Add
ALOG to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| ALOG > SEC Filings for ALOG > Form 10-Q on 5-Jun-2009 | All Recent SEC Filings |
5-Jun-2009
Quarterly Report
The following discussion provides an analysis of the financial condition and results of operations for Analogic Corporation and its subsidiaries (the "Company") and should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this report. The discussion below contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical fact, the Company makes in this document are forward looking statements. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, including those set forth in Part II. Item 1A. "Risk Factors", which may cause the actual results, performance, or achievements of the Company to differ materially from the projected results.
The Company reports its financial condition and results of operations on a fiscal year basis ending July 31. The periods ended April 30, 2009 and 2008 represent the third quarters of the 2009 and 2008 fiscal years, respectively. All dollar amounts in this Item 2 are in thousands except per share data.
Summary
The Company is engaged primarily in the design, manufacture, and sale of high performance data acquisition and signal processing instruments to customers that manufacture products primarily for two major markets within the electronics industry: Medical Technology Products and Security Technology Products. Medical Technology Products consists of three reporting segments: Medical Imaging Products, which consists primarily of electronic systems and subsystems for medical imaging equipment and patient monitoring; Digital Radiography Products, which consists primarily of state-of-the-art, direct conversion amorphous Selenium-based, digital, flat-panel, X-ray detectors for diagnostic and interventional applications in digital fluoroscopy and mammography; and B-K Medical ApS ("B-K Medical") for ultrasound systems and probes in the urology, surgery, and radiology markets. Security Technology Products consists of advanced weapon and threat detection aviation security systems and subsystems. The Company's Corporate and Other segment represents the Company's hotel business and net interest income.
A significant portion of the Company's products are sold to Original Equipment Manufacturers ("OEMs"), whose purchasing dynamics have an impact on the Company's reported sales. OEMs that purchase the Company's Medical Imaging and Digital Radiography Products generally incorporate those products as components in their systems, which are in turn sold to end users, primarily hospitals and medical clinics. During the first six months of fiscal year 2009, Medical Imaging Products revenues were impacted by the U.S Deficit Reduction Act ("DRA"). The DRA reduced government reimbursement rates for doctors utilizing medical imaging procedures for their patients, which, in turn, reduced demand for our OEM customers. In addition, the deterioration of global economic conditions over the last twelve months has resulted in reduced endowments and funding of hospitals and medical clinics. In response, these end users have begun to reduce the capital available for investment in new facilities, expansions, or upgrades. As such, Medical Imaging Products OEMs have experienced reductions in demand for their products and have in turn reduced their procurement spending.
In the Company's Security Technology Products business, a major OEM customer purchases and resells the Company's products to end users including domestic and foreign airports as well as the U.S Transportation Security Authority ("TSA"). In Security Technology Products, the Company's OEM customer's purchasing dynamics are generally affected by the level of government funding, the expansion of airport terminals and the fluctuations in airline passenger volume.
Over the past several years, the Company has had significant cash and marketable securities balances, which over the past year have been impacted by a reduction in interest rates. The Company has historically invested in U.S government backed securities, bonds, and certificates of deposit, the interest rates of which have declined significantly over the last year. Also contributing to the decline in interest income of approximately 65% for the three months ended April 30, 2009 as compared to the three months ended April 30, 2008 were Copley Controls Corporation ("Copley") acquisition related costs of $73,332 in the third quarter of fiscal year 2008 and repurchases of Common Stock of $25,022 since July 31, 2008.
On January 28, 2009, the Company announced a plan to reduce its workforce by 116 employees worldwide. The total costs of this plan, including severance and personnel related costs, were $3,488 and were recorded as a restructuring charge during the nine months ended January 31, 2009. The Company also terminated 29 employees from Copley in January 2009. The severance and personnel related costs of $323 for the Copley employees were accrued for in fiscal year 2008 in connection with the acquisition. The savings from the termination of the 145 employees on an annual basis is estimated to be approximately $9,800.
The following table sets forth key financial data from the Company's unaudited Consolidated Statement of Operations for the three months ended April 30, 2009 and 2008.
Three Months Ended Percentage
April 30, Change
2009 2008
Total net revenue $ 93,593 $ 102,768 -9 %
Income from operations 1,505 7,669 -80 %
Net income 2,251 6,679 -66 %
Diluted net income per share 0.18 0.50 -64 %
|
Net revenue for the three months ended April 30, 2009 was $9,175, or 9%, lower than the same period last year, due primarily to a reduction in demand for Medical Imaging Products as a result of the DRA and global economic conditions. This decrease is a net of a $9,550 increase in revenue from Copley, which was not acquired until late in the third quarter of fiscal year 2008 on April 14, 2008.
Income from operations, net income, and diluted net income per share in the three months ended April 30, 2009 declined from the three months ended April 30, 2008 due primarily to a decline in gross margin. The decline in gross margin was due primarily to amortization of acquisition related intangible assets from the Copley acquisition, unfavorable product mix, and manufacturing inefficiencies related to lower production volumes. Net income and diluted net income per share were further impacted by a decline in net interest income of $1,109, due primarily to lower effective interest rates and lower invested cash balances, partially offset by a decrease in the effective tax rate due to the reversal of $856 of tax reserves due to the expiration of the statute of limitations for fiscal year 2005 related to the U.S. federal tax return.
The following table sets forth an overview of cash flows for the nine months ended April 30, 2009 and 2008.
Nine Months Ended
April 30,
2009 2008
Net cash provided by operating activities $ 8,783 $ 32,237
Net cash used for investing activities (62,011) (102,185)
Net cash used for financing activities (28,909) (1,440)
Effect of exchange rate decrease (increase) on cash (3,035) 977
Net decrease in cash and cash equivalents $ (85,172) $ (70,411)
|
During the nine months ended April 30, 2009, the Company continued to generate cash from its operating activities. The net cash provided by operating activities in the nine months ended April 30, 2009 was due primarily to depreciation and amortization of $12,994, net income of $3,990, share-based compensation expense of $3,786, and a restructuring charge of $3,488, partially offset by a net change in operating assets and liabilities of $14,164.
The net cash used for investing activities in the nine months ended April 30, 2009 was due primarily to the purchase of short-term held-to-maturity marketable securities of $180,507, partially offset by the maturity of $128,847 of short-term held-to-maturity marketable securities.
The net cash used for financing activities in the nine months ended April 30, 2009 was due primarily to the repurchase of $25,000 of the Company's Common Stock under a repurchase program authorized by its Board of Directors on October 13, 2008. The Company completed the repurchase program, which was funded using the Company's available cash, in the second quarter of fiscal year 2009. During the nine months ended April 30, 2009, the Company repurchased 736,694 shares of Common Stock under this repurchase program for $25,022 at an average purchase price per share of $33.97. Included in the $25,022 paid for the Common Stock under this program was $22 of commissions and fees to the Company's broker.
Results of Operations
Net Revenue
Product Revenue
Product revenue is summarized in the table below.
Three Months Ended Nine Months Ended
April 30, April 30,
2009 2008 Change 2009 2008 Change
Product Revenue:
Medical Technology Products
from external customers:
Medical Imaging Products $ 47,502 $ 56,663 -16 % $ 163,755 $ 158,819 3 %
Digital Radiography Products 10,075 8,339 21 % 24,037 18,408 31 %
B-K Medical 19,198 22,676 -15 % 58,934 67,879 -13 %
76,775 87,678 -12 % 246,726 245,106 1 %
Security Technology Products
from external customers 10,089 10,489 -4 % 29,529 32,603 -9 %
Total $ 86,864 $ 98,167 -12 % $ 276,255 $ 277,709 -1 %
|
Medical Imaging Products
The decrease in product revenue for Medical Imaging Products for the three months ended April 30, 2009 versus the prior year comparable period was due primarily to a decline in demand for data acquisition systems, detectors, and CT subsystems due primarily to the DRA and the global economic slowdown.
The increase in product revenue for Medical Imaging Products for the nine months ended April 30, 2009 versus the prior year comparable period was due primarily to the acquisition of Copley during April 2008, which accounted for $48,180 and $3,153 of product revenue in the nine months ended April 30, 2009 and 2008, respectively. This increase was partially offset by a decline in demand for data acquisition systems, detectors, and CT subsystems due primarily to the DRA and the global economic crisis.
Digital Radiography Products
The increase in product revenue for Digital Radiography Products in the three and nine months ended April 30, 2009 versus the prior year comparable period was due primarily to an increase in shipments of mammography detectors to an OEM customer.
B-K Medical
The decreases in B-K Medical product revenue in the three and nine months ended April 30, 2009 versus the prior year comparable periods were due primarily to unfavorable changes in the foreign currency exchange rate and a decline in demand due to the global economic slowdown. Also contributing to the decrease was a decline in demand for ultrasound systems due to customer order delays in anticipation of two new ultrasound products, one of which was introduced late in the second quarter of fiscal year 2009 and the other of which was introduced late in the third quarter of fiscal year 2009.
Security Technology Products
The decreases in Security Technology Products revenue in the three and nine months ended April 30, 2009 versus the prior year comparable periods were due primarily to a decrease in sales of spare parts and accessories of approximately $600 and $4,900, respectively. The decrease in the nine months ended April 30, 2009 versus the prior year comparable period was partially offset by seven more baggage scanners being shipped in the nine months ended April 30, 2009 as compared to the nine months ended April 30, 2008.
Engineering Revenue
Engineering revenue is summarized in the table below.
Three Months Ended Nine Months Ended
April 30, April 30,
2009 2008 Change 2009 2008 Change
Engineering Revenue:
Medical Technology Products
from external customers:
Medical Imaging Products $ 2,504 $ 1,887 33 % $ 7,287 $ 5,470 33 %
Digital Radiography Products 232 354 -34 % 496 918 -46 %
B-K Medical - - 0 % - - 0 %
2,736 2,241 22 % 7,783 6,388 22 %
Security Technology Products
from external customers 2,110 242 772 % 6,764 4,339 56 %
Total $ 4,846 $ 2,483 95 % $ 14,547 $ 10,727 36 %
|
Medical Imaging Products
The increases in Medical Imaging Products engineering revenue in the three and nine months ended April 30, 2009 versus the prior year comparable periods were due primarily to an increase in activity on customer funded engineering projects.
Security Technology Products
The increases in Security Technology Products engineering revenue in the three and nine months ended April 30, 2009 versus the prior year comparable periods were due primarily to engineering revenue on a time and materials project with the TSA to transition the eXaminer XLB from a prototype into a product that can be manufactured. The increase in the nine months ended April 30, 2009 versus the prior year comparable period was partially offset by the completion of a project in the nine months ended April 30, 2008, which was accounted for under the completed contract method and had revenue of $2,417 for engineering activities that had been performed primarily in periods prior to the nine months ended April 30, 2008.
Other Revenue
Other revenue is summarized in the table below.
Three Months Ended Nine Months Ended
April 30, April 30,
2009 2008 Change 2009 2008 Change
Other Revenue:
Hotel $ 1,883 $ 2,118 -11 % $ 7,058 $ 7,933 -11 %
|
The decreases in the three and nine months ended April 30, 2009 versus the prior year comparable periods were due primarily to lower occupancy of the hotel due to lower business and personal travel as a result of the economic slowdown.
Gross Margin
Product Gross Margin
Product gross margin is summarized in the table below.
Three Months Ended Percentage Nine Months Ended Percentage
April 30, Change April 30, Change
2009 2008 2009 2008
Product gross margin $ 30,956 $ 37,642 -17.8% $ 93,247 $ 107,960 -13.6%
Product gross margin % 35.6% 38.3% 33.8% 38.9%
|
Product gross margin percentage decreased in the three and nine months ended April 30, 2009 versus the prior year comparable periods due primarily to Medical Imaging Products. The decline in the Medical Imaging Products gross margin percentage was due primarily to the amortization of intangible assets from the acquisition of Copley, a higher mix of lower margin Copley products, and reduced manufacturing efficiency caused by lower production volumes. The declines in the Medical Imaging Products gross margin
percentages for the three and nine months ended April 30, 2009 were partially offset by increases in the product gross margin percentage of Digital Radiography Products due primarily to improved manufacturing yields.
Engineering Gross Margin
Engineering gross margin is summarized in the table below.
Three Months Ended Percentage Nine Months Ended Percentage
April 30, Change April 30, Change
2009 2008 2009 2008
Engineering gross margin (loss) $ (302) $ 265 -214.0% $ (84) $ (67) -25.4%
Engineering gross margin % -6.2% 10.7% -0.6% -0.6%
|
The engineering gross margin decreased in the three and nine months ended April 30, 2009 versus prior year comparable periods, due primarily to an increase in costs incurred in excess of revenue on certain customer funded Medical Imaging Products projects. The increase in costs incurred in excess of revenue on certain customer funded Medical Imaging Products projects for the nine months ended April 30, 2009 was partially offset by more activity on higher gross margin projects for Security Technology Products.
Operating Expenses
Operating expenses are summarized in the table below.
Three Months Ended Nine Months Ended
April 30, April 30,
2009 2008 2009 2008
Research and product development $ 10,572 $ 12,363 $ 34,497 $ 35,403
Selling and marketing 8,985 8,422 28,397 24,209
General and administrative 9,899 9,878 30,363 29,014
Restructuring charge - - 3,488 -
$ 29,456 $ 30,663 $ 96,745 $ 88,626
|
Operating expenses as a percentage of total net revenue are summarized in the table below.
