),
1(l) & 12 of Notes to Consolidated Financial Statements).
Fiscal 1997 Compared to Fiscal 1996
Product, service, engineering, and licensing revenues for fiscal 1997 were
$239,550,000 as compared to $213,781,000 for fiscal 1996, an increase of
12%. The increase of $25,769,000 was principally due to an increase in
sales of Medical Technology Products of $24,101,000 (primarily due to sales
of the new Computed Tomography (CT) Scanner and the Archium Cardiac Digital
Archive System), and Signal Processing Technology Products of $4,099,000
offset by a reduction in Industrial Technology Products of $2,431,000.
Other operating revenue of $11,591,000 and $10,528,000 represents revenue
from the Hotel operation for fiscal 1997 and 1996, respectively.
Interest and dividend income decreased primarily due to a dividend
distribution received from a limited partnership in fiscal 1996 and no
dividend distribution was received in fiscal 1997 from the limited
partnership. (See Note 5 of Notes to Consolidated Financial Statements.)
The percentage of total cost of sales to total net sales for fiscal 1997
and 1996 was 59% and 62%, respectively. The decrease was primarily due to
an 12% increase in sales, diminished start up manufacturing costs
associated with the new CT scanner and a favorable product mix. Operating
costs associated with the Hotel for fiscal years 1997 and 1996 were
$5,959,000 and $5,627,000, respectively.
General and administrative and selling expenses decreased $2,137,000,
primarily due to a cost reduction program in the Company's Danish
subsidiary along with lower staffing requirements within the Company's
domestic operations. Research and product development expenses increased
$4,931,000 primarily due to the expanding effort applicable to developing
complex medical imaging systems and increased amortization of capitalized
computer software costs.
Computer software costs of $1,480,000 and $1,985,000 were capitalized in
fiscal 1997 and 1996 respectively. Amortization of capitalized software
amounted to $3,115,000 and $2,325,000 in fiscal 1997 and 1996,
respectively.
Gain on foreign exchange for fiscal 1997 amounted to $1,045,000, compared
to $524,000 for fiscal 1996, primarily from the Company's subsidiary in
Denmark.
The amortization of the excess of cost over fair value of net assets
acquired from Camtronics was $85,000 and $127,000 in fiscal 1997 and 1996,
respectively. The amortization of the excess of cost over fair value of
net assets acquired from SKY was $119,000 and $179,000 in fiscal 1997 and
1996, respectively.
The amortization of excess of fair value of net assets over cost acquired
from B - K was $645,000 and $542,000 in fiscal 1997 and 1996, respectively.
The Company's share of losses of a privately held company amounted to
$1,949,000 and $821,000 in fiscal 1997 and fiscal 1996, respectively.
During fiscal 1997, the Company's investment in Analogic Scientific was
decreased by $425,000 reflecting the Company's share of Analogic
Scientific's loss.
Fiscal 1997 Compared to Fiscal 1996 (continued)
Fiscal 1997 includes a $1,742,000 charge resulting from the write off of
the Company's investment in Park Meditech, Inc. (See Note 5 of Notes to
Consolidated Financial Statements.)
Minority interest in the net income of the Company's consolidated
subsidiary, Camtronics, in fiscal 1997 and 1996 amounted to $1,270,000 and
$224,000, respectively.
Minority interest in the net loss of the Company's consolidated foreign
subsidiary, B - K, in fiscal 1996 was $1,370,000. As of July 1, 1996 the
Company purchased the remaining 41% of minority interest in B - K.
The effective tax rate for fiscal 1997 was 24% vs. 26% for fiscal 1996.
This change was primarily a result of the increase in the utilization of
tax credits.
Net income for fiscal 1997 was $20,090,000, as compared with $13,065,000
for fiscal 1996. Basic per-share earnings were $1.60 for fiscal 1997, up
from $1.05 for fiscal 1996. Diluted per-share earnings were $1.58 for
fiscal 1997, up from $1.04 for fiscal 1996.
Financial Position
The Company's balance sheet at July 31, 1998, reflects a current ratio of
6.5 to 1, compared to 6.2 to 1 at July 31, 1997. Cash, cash equivalents
and marketable securities, along with accounts and notes receivable,
constitute approximately 74% of current assets at July 31, 1998. 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 .21 to 1 at July 31, 1998 compared
to .24 to 1 at July 31, 1997.
In fiscal 1998 funds provided from operations amounted to $27,593,000. Net
income of $23,888,000 and depreciation & amortization of $10,651,000 were
the major contributors. Increases in Accounts and Notes Receivable of
$3,281,000 and inventory of $7,116,000 were the major use of operating
cash.
The following investing activities resulted in a decrease of cash of
$23,267,000. During 1998 the Company invested $3,340,000 in a privately
held company which designs and manufactures medical imaging equipment.
Capital expenditures for fiscal 1998 amounted to $14,598,000 and
capitalized computer software cost were $1,658,000. The Company also made
an additional investment of $4,717,000 in marketable securities net of
maturities. Proceeds from the sale of marketable securities amounted to
$997,000.
The following finance activities resulted in a net reduction of cash in the
amount of $1,880,000. Dividends paid to shareholders during the fiscal
year amounted to $2,902,000. Cash flows from financing activities were
decreased by the purchase of stock of Camtronics in the amount of
$1,600,000 which was offset by the proceeds from stock options exercised in
the amount of $863,000 and proceeds from Camtronics unsecured bank line of
credit of $2,600,000.
Total investments in and advances to affiliated companies decreased
$723,000. This decrease is due to the Company's share of equity losses
from a privately held company in the amount of $3,488,000 and Analogic
Scientific of $575,000 offset by an additional investment of $3,340,000 in
the privately held company.
Notes Payable increased by $2,256,000 to $8,933,000 at the end of fiscal
1998 primarily due to borrowing against a line of credit by Camtronics.
Minority Interest in Consolidated Subsidiaries increased $1,098,000. This
represents the minority interest in Camtronics.
The Company's three largest customers, each of which is a significant and
valued customer, were Philips, G.E. and Imation Corp., which accounted for
approximately 16.1%, 7.7%, and 7.2%, respectively, of product, service,
engineering, and licensing revenue for the fiscal year ended July 31, 1998.
Loss of any one of these customers would have a material adverse effect
upon the Company's business.
Financial Position (continued)
As part of a stock repurchase program authorized by the Board of Directors,
the Company purchased 17,500 shares of common stock for its treasury during
fiscal 1996 at an aggregate cost of $345,000. No shares were repurchased
during fiscal 1998 and fiscal 1997.
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, and Statement No. 131 (SFAS 131), Disclosures about
Segments of an Enterprise and Related Information. The Company is required
to adopt these Statements 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 services, geographic areas of operation
and major customers and adoption of these Statements is expected to have
no impact on the Company's consolidated financial position, results of
operations, or business practices. The disclosure requirements are being
reviewed.
In June 1998, the FASB issued SFAS No. 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.
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 year 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.
The Company has undertaken considerable effort to assess the impact and
necessary resources required to make its systems Year 2000 compliant.
Currently, the Company is utilizing both internal and external resources to
upgrade its computer hardware and software systems. The Company is also
identifying and implementing changes to other information systems which are
not being replaced in order to make them Year 2000 compliant.
The Company is also assessing the possible effects of Year 2000 issues on
its significant vendors and customers, which could in turn affect the
Company's operations. The Company has not yet been able to determine,
however, whether any of its suppliers or service providers will need to
make any such software modifications or replacements or whether the failure
to make such software corrections will have an adverse effect on the
Company's operations or financial condition.
Financial Position (continued)
The Company currently estimates that Year 2000 costs over the next two
fiscal years will range from $4.0 million to $6.0 million. 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 cost 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
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors
<TABLE>
<CAPTION>
Other Offices Held
Director Expiration As of
Name Age Since of Term* August 31, 1998
<S> <C> <C> <C> <C>
Bernard M. Gordon 71 1969 2001 Chairman of the
Board and Chief
Executive Officer
Bruce R. Rusch 55 1993 2000 President and Chief
Operating Officer
John A. Tarello 67 1979 2001 Senior Vice
President and
Treasurer
M. Ross Brown 64 1984 1999 Vice President
Edward F. Voboril 55 1990 1999 ----
Gerald L. Wilson 59 1980 2001 ----
Bruce W. Steinhauer 63 1993 2000 ----
</TABLE>
*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.
(b) Executive Officers
<TABLE>
<CAPTION>
Date Since
Office
Name Age Office Held Has been Held
<S> <C> <C> <C>
Bernard M. Gordon 71 Chairman of the Board and 1969
Chief Executive Officer
Bruce R. Rusch 55 President and Chief 1995
Operating Officer
John A. Tarello 67 Senior Vice President 1980 &1985,
and Treasurer respectively
M. Ross Brown 64 Vice President 1984
Julian Soshnick 66 Vice President 1982
General Counsel,
and Clerk
</TABLE>
Each such officer is elected for a term continuing until the first
meeting of the Board of Directors following the annual meeting of
stockholders, 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.
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 was appointed Chairman of Wilson Greatbatch Ltd. of
Clarence, New York in 1998. He has been President and CEO since 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 from 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
Edmund F. Becker, Jr. and Edward F. Voboril as the only "reporting persons"
(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. Dr. Becker failed to timely
file one (1) Form 4 on which one (1) transaction was reported. Mr. Voboril
failed to timely file one (1) Form 4 on which four (4) transactions were
reported.
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.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
Name and Total Annual Stock Awards
Principal Position Year Salary Bonuses Compensation ($) (A) (B)
<S> <C> <C> <C> <C> <C>
Bernard M. Gordon 1998 $339,400 $ 50,000 $389,400 ---
1997 325,000 50,000 375,000 ---
1996 325,000 25,000 350,000 ---
Bruce R. Rusch 1998 $239,400 $50,000 $289,400 ---
President (COO) 1997 225,000 50,000 275,000 ---
1996 225,000 21,000 246,000 ---
John A. Tarello 1998 $226,000 $50,000 $276,000 ---
Senior V.P. 1997 210,000 50,000 260,000 ---
and Treasurer 1996 210,000 21,000 231,000 ---
M Ross Brown 1998 $193,700 $30,000 $223,700 ---
Vice President 1997 185,000 30,000 215,000 ---
1996 185,000 18,000 203,000 ---
Julian Soshnick 1998 $193,700 $40,000 $233,700 ---
Vice President and 1997 185,000 40,000 225,000 ---
General Counsel 1996 185,000 18,000 203,000 ---
LONG-TERM
COMPENSATION AWARDS
Name and Restricted All Other
Principal Position Year Stock Options Compensation
($) (C)
<C> <C> <C>
Bernard M. Gordon 1998 --- $3,848
Chairman (CEO) 1997 --- 3,645
1996 --- 3,024
Bruce R. Rusch 1998 --- $3,646
President (COO) 1997 --- 3,442
1996 --- 2,855
John A. Tarello 1998 --- $3,892
Senior V.P. 1997 --- 3,691
and Treasurer 1996 --- 3.062
M. Ross Brown 1998 --- $3,725
Vice President 1997 --- 3,521
1996 --- 2,921
Julian Soshnick 1998 --- $3,758
Vice President 1997 --- 3,555
and General Counsel 1996 --- 2,949
</TABLE>
Notes To Summary Compensation Table
___________________________________
(A) Represents stock grants under the Company's Key Employee Stock Bonus Plan
dated March 14, 1983, as amended and restated on January 27, 1988, pursuant
to which Common Stock of the Company may be granted to key employees to
encourage them to exert their best efforts on behalf of the Company. Each
Recipient of the Common Stock pursuant to the Bonus Plan is required to
execute a noncompetition agreement in a form satisfactory to the Company.
The Bonus Plan is administered by a committee appointed by the Board of
Directors consisting of the Chairman of the Board and three other Directors
who are not eligible to participate in the Bonus Plan. Generally, the
Common Stock granted pursuant to the Bonus Plan is not transferable for a
period of three years from the date of the grant and is subject to a risk
of forfeiture in the event that the recipient leaves the employ of the
Company during this period for any reason. Generally, during the
subsequent four-year period, the transfer restrictions will lapse with
respect to 25% of the Common Stock for each year the recipient remains in
the employ of the Company. Failure to remain in the Company's employ
during all of the subsequent four-year period will result in a forfeiture
of shares as to which restrictions on disposition still exist. The Common
Stock granted pursuant to the Bonus Plan is held in escrow by the Company
until such restrictions on disposition lapse. However, while in escrow, the
recipient has the right to vote such shares of Common Stock and to receive
any cash dividends thereon. The Board of Directors, acting upon the
recommendation of the Stock Bonus Plan Committee, may at the time of grant
designate a different schedule upon which the transfer restrictions lapse.
(B) As of July 31, 1998, the following table reflects aggregate stock bonus
awards, granted in 1993, for which transfer restrictions have not yet lapsed:
<TABLE>
<CAPTION>
Shares Market Value
<S> <C> <C>
Bruce R. Rusch 22,500 $916,875
M. Ross Brown 7,500 305,625
</TABLE>
(C) 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 contributions to a trust for the purpose of providing retirement
benefits to employees.
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,
1998; and (iii) the fiscal year-end value of "in-the-money"
unexercised options.
<TABLE>
<CAPTION>
Number of Value
Shares Acquired Realized (A)
On Exercise
<S> <C> <C>
Bernard M. Gordon --- ---
Bruce R. Rusch --- ---
John A. Tarello --- ---
M. Ross Brown 2,500 $65,313
Julian Soshnick --- ---
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 --- 2,500 --- $64,688
Julian Soshnick 5,000 --- $129,375 ---
</TABLE>
___________________________________
(A) The value realized or the unrealized value of in-the-money options 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, 1998.
(B) "In-the-money" options are options whose exercise price was less than the
market price of Common Shares at July 31, 1998.
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 of options that could be granted to each
Non-Employee director to 10,000 shares.
In June 1996, the Board of Directors 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 or 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 she 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-Employee 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. No options were
granted under the 1997 Plan as of July 31, 1998.
Options granted under 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. Both Plans are administered by members of the Company's Board of
Directors.
The following table sets forth options granted pursuant to the 1988 Plan as
of July 31, 1998:
<TABLE>
<CAPTION>
Date of Options Option Options Options Options
Grant Granted Price Exercised Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Dr. Wilson 2/01/88 5,000 $ 7.37 5,000 --- ---
Dr. Wilson 6/12/96 5,000 $27.750 --- 3,333 1,667
Mr. Voboril 6/12/91 5,000 $10.875 5,000 --- ---
Mr. Voboril 6/12/96 5,000 $27.750 --- 3,333 1,667
Dr. Steinhauer10/08/93 5,000 $14.750 --- 5,000 ---
Dr. Steinhauer 6/12/96 5,000 $27.750 --- 3,333 1,667
</TABLE>
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, 1998:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address Beneficial Ownership of Class
<S> <C> <C>
Bernard M. Gordon Charitable 4,720,192 shares (1)(2) 37.3% (1)(2)
Remainder Unitrust
Bernard M. Gordon
Julian Soshnick
Gerald P. Bonder, Trustees
8 Centennial Drive
Peabody, MA 01960
T. Rowe Price 1,733,300 shares (3) 13.7% (3)
100 East Pratt Street
Baltimore, MD 21202
Private Capital Management Inc. 898,195 shares (3) 7.1% (3)
3003 Ninth Street
Naples, FL 33940
</TABLE>
__________________________________
(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.
(3) The Company has been advised 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, 1998, of 1,733,300 shares,
or 13.7% of the Company's Common Stock and 898,195 shares, or 7.1% of
the Company's Common Stock, respectively.
(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, 1998:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Identity of Person Beneficial Ownership(1) of Class
<S> <C> <C>
Bernard M. Gordon 4,720,192 shares (2)(3) 37.3%
Bruce R. Rusch 33,750 shares (4) *
John A. Tarello 30,000 shares *
M. Ross Brown 7,500 shares (4) *
Gerald L. Wilson 5,333 shares (5) *
Edward F. Voboril 3,333 shares (5) *
Bruce W. Steinhauer 8,333 shares (5) *
All Directors and Executive
Officers as a group
(8 persons) 4,839,691 shares (4)(5) 38.3%
</TABLE>
*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.
(4) These amounts include certain shares issued under the Company's Key
Employee Stock Bonus Plan which are subject to forfeiture under certain
circumstances.
(5) These amounts include certain shares deemed beneficially owned under
Exchange Act Rule 13d-3(d)(1).
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), owns a 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 $1,125,000 to $1,164,000 effective
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 on a self-renewing lease to Siemens Medical
Electronics, Inc. for a term which as presently extended will end on
December 1, 2000, subject to an eighteen-month notice of cancellation, on a
triple-net basis.
Mr. Gordon owns a 48% interest and Mr. Friedman owns 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 $315,000 to $333,000 effective May 1, 1996, 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.
Bernard M. Gordon, Chairman of Analogic, personally owns 72% of the
outstanding stock of UltraAnalog, Inc., which he acquired on October 2,
1989. UltraAnalog is a manufacturer of analog-to-digital and
digital-to-analog converters, located in Fremont, California. Analogic has
the irrevocable right to acquire Mr. Gordon's interest at his cost.
(b) Certain Business Relationships:
None
(c) Indebtedness of Management:
None
(d) Transactions with Promoters:
None
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Page
Number
(a) 1. Financial Statements
Report of independent accountants 32
Consolidated balance sheets at
July 31, 1998 and 1997 33
Consolidated statements of income for
the years ended July 31, 1998, 1997, and 1996 34
Consolidated statements of stockholders'
equity for the years ended July 31, 1998,
1997, and 1996 35
Consolidated statements of cash flows for
the years ended July 31, 1998, 1997, and 1996 36
Notes to consolidated financial statements 37 - 53
2. Financial Statement Schedule
II - Valuation and qualifying accounts 54
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 55 - 59
(b) Report on Form 8-K
No reports on Form 8-K were filed by the
registrant during the quarter ended
July 31, 1998.
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 5, 1998 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 5, 1998 /s/ Bernard M. Gordon
Bernard M. Gordon
Chairman of the Board,
Chief Executive Officer and
Director
Date: October 5, 1998 /s/ Bruce R. Rusch
Bruce R. Rusch
President,
Chief Operating Officer and
Director
Date: October 5, 1998 /s/ John A. Tarello
John A. Tarello
Senior Vice President, Treasurer
and Director
Date: October 5, 1998 /s/ M. Ross Brown
M. Ross Brown
Vice President and Director
Date: October 5, 1998 /s/ Bruce W. Steinhauer
Bruce W. Steinhauer
Director
Date: October 5, 1998 /s/ Edward F. Voboril
Edward F. Voboril
Director
Date: October 5, 1998 /s/ Gerald L. Wilson
Gerald L. Wilson
Director
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Analogic Corporation
Peabody, Massachusetts
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Analogic Corporation and its subsidiaries at July 31,
1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended July 31, 1998, 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) 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 the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 2, 1998
Analogic Corporation and Subsidiaries
Consolidated Balance Sheets (000 omitted)
<TABLE>
<CAPTION>
JULY 31,
1998 1997 <C>
<S> <C> <<C>
Assets
Current assets:
Cash and cash equivalents $27,644 $24,954
Marketable securities, at market 94,156 89,496
Accounts and notes receivable,
net of allowance for doubtful accounts
(1998, $2,643; 1997, $1,370) 51,834 50,728
Accounts receivable, affiliates 2,559 1,910
Inventories 54,916 47,800
Prepaid expenses and other current assets 6,305 6,714
Total current asset 237,414 221,602
Property, plant and equipment, at cost:
Land and land improvements 4,252 4,252
Buildings 37,092 36,853
Property under capital leases 6,251 6,251
Leasehold and capital lease improvements 2,417 2,090
Manufacturing equipment 74,639 66,117
Furniture and fixtures 24,290 20,737
Motor vehicles 1,105 926
150,046 137,226
Less accumulated depreciation and
amortization 95,469 88,979
54,577 48,247
Investments in and advances to
affiliated companies 6,372 7,095
Excess of cost over acquired net assets,
net of accumulated amortization 171
Other assets, including unamortized
software costs ( 1998, $3,689;
1997, $4,437) 4,594 5,244
$302,957 $282,359
Liabilities and Stockholders' Equity
Current liabilities:
Mortgage and other notes payable $2,950 $344
Obligations under capital leases 560 497
Accounts payable, trade 11,617 13,185
Accrued employee compensation
and benefits 12,441 11,654
Accrued warranty 3,729 2,764
Accrued expenses 4,079 3,579
Accrued income taxes 1,320 3,449
Total current liabilities 36,696 35,472
Long-term debt:
Mortgage and other notes payable 5,983 6,333
Obligations under captial leases 1,721 2,281
7,704 8,614
Deferred income taxes 3,144 3,854
Minority interest in subsidiaries 3,828 5,538
Excess of acquired net assets
over cost, net 330 665
Commitments
Stockholders' equity:
Common stock, $.05 par, authorized
30,000,000 shares; issued 1998,
13,852,127 shares; issued 1997,
13,835,364 shares 693 692
Capital in excess of par value 23,567 22,916
Retained earnings 241,329 220,343
Unrealized holding gains and losses 1,656 1,713
Cumulative translation adjustments (1,373) (1,617)
265,872 244,047
Less:
Treasury stock, at cost (1998,
1,205,347 shares; 1997,
1,234,653 shares) 13,515 14,121
Unearned compensation 1,102 1,710
Total stockholders' equity 251,255 228,216
$302,957 $282,359
</TABLE>
The accompanying notes are an integral part of these financial statements.
Analogic Corporation and Subsidiaries
Consolidated Statements of Income (000 omitted, except share data)
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Product and service, net $260,517 $222,033 $205,991
Engineering and licensing 16,045 17,517 7,790
Other operating revenue 12,036 11,591 10,528
Interest and dividend income 5,874 5,588 6,151
Total revenues 294,472 256,729 230,460
Cost of sales and expenses:
Cost of sales:
Product and service 151,536 131,937 125,726
Engineering and licensing 14,355 10,136 7,379
Other operating expenses 6,091 5,959 5,627
General and administrative 20,326 18,070 18,463
Selling 25,814 25,451 27,195
Research and product development 36,177 33,948 29,017
Interest expense 508 607 832
(Gain) loss on foreign exchange 4 (1,045) (524)
Amortization of excess of cost over acquired
net assets 204 306
Amortization of excess of acquired net assets
over cost (335) (645) (542)
Total cost of sales and expenses 254,476 224,622 213,479
Income from operations 39,996 32,107 16,981
Gain on sale of marketable securities 997 (821)
Equity in loss of unconsolidated affiliates (3,616) (2,374)
Loss on investment (400) (1,742)
Income before income taxes and minority interest 36,977 27,991 16,160
Provision for income taxes 11,991 6,631 4,241
Minority interest in net income (loss)
of consolidated subsidiaries 1,098 1,270 (1,146)
Net income $23,888 $20,090 $13,065
Earnings per common and common
equivalent share:
Basic $1.89 $1.60 $1.05
Diluted $1.87 $1.58 $1.04
</TABLE>
The accompanying notes are an integral part of these financial statements.
Analogic Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity - Years Ended July 31, 1998,
1997 and 1996 (000 omitted, except share data)
Common stock Capital in
excess of Retained
Shares Amount par value earnings
Balance, July 31, 1995 13,691,925 685 20,517 191,938
Shares issued pursuant
to stock grants,
net of cancellations 20,500 1 275 (9,500)
Shares issued pursuant
to stock options 55,189 2 521 14,100
Purchases of treasury stock
Amortization of
unearned compensation
Amounts related to employee
stock purchase plan 31
Income tax reduction relating
to stock options 246
Translation adjustments for
the year (1,307)
Net income for the year 13,065
Dividends paid ($0.18 per share) (2,242)
Unrealized holding gains and
losses for the period 88
Other (177)
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
Amounts related to employee
stock purchase plan 84
Income tax reduction relating
to stock options 284
Tanslation adjustments for the year
Net income for the year 20,090
Dividends paid ($0.20 per share) (2,508)
Balance, July 31, 1997 13,835,364 $692 $22,916 $220,343
Shares issued pursuant to
stock grants, net of
cancellations 3,000 (70)
Shares issued pursuant to
stock options 13,763 1 176
Amortization of
unearned compensation
Amounts related to employee
stock purchase plan 81
Income tax reduction relating
to stock options 255
Net income for the year 23,888
Dividends paid ($0.23 per share) (2,902)
Other 209
Balance, July 31, 1998 13,835,127 $693 $23,567 $241,329
The accompanying notes are an integral part of these financial statements.
Balance, July 31, 1995
Treasury Stock
Unrealized Cumulative
holdings translation
gains and losses adjustments Shares Amount
Balance $2,004 $2,846 (1,269,280) (14,470)
Shares issued
pursuant to
stock grants, (9,500) (1)
net of cancellations
Shares issued
pursuant to
stock options 14,100 147
Purchases of
treasury stock (17,500) (345)
Amortization of
unearned compensation
Amounts related to
employee stock purchase
plan 9,107 102
Other 17
Balance, July 31, 1996 (1,273,073) (2,143)
Shares issued pursuant
to stock grants, net
of cancellations (6,500)
Shares issued pursuant to
stock options 39,249 369
Amounts related to employee
stock purchase plan 5,671 60
Balance, July 31, 1997 (1,234,653) (14,121)
Shares issued pursuant
to stock grants, net of
cancellations (10,000)
Shares issued pursuant
to stock options 33,299 500
Amounts related to
employee stock
purchase plan 6,007 106
Balance, July 31, 1998 (1,205,347) ($13,515)
Total
Unearned Stockholders'
compensation equity
Balance, July 31, 1995 ($2,627) $200,893
Shares issued pursuant
to stock grants (275)
Shares issued pursuant
to stock options 670
Purchases of treasury stock (345)
Amortization of unearned
compensation 759 759
Amounts related to employee
stock purchase plan 133
Income tax reduction
relating to stock options 246
Translation adjustments
for the year (1,307)
Net income for the year 13,065
Dividends paid ($0.18 per share) (2,242)
Unrealized hold gains and losses
for the period 88
Other (160)
Balance, July 31, 1996 (2,143) 211,800
Shares issued pursuant to
stock grants, net of cancellactions (231)
Shares issued pursuant to
stock options 1.276
Amortization of unearned compensation 664 664
Amounts related to employee stock purchase plans 145
Income tax reduction relating to stock options 284
Translation adjustments for the year (3,156)
Net income for the year 20,090
Dividends paid ($0.20 per share) (2,508)
Unrealized holding gains and losses for the period (379)
Balance, July 31, 1997 (1,710) 228,216
Shares issued pursuant to stock grants,
net of cancellations 70
Shares issued pursuant to stock options 677
Amortization of unearned compensation 538 538
Amounts related to employee stock purchase plan 187
Income tax reducation relating to stock options 255
Translation adjustments for the year 244
Net income for the year 23,888
Dividends paid ($0.23 per share) (2,092)
Unrealized hold gains and losses for the period (57)
Other 209
Balance, July 31, 1998 ($1,102) 251,255
The accompanying notes are an integral part of these financial statements.
Analogic Corporation and Subsidiaries
Consolidated Statements of Cash Flows (000 omitted)
<TABLE>
<CAPTION>
Years Ended July 31,
1998 1997 1996
-------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $23,888 $20,090 $13,065
------------------------------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Deferred income taxes 465 (3,153) 177
Depreciation 8,244 5,805 6,203
Amortization of capitalized software 2,406 3,115 2,325
Amortization of excess of cost over
net acquired assets 204 306
Amortization of excess of acquired
net assets over cost (335) (645) (542)
Amortization of other assets
(deferred charges) 32 (32)
Minority interest in net income
(losses) of consolidated
subsidiaries 1,098 1,270 (1,146)
Provision for losses on
accounts receivable 1,273 (56) 65
Provision for loss on
marketable securities 1,742
Gain on sale of marketable securities (997)
Gain on sale of equipment (25) (62) (40)
Equity in loss of unconsolidated
affiliates 3,616 2,374 821
Impairment on investment 400
Compensation from stock grants 538 664 759
Changes in operating assets
& liabilities
Decrease (increase) in assets:
Accounts and notes receivable (3,281) (5,766) (1,403)
Inventories (7,116) 2,432 (3,945)
Prepaid expenses and other
current assets (512) (124) 399
Other assets (52) (21) (426)
Increase (decrease) in
liabilities:
Accounts payable, trade (1,567) 1,746 (1,029)
Accrued expenses and other
current liabilities 1,425 2,022 (715)
Accrued income taxes (1,875) 1,735 412
-----------------------------
Total adjustments 3,705 13,314 2,189
-----------------------------
Net cash provided by
operating activities 27,593 33,404 15,254
-----------------------------
Cash flows from investing activities:
Investments in and advances to
affiliated companies (3,340) (1,340) (2,376)
Additions to property, plant and
equipment (14,598) (6,301) (6,233)
Capitalized software (1,658) (1,480) (1,985)
Proceeds from sale of property,
plant and equipment 49 67 119
Purchases of marketable securities (29,770) (19,460) (21,650)
Maturities of marketable securities 25,053 10,352 26,627
Proceeds from sale of marketable
securities 997
----------------------------
Net cash used by investing activities (23,267) (18,162) (5,498)
----------------------------
Cash flows from financing activities:
Proceeds from (payments of)
overdraft facility 2,600 (3,305) 3,305
Payments on debt and capital lease
obligations (841) (780) (758)
Purchase of common stock for treasury (345)
Purchase of common stock of majority
owned subsidiary (160)
Issuance of common stock pursuant to
stock options and employee stock
purchase plan 863 1,421 803
Dividends paid to shareholders (2,902) (2,508) (2,242)
Purchase of minority interest (1,600) (3,416)
-----------------------------
Net cash used by financing activities (1,880) (5,172) (2,813)
-----------------------------
Effect of exchange rate changes on cash 244 (3,156) (1,307)
-----------------------------
Net increase (decrease) in cash and
cash equivalents 2,690 6,914 5,636
-----------------------------
Cash and cash equivalents,
beginning of year 24,954 18,040 12,404
-----------------------------
Cash and cash equivalents, end of year $27,644 $24,954 $18,040
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 $92,292,000
or 33%, $81,395,000 or 34%, and $77,600,000 or 36% of total product,
service, engineering and licensing revenue for the years ended July 31,
1998, 1997 and 1996, 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 and fixtures 4 to 8 years
Leasehold and capital lease improvements 3 to 10 years
Motor Vehicles 3 years
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 $668,000 and $4,684,000 at
July 31, 1998 and 1997, 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 $15,127,000 and $12,721,000
at July 31, 1998 and 1997, 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 12,614,303,
12,553,628 and 12,454,728 in fiscal 1998, 1997 and 1996. The
number of shares utilized in the diluted per-share computations are
12,793,027, 12,701,800, and 12,562,175, in fiscal 1998, 1997, and
1996, 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
$28,684,000 and $23,956,000 at July 31, 1998 and 1997,
respectively.
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1.Summary of business operations and significant accounting policies:
(continued)
(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.
(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 specific
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," will be 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 services, geographic areas of operation and
major customers and adoption of these Statements is expected to
have no impact on the Company's consolidated financial position,
results of operations, or business practices. The disclosure
requirements are being reviewed.
In June 1998, the FASB issued SFAS No. 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.
(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.
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 ("Founders") 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 thereafter. 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. This excess is being amortized over a 10 year
period. Accumulated amortization amounted to $1,453,000 and $1,282,000
as of July 31, 1998 and 1997, respectively.
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. This
excess of acquired net assets over cost was amortized over a 5 year
period beginning in January, 1993. Accumulated amortization amounted
to $2,662,000 and $2,441,000 as of July 31, 1998 and1997, respectively.
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
$236,000 and $123,000 as of July 31, 1998 and 1997, respectively.
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:
<TABLE>
<CAPTION>
Gross Unrealized
July 31, 1998 Cost Fair Value Gain Loss
<S> <C> <C> <C> <C>
Debt securities issued
by various state and
local municipalities
and agencies $92,500,000 $94,156,000 $1,688,000 ($32,000)
July 31, 1997
Debt securities issued
by various state and
local municipalities
and agencies $87,783,000 $89,496,000 $1,735,000 ($22,000)
</TABLE>
Contractual maturities range from one to eight years, with the majority five
years or less.
4. Inventories:
The components of inventory are as follows:
<TABLE>
<CAPTION>
July 31
<S> <C> <C>
1998 1997
Raw materials $25,226,000 $19,166,000
Work-in-process 18,845,000 18,381,000
Finished goods 10,845,000 10,253,000
$54,916,000 $47,800,000
</TABLE>
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 in fiscal 1998 and $425,000 in
fiscal year 1997. The Company did not report any income or loss in fiscal
year 1996 related to this investment. During fiscal 1996 the Company
invested an additional $500,000 in Scientific. The carrying value of this
investment was $5,200,000 at July 31, 1998 and $5,775,000 at July 31, 1997.
Transactions with Scientific for fiscal years 1998, 1997 and 1996 consisted
of revenues of approximately $1,116,000, $526,000 and $735,000,
respectively. At July 31, 1998 and 1997, accounts receivable from this
affiliate were $977,000 and $668,000, 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 could 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 of which 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 have been 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 the remaining carrying value of
$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. In June, 1997 the Company and the
other investor each invested an additional $1,000,000. During fiscal year
1998, the Company and the other investor each invested $3,340,000. The
carrying value of this investment was $422,000 at July 31, 1998 and $570,000
at July 31, 1997. Transactions with this privately held company for fiscal
years 1998 and 1997 consisted of revenues of approximately $8,678,000 and
$5,406,000, respectively. At July 31, 1998 and 1997, accounts receivable
from this company were $1,582,000 and $1,243,000, respectively.
The Company's $750,000 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. 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.
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:
<TABLE>
<CAPTION>
July 31
1998 1997
<S> <C> <C>
3% mortgage note payable,
due 2017, payable quarterly,
collateralized by land, office
and manufacturing facilities $5,133,000 $5,327,000
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 1,200,000 1,350,000
Unsecured bank line of credit
with monthlyinterest indexed to
LIBOR Funds Index
(1/2% below Prime) 2,600,000
8,933,000 6,677,000
Less current portion 2,950,000 344,000
$ 5,983,000 $ 6,333,000
</TABLE>
Principal maturities in each of the next five fiscal years on the above notes
are as follows: 1999, $2,950,000; 2000, $356,000; 2001, $363,000; 2002,
$369,000; 2003, $376,000.
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 1998, 1997 and 1996.
Property under capital leases is included in property, plant and equipment,
as follows:
<TABLE>
<CAPTION>
July 31
1998 1997
<S> <C> <C>
Land and buildings $6,251,000 $ 6,251,000
Less accumulated amortization 5,389,000 5,085,000
Net capital lease assets $ 862,000 $1,166,000
</TABLE>
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 expire through 1999 and
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 $513,000, $531,000 and $534,000 (net of sublease
income of $1,144,000, $1,188,000 and $1,186,000) in fiscal 1998, 1997 and
1996, respectively.
The following is a schedule by year of future minimum lease payments at July
31, 1998:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Leases Leases
<S> <C> <C>
1999 $ 812,000 $414,000
2000 812,000 44,000
2001 812,000 26,000
2002 213,000
2003 213,000
$2,862,000 $484,000
Less amount representing
interest, at 9.5% - 17.6% 581,000
Present value of minimum lease
payments (includes current
portion of $560,000) $2,281,000
</TABLE>
Future minimum lease payments under capital leases have not been reduced for
sublease rental income of approximately $1,144,000.
Included in accounts and notes receivable are $200,000 of convertible
debentures from UltraAnalog, Inc., a manufacturer of analog-to-digital and
digital-to-analog converters. Bernard M. Gordon, the Company's Chairman,
owns 72% of the outstanding common stock of UltraAnalog, Inc. which the
Company, solely at its option, has the right to acquire at his cost.
8. Stock option and stock bonus plans:
At July 31, 1998, the Company had three 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 and one employee stock purchase plan.
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
stockholders' equity and subsequently amortized over the periods during which
the restrictions lapse (up to six years). Amortization of $538,000, $663,000
and $759,000 were recorded in fiscal 1998, 1997 and 1996, 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 6,007 in 1998, 5,671 in 1997, and 9,107 in
1996.
At July 31, 1998, 844,068 shares were reserved for grant under the above
stock option, bonus and purchase plans.
ANALOGIC CORPORATION AND 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, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997
Weighted Weighted
Average Number Average Number
price per of price per of
share shares share shares
<S> <C> <C> <C> <C>
Options outstanding,
beginning of year $22.41 460,814 $18.42 489,788
Options granted 39.18 125,225 30.98 111,400
Options exercised 14.39 (47,062) 13.22 (96,499)
Options cancelled (61,225) (43,875)
Options outstanding,
end of year 27.25 477,752 22.41 460,814
Options exercisable,
end of year 17.06 91,739 15.44 66,934
1996
Options outstanding,
beginning of year $14.50 446,502
Options granted 25.64 151,000
Options exercised 9.68 (69,289)
Options cancelled (38,425)
Options outstanding,
end of year 18.42 489,788
Options exercisable,
end of year 12.56 94,964
</TABLE>
The following table summarizes information about stock options outstanding at
July 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
Weighted-Avg
Range of Number Remaining
Exercise Outstanding Contractual Weighted-Avg
Prices As of 7/31/98 Life (years) Exercise Price
<S> <C> <C> <C>
$8.25 - 11.75 11,875 1.23 $10.14
14.13 - 18.00 124,989 3.63 16.71
18.25 - 28.75 156,163 5.52 25.68
30.50 - 44.00 184,725 7.21 6.81
$8.25 - 44.00 477,752 5.57 $27.25
Options Exercisable
Number Weighted-Avg
Exercisable Exercise Price
As of 7/31/98
11,875 $10.14
57,286 16.37
22,578 22.46
0 0
91,739 17.06
</TABLE>
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 has not adopted 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 characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing model does not necessarily provide a
reliable single measure of the fair value of its stock options. The fair
value of the Company's stock options was estimated using the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Expected life (in years) 8 7
Volatility 38% 38%
Risk-free interest rate 5.78% 6.54%
Dividend yield .6% .5%
</TABLE>
The weighted-average estimated fair value of stock options granted during
fiscal 1998 and fiscal 1997 was $19.71 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:
<TABLE>
<CAPTION>
Years Ended July 31, (in thousands, except per share amounts)
1998 1997
<S> <C> <C>
Net income
As reported $23,888 $20,090
Pro forma $23,521 $19,847
Net income per share
As reported - Basic $1.89 $1.60
Pro forma - Basic $1.86 $1.58
As reported - Diluted $1.87 $1.58
Pro forma - Diluted $1.84 $1.56
</TABLE>
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.
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. The Company
contribution amounted to $1,000,000 in 1998, $900,000 in 1997, $700,000
in 1996.
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 $659,000, $779,000, and $1,002,000 in
1998, 1997, and 1996, respectively, of which $151,000 in 1998, $172,000 in
1997 and $170,000 in 1996 was capitalized.
11.Income taxes:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
July 31
1998 1997 1996
Current income taxes:
<S> <C> <C> <C>
Federal $8,606,000 $7,495,000 $3,757,000
State and foreign 2,920,000 2,289,000 307,000
11,526,000 9,784,000 4,064,000
Deferred income taxes
benefit):
Federal 67,000 (2,594,000) 187,000
State and foreign 398,000 (559,000) (10,000)
465,000 (3,153,000) 177,000
$11,991,000 $6,631,000 $4,241,000
</TABLE>
The tax effects of the principal temporary differences resulting in
deferred tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
July 31
1998 1997 1996
<S> <C> <C> <C>
Unrealized equity gain/loss 1,036,000 ($1,642,000) ($369,000)
Capitalized software (411,000) (494,000) 26,000
Depreciation 436,000 264,000 598,000
Bad debts (25,000) 23,000 (59,000)
Inventory valuation (219,000) (379,000) (78,000)
Benefit plans 49,000 (6,000) (175,000)
Net capital and
operating loss carryforwards 85,000 (368,000)
Other items, net (486,000) (551,000) 234,000
$465,000 ($3,153,000) $177,000
</TABLE>
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Income taxes: (continued)
Income (loss) before income taxes from domestic and foreign operations
is as follows:
<TABLE>
<CAPTION>
July 31
1998 1997 1996
<S> <C> <C> <C>
Domestic $32,833,000 $27,382,000 $19,951,000
Foreign 4,144,000 609,000 (3,791,000)
$36,977,000 $27,991,000 $16,160,000
</TABLE>
The components of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
Deferred Tax Deferred Tax
Assets Liabilities
<S> <C> <C>
July 31, 1998
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 and operating loss
carryforwards 785,000
Miscellaneous 780,000
8,320,000 8,063,000
Valuation allowance --- ---
$8,320,000 $ 8,063,000
July 31, 1997
Depreciation $ 3,476,000
Bad debt allowance $ 181,000
Capitalized interest and other costs 343,000 465,000
Inventory 1,992,000
Warranty 847,000
Benefit plans 1,346,000
Lease transactions 645,000
Unrealized equity gain/loss 2,275,000 1,494,000
Capitalized software 1,384,000
Net operating loss carryforwards 870,000
Miscellaneous 634,000
9,133,000 6,819,000
Valuation allowance (1,592,000)
$7,541,000 $6,819,000
</TABLE>
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Income taxes: (continued)
Included in prepaid expenses and other current assets is $3,402,000 and
$4,577,000 of current deferred tax assets at July 31, 1998 and 1997,
respectively.
A reconciliation of income taxes at the United States statutory rate to
the effective tax rate follows:
<TABLE>
<CAPTION>
Year Ended July 31,
1998 1997 1996
<S> <C> <C> <C>
U.S. federal statutory tax rate 35% 35% 35%
Foreign sales corporation tax benefit ( 2 ) ( 2 ) ( 3 )
State income taxes, net of
federal tax benefit 2 2 2
Tax exempt interest ( 4 ) ( 4 ) ( 8 )
Net losses of foreign
subsidiaries not taxed 7
General business credit utilized ( 1 ) ( 1 ) ( 3 )
Alternative minimum tax --- ( 2 ) ( 3 )
Other items, net 2 ( 4 ) ( 1 )
Effective tax rate 32% 24% 26%
</TABLE>
As previously reported during a routine audit, the Company was notified by
the Internal Revenue Service (IRS) that it proposed to adjust the
Company's tax returns for the years 1990 through 1992 by increasing its
tax liability for those years by $2,837,473, $2,151,574 and $1,762,849,
respectively. The major claims relate to an alleged forgiveness of debt
arising from the acquisition of property from a subsidiary of the FDIC and
an alleged excess accumulation of earnings. During March 1998, the
Company received notice from the IRS which upheld the Company's position
and the proposed adjustments have been canceled.
Two of the Company's subsidiaries have elected to be taxed as Foreign
Sales Corporations (FSC).
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, 1998 and 1997.
<TABLE>
<CAPTION>
Basic Diluted
Total Net Earnings Earnings
revenues income per share per share
<S> <C> <C> <C> <C>
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
1997
quarters
First $ 59,474,000 $ 3,934,000 $ .31 $ .31
Second 61,731,000 4,579,000 .37 .36
Third 64,170,000 5,207,000 .41 .41
Fourth 71,354,000 6,370,000 .51 .50
Total $256,729,000 $ 20,090,000 $ 1.60 $1.58
</TABLE>
13. Transactions with major customers and industries:
One export customer accounted for approximately $45,000,000 and
$41,000,000 or 16% and 17%, of total product, service, engineering and
licensing revenue in 1998 and 1997, respectively. Another export
customer accounted for approximately $30,000,000 or 14% of total
product, service, engineering and licensing revenue in 1996. Of the
total product, service, engineering and licensing revenue, one domestic
customer accounted for approximately $21,000,000 or 8%, and $20,000,000
or 8%, in 1998 and 1997, respectively. Another domestic Customer
accounted for approximately $18,800,000 or 9% in 1996.
The Company's ten largest customers accounted for approximately 56% of
product, service, engineering, and licensing revenue during fiscal
1998.
Medical Technology Products, consisting primarily of electronic
subsystems for medical imaging equipment,accounted for approximately
74% of product, service, engineering, and licensing revenue in fiscal
1998.
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Supplemental disclosure of cash flow information:
During fiscal years 1998, 1997, and 1996, interest paid amounted to
$586,000, $745,000, and $970,000, respectively.
Income taxes paid during fiscal years 1998, 1997, and 1996 amounted to
$13,114,000, $8,103,000, and $3,040,000, 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. Foreign Operations
Financial information relating to the Company's foreign and domestic
operations for fiscal years 1998, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
FY 1998 Foreign Domestic Total
<S> <C> <C> <C>
Revenue $30,192,000 $264,280,000 $294,472,000
Income from operations 3,697,000 36,299,000 39,996,000
Identifiable assets 25,733,000 277,224,000 302,957,000
FY 1997
Revenue $25,697,000 $231,032,000 $256,729,000
Income from operations 609,000 31,498,000 32,107,000
Identifiable assets 20,370,000 261,989,000 282,359,000
FY 1996
Revenue $26,377,000 $204,083,000 $230,460,000
Income(loss)from operations (3,791,000) 20,772,000 16,981,000
Identifiable assets 23,891,000 241,271,000 265,162,000
</TABLE>
17. 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 year 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.
ANALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Year 2000: (continued)
The Company has undertaken considerable effort to assess the actions
and resources that will be required to make its systems Year 2000
compliant. Currently, the Company is utilizing both internal and
external resources to upgrade its computer hardware and software
systems. The Company is also identifying and implementing changes to
other information systems which are not being replaced in order to make
them Year 2000 compliant.
The Company is also assessing the possible effects of Year 2000 issues
on its significant vendors and customers, which could in turn affect
the Company's operations. The Company has not yet been able to
determine, however, whether any of its suppliers or service providers
will need to make any such software modifications or replacements or
whether the failure to make such software corrections will have an
adverse effect on the Company's operations or financial condition.
The Company currently estimates that Year 2000 costs over the next two
fiscal years will range from $4.0 million to $6.0 million. The
estimated costs are based on management's best projections, yet there
can be no guarantee that those forecasts will be achieved and actual
results could differ materially from those anticipated. The cost of
the project will be funded through operating cash flows.
ANALOGIC CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C
charged to Additions
Balance at profit and charged
beginning loss or to other
Description of period income accounts of
period
<S> <C> <C> <C>
Year ended July 31, 1998:
Allowance for doubtful accounts $1,370,000 $1,329,000 ($56,000)
$2,643,000
Deferred tax valuation allowance 1,592,000
(1,592,000) 0
Year ended July 31, 1997
Allowance for doubtful accounts $1,426,000 $252,000 ($308,000)
$1,370,000
Deferred tax valuation allowance 4,231,000 (2,639,000)
1,592,000
Year ended July 31, 1996:
Allowance for doubtful accounts $1,361,000 $185,000 ($120,000)
$1,426,000
Deferred tax valuation allowance 1,491,000 3,720,000 (980,000)
4,231,000
</TABLE>
INDEX TO EXHIBITS
TITLE INCORPORATED BY REFERENCE TO
3.1 Restated Articles of Organization, Exhibit 3.1 to the Company's
as amended March 15, 1988 on Form 10-K for the fiscal
ended July 31, 1988
3.2 By-laws, as amended January 27, Exhibit 3.2 to the Company's
1988 Annual 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
May 1, 1977 between Bernard M. on Form 8-K dated May 1, 1977
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
Precision Corporation and for the fiscal year ended
related Assignment of Lease July 31, 1977
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. Registation 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
June 19, 1979 between Audubon Report on Form 10-K for the
fiscal year ended
Realty, Ltd. and Analogic July 31, 1982
(c) Third Amendment of Lease dated Exhibit to the Company's Annual
Report
August 2, 1982 on Form 10-K for the fiscal year
ended
July 31, 1982
(d) Fourth Amendment of Lease dated Exhibit 19.1 to Quarterly Report
on Form
December 31, 1982 10-Q for the three months ended
January 31, 1983
10.5 (a)Lease dated March 16, 1981 from Exhibit II to the Company's
Quarterly
Audubon Realty Ltd. to Analogic Report on Form 10-Q for the three
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 and Exhibit to the Company's Annual
Report
between City of Peabody Community on Form 10-K for the fiscal year
ended
Development Authority and Analogic July 31, 1981
Corporation
10.7 Loan Agreement among the City of Exhibit to the Company's Annual
Report
Peabody, its Community Develop- on Form 10-K for the fiscal year
ended
ment Authority, and Analogic July 31, 1981
Corporation
10.8 Amendments to Urban Development Exhibit 10.13 to the Company's
Annual
Action Grant Agreement dated Report on Form 10-K for the
fiscal year
August 28, 1986 and September 30, ended July 31, 1986
1986
10.9 Promissory Note of Analogic payable Exhibit to the Company's Annual
Report
to Peabody Community Development on Form 10-K for the fiscal year
ended
Authority July 31, 1981
10.10(a) Stockholder Agreement as of July 9, Exhibits to the Company's Report
on
1986 by and among Siemens AG, Form 8-K dated July 31, 1986
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 Form 8-K dated July 31, 1986
Siemens 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 sublessor and Medical
Electronics Laboratories, Inc.
as sublessee
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
Annual
dated as of July 5, 1988 Report on Form 10-K for fiscal
year ended
between Ana/dventure July 31, 1988
Corporation and Massapea, Inc.
(b) Ground Lease Agreement Exhibit 10.12(b) to the Company's
Annual
dated July 5, 1988 between Report on Form 10-K for fiscal
year ended
Analogic and Anamass July 31, 1988
Partnership
(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 Exhibit 10.12(d) to the
Company's Annual
dated July 31, 1991 and Report on Form 10-K for fiscal
year ended
ratified on August 8, 1991 July 31, 1991.
10.13 Key Employee Stock Option Plan Exhibit 10.7 to the
Company's Annual Report
dated April 21, 1978, as amended on Form 10-K for the fiscal year
ended
and restated December 4, 1981, July 31, 1987
and further amended on October
9, 1984 and January 28, 1987
10.14 Key Employee Stock Option Plan Exhibit 10.8 to the Company's
Annual Report
dated August 8, 1980, as amended on Form 10-K for the fiscal year
ended
and restated December 4, 1981, 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
Registration
Sharing Plan dated July 26, 1977 Statement on Form S-14 (File No.
2-61959)
(b) Amendments 2,3,4 and 5 to said Exhibit 10.10(b) to the Company's
Annual
Profit Sharing Plan Report on Form 10-K for the
fiscal year
ended July 31, 1980
(c) Restated Analogic Corporation Exhibit 10.9(c) to the Company's
Annual
Profit Sharing Plan dated Report on Form 10-K for the year
ended
July 31, 1985 and Amendment July 31, 1985
No. 1 thereto dated August 20,
1985
10.16 Key Employee Stock Bonus Plan Exhibit A to definitive proxy
statement
dated March 14, 1983, as for the Company's Special Meeting
in
amended on January 27, 1988 lieu of Annual Meeting of
Stockholders
held January 25, 1984 (File No.
33-27372)
10.17 Key Employee Incentive Stock Exhibit 10.15 to the Company's
Annual
Option Plan dated March 14, 1983, Report on Form 10-K for the
fiscal year
as amended and restated on ended July 31, 1987 (File No. 2-
95091)
January 28, 1987
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 Purchase Exhibit G to the Company's
definitive
Purchase Plan dated June 10, 1986 proxy statement dated December 9,
1985
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 Purchase Exhibit A to the Company's
definitive
Plan (as amended on October 9, Proxy Statement dated December 1,
1997
1997). for the Company's Annual Meeting
of
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 year
Employee Directors 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 year
and Analogic Corporation ended July 31, 1992
10.23(a) Agreement between B&K Medical Exhibits to the Company's Report
on
Holding A/S and Analogic Form 8-K dated December 18, 1992
Corporation 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, 1993 Proxy Statement dated December 1,
1993
for the Company's Annual Meeting
of
Stockholders held January 21,
1994
(File No. 33-53381)
10.25 Non-Qualified Stock Option Plan Exhibit A to the Company's
definitive
for Non-Employee Directors dated Proxy Statement dated December 2,
1996
January 31, 1997. for the Company's annual meeting
of
Stockholders held January 24,
1997.
EXHIBITS
TITLE
21. List of Subsidiaries
23. Consent of PricewaterhouseCoopers LLP
27. Financial Data Schedule
EXHIBIT 21
JURISDICTION OF
NAME INCORPORATION
Analogic Limited Massachusetts
Analogic Foreign Sales Corporation Virgin Islands
Analogic Securities Corporation Massachusetts
Anadventure II Corporation Massachusetts
Anadventure Delaware Corporation Delaware
Ana/dventure Corporation Massachusetts
B - K Ultrasound Systems A/S Denmark
B - K Medical Systems, Inc. Massachusetts
Camtronics Foreign Sales Corporation Virgin Islands
Camtronics, Ltd. Wisconsin
International Security Systems Corporation Massachusetts
SKY COMPUTERS, Incorporated Massachusetts
SKY Limited England
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, 33-27372, and 333-40715) of our
report dated September 2, 1998 on our audits of the consolidated
financial statements and financial statement schedule of Analogic
Corporation at July 31, 1998 and 1997, and for the years ended
July 31, 1998, 1997, and 1996, which report is included in the
Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
October 1, 1998
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<RECEIVABLES> 57036
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