NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Overview
SonoSite develops, manufactures, and distributes hand-carried ultrasound systems for use across medical specialties and in a range of treatment settings.
We commenced operations as a division of ATL Ultrasound, Inc. (ATL). On April 6, 1998, we became an independent, publicly
owned company through a distribution of one new share of our stock for every three shares of ATL stock held as of that date. ATL retained no ownership in SonoSite following the spin-off.
2. Summary of Significant Accounting Policies
Basis of presentation and use of estimates
The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. The
consolidated financial statements include the accounts of SonoSite, Inc., and our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In preparing the financial statements,
management must make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassification of prior period balances
Certain amounts reported in previous periods have been reclassified to conform to current period presentation.
Cash and cash equivalents
Cash and cash equivalents primarily consist of money market accounts with major U.S. banks and highly liquid debt instruments with maturities at purchase of three months or less.
Investment securities
Investment securities primarily consist of high-grade U.S. government or corporate debt and high-grade asset-backed securities. We have the ability to hold our securities until maturity; however, we classify all securities as
available-for-sale, as the sale of such securities may be required prior to maturity to implement management strategies. These securities are carried at fair value, with the unrealized gains and losses reported as a component of other comprehensive
income (loss) until realized. Realized gains and losses from the sale of available-for-sale securities, if any, are determined on a specific identification basis.
A decline in market value of any available-for-sale security below cost that is determined to be other than temporary results in a revaluation of its carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the effective interest method. Interest income is recognized when
earned. We may incur unrealized losses due to changes in market value attributable to changes in interest rates. We have the ability and intent to hold our investments until a recovery of cost, which may be maturity.
Accounts receivable
In the
ordinary course of business, we grant credit to a broad customer base. Of the accounts receivable balance at December 31, 2007, 60% and 40% were receivable from international and domestic customers, prior
50
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Summary of Significant Accounting Policies(Continued)
to any allowance for doubtful accounts. The same percentages as of December 31, 2006 were 56% and 44% prior to any allowance for doubtful accounts.
We maintain allowances for estimated losses resulting from the inability of our customers to make required payments. When we determine
that amounts owed from customers are uncollectible, such amounts are charged off against the allowances for doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Fair value of financial instruments
The carrying value of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain long-term other
assets, approximates fair value. Cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature. These financial instruments included in other long-term assets approximate fair value as
interest rates on these items approximate market. Our investment securities, which primarily consist of high-grade debt securities, are carried at fair value.
We utilize foreign currency forward and participating forward contracts to reduce our exposure to foreign currency risk due to fluctuations in exchange rates underlying the value of intercompany accounts receivable
denominated in foreign currencies. These contracts did not qualify for hedge accounting and accordingly are marked-to-market with changes in fair value recorded in income.
Inventories
Inventories are
stated at the lower of cost or market, on a first-in, first-out method. Included in our inventories balance are demonstration products used by our sales representatives and marketing department. Adjustments to reduce carrying costs are recorded for
obsolete material, shrinkage, earlier generation products and used or refurbished products held either as saleable inventory or as demonstration product. If market conditions change or if the introduction of new products by us impacts the market for
our previously released products, we may be required to further write down the carrying cost of our inventories.
Property and
equipment
Property and equipment are stated at historical cost, less accumulated depreciation and amortization. Maintenance and
repair costs are expensed as incurred, and additions and improvements to property and equipment are capitalized.
Depreciation and
amortization are calculated using the straight-line method over estimated useful lives as follows:
|
|
|
Asset
|
|
Estimated Useful Lives
|
Equipment and computers
|
|
35 years
|
Software
|
|
3 years
|
Furniture and fixtures
|
|
5 years
|
Leasehold improvements
|
|
Lesser of estimated useful life or remaining lease term
|
51
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Summary of Significant Accounting Policies(Continued)
The carrying value of long-lived asset groups is evaluated for impairment when events or changes in
circumstances occur that may indicate the carrying amount of the asset group may not be recoverable. For depreciable property and equipment and amortizable intangible assets, we evaluate the carrying value of the asset group by comparing the
estimated future undiscounted cash flows generated from the use of the asset group and its eventual disposition with the asset groups net book value. If the estimated future undiscounted cash flows from an asset group are less than the net
book value of the asset group, we record an impairment loss equal to the excess of the net book value over the estimated fair market value of the asset group.