Three Months Ended Nine Months Ended
April 30, April 30,
2009 2008 2009 2008
Research and product development 11.3 % 12.0 % 11.6 % 11.9 %
Selling and marketing 9.6 % 8.2 % 9.5 % 8.2 %
General and administrative 10.6 % 9.6 % 10.2 % 9.8 %
Restructuring charge 0.0 % 0.0 % 1.2 % 0.0 %
31.5 % 29.8 % 32.5 % 29.9 %
|
Operating expenses decreased $1,207 for the three months ended April 30, 2009 from the three months ended April 30, 2008, due primarily to a reduction in research and product development costs on internally funded engineering projects for Medical Imaging Products due primarily to an increase in customer funded engineering projects. Also contributing to the decrease was a decline in bonus costs of $369. These decreases were partially offset by an increase in Copley operating expenses of $2,751. The Copley operating expenses for the three months ended April 30, 2008 only includes the period of April 14, 2008 through April 30, 2008, as Copley was acquired on April 14, 2008.
Operating expenses increased $8,119 for the nine months ended April 30, 2009 from the nine months ended April 30, 2008. The increase was due primarily to the acquisition of Copley in April 2008, which accounted for operating expenses of $11,400 and $674, in the nine months ended April 30, 2009 and 2008, respectively. Also, contributing to the increase in operating expenses was the restructuring charge for severance and personnel related costs of $3,488 during the nine months ended April 30, 2009 and $688 of contingent professional fees in general and administrative expenses related to an income tax refund and related interest of $6,459 received from the Internal Revenue Service ("IRS") in December 2008. Partially offsetting these increases in operating expenses was
a reduction in research and product development costs on internally funded engineering projects for Medical Imaging Products due primarily to an increase in customer funded engineering projects, as well as reduced headcount, cost containment programs, and lower incentive compensation.
Other Income
Other income is summarized in the table below.
Three Months Ended Nine Months Ended
April 30, April 30,
2009 2008 2009 2008
Interest income, net $ 531 $ 1,640 $ 2,306 $ 6,827
Other income (loss), net $ (158) $ 230 $ 739 $ 1,090
|
The decreases in net interest income in the three and nine months ended April 30, 2009 versus the prior year comparable periods were due primarily to lower invested cash balances as a result of the acquisition of Copley, the Company's $25,022 Common Stock repurchase in the first and second quarters of fiscal year 2009, and a decline in interest rates.
Net other income (loss) during the three and nine months ended April 30, 2009 consisted predominantly of foreign currency exchange gains and losses by the Company's Canadian subsidiary. Net other income during the three and nine months ended April 30, 2008 consisted primarily of $555 the Company received from its insurance company as reimbursement for legal fees incurred in relation to an indemnification matter related to the Company's sale of its wholly owned subsidiary, Camtronics Medical Systems, Ltd., in November 2005.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes and the effective tax rates are
summarized in the table below.
Three Months Ended Nine Months Ended
April 30, April 30,
2009 2008 2009 2008
Provision (benefit) for income
|
The effective income tax rate is based upon the estimated income for the fiscal year, the composition of the income in different countries, and adjustments, if any, in the applicable quarterly periods for the potential tax consequences, benefits, resolutions of tax audits, or other tax contingencies.
For the three months ended April 30, 2009, the effective tax rate was due primarily to the reversal of $856 of tax reserves due to the expiration of the statute of limitations for fiscal year 2005 related to the Company's U.S. Federal income tax return. For the three months ended April 30, 2008, the effective tax rate varied from the statutory tax rate primarily as a result of the mix of income attributable to foreign versus domestic jurisdictions. The Company's aggregate income tax rate in foreign jurisdictions is lower than its income tax rate in the United States. During the three months ended April 30, 2008, the Company recognized discrete tax benefits of $351 resulting primarily from employees' disqualifying dispositions of incentive stock options and currency gains on the capitalization of loans to a subsidiary located outside of the United States.
For the nine months ended April 30, 2009, the effective tax rate was due primarily to the IRS refund of $6,459 received in December 2008. The refund, which included $1,065 of interest, was for the carryback of a loss and research and development credits from fiscal year 2004 and from additional research and development tax credits claimed on amended income tax returns for fiscal years 2001 through 2003. The Company had recognized approximately $2,701 of this refund and related interest within stockholders' equity upon the adoption of Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes", which is an interpretation of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", in fiscal year 2008. The impact of this refund and related interest was a reduction of unrecognized tax benefits by approximately $3,280, . . .
|
|