Goodwill and other intangible assets
We perform goodwill impairment tests annually in the fourth quarter of each year, and more frequently if facts and circumstances indicate reporting unit carrying values exceed estimated reporting unit fair values. Intangibles subject to
amortization, which consist mainly of acquired technology and non-compete agreements, are amortized using the straight-line method over their estimated useful lives of three to seven years. Indefinite-lived intangible assets are tested for
impairment annually, and more frequently if facts and circumstances indicate that the asset might be impaired.
Concentration of
credit and supply risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of
cash equivalents, investment securities and accounts receivable.
We depend on some single-source suppliers to provide highly specialized
parts and other components, and may experience an interruption of supply if a supplier is unable or unwilling to meet our time, quantity and quality requirements. There are relatively few alternative sources of supply for some of these items. A
change in demand for some parts by other companies in our industry could also interrupt our supply of components.
Our circuit boards are
produced by one of the worlds largest electronic manufacturing services suppliers who produce the boards in their Thailand manufacturing facility. If we experience delays in the receipt or a deterioration in product yields of these components,
we may experience delays in manufacturing or an increase in costs resulting in lost sales or a deterioration in gross margin.
Revenue recognition
We recognize revenue on products and accessories when goods are shipped under an agreement with
a customer, risk of loss and title have passed to the customer, sales returns are estimable and collection of any resulting receivable is reasonably assured. For service contracts, revenue is recognized as services are provided or over the term of
the contract. Revenue is recorded net of estimated returns. We estimate returns by reviewing our historical returns, considering customer reaction to new product introductions and current economic conditions. Sales discounts are recorded as a
reduction in revenue. We make product upgrades available for purchase to our customers.
Sales to distributors are generally made pursuant
to standard distributor agreements. We recognize revenue when risk of loss and title have transferred to the distributor and collection of any resulting receivable is reasonably assured. Our only significant post-shipment obligation to distributors
is our product warranty covering materials and workmanship. The distributor can only reject products for an obvious defect or shipping
52
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Summary of Significant Accounting Policies(Continued)
error, generally within 30 days of receipt, and in such cases, replacement products would be sent. Since the distributors remedy is the replacement of
the product and not a refund or credit, we do not defer revenue associated with these sales. Costs associated with the repair of returned, defective products are captured in our warranty accrual. Our standard distributor arrangements do not have any
other return provisions.
Our sales arrangements may contain multiple elements, which include hardware and software products. Revenue from
the sale of software, software-related elements, and hardware when the software elements are more than incidental to the product as a whole, is recognized in accordance with software revenue recognition rules. We have vendor specific objective
evidence (VSOE) of fair value for our products. Accordingly, for transactions that have undelivered elements for which we have VSOE of the elements, revenue equal to the total fair value of the undelivered elements is deferred and is not
recognized until the element is delivered to the customer. When the undelivered element represents services under extended service contracts, revenue equal to the stated price is deferred and recognized evenly over the contract term as those
services are provided.
Warranty expense
We accrue estimated warranty expense at the time of sale for costs expected to be incurred under our product warranties. This provision for warranty expense is made based upon our historical product failure rates and
service repair costs using managements judgment. Our warranty period is five years for the MicroMaxx system, M-Turbo system and S Series ultrasound tools, with certain exceptions. Our warranty period for our other products is one year. The
warranty is included with the original purchase. In addition to a standard warranty, we offer extended warranty and service agreements for coverage beyond the standard warranty period or coverage above what is covered by a standard warranty.
Research and development
Research and development costs are expensed as incurred with the exception of equipment acquired for research and development activities that has alternative future uses. We have determined that technological
feasibility for our software-related products is reached shortly before the products are released to manufacturing. Costs incurred after technological feasibility is established are not material, and accordingly, we expense all software-related
research and development costs when incurred.
Advertising costs
We expense costs for advertising and promotional activities as incurred. Advertising and promotional expenses for the years ended December 31, 2007,
2006 and 2005 were $10.2 million, $11.7 million, and $11.2 million.
Income taxes
Deferred income taxes are provided based on the estimated future tax effects of temporary differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards arising since our inception.
Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or
53
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Summary of Significant Accounting Policies(Continued)
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A
valuation allowance is established when necessary to reduce deferred tax assets to the amount, if any, expected to be realized.
Stock-based compensation
On January 1, 2006, we adopted SFAS No. 123R, Share-Based Payment
(SFAS 123R), using the modified prospective transition method. SFAS 123R requires entities to recognize compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards (with limited
exceptions). The benefits of tax deductions in excess of recognized compensation expense are reported as cash provided by financing activities, rather than as an operating cash flow, and therefore reduces cash provided by operating activities and
increases cash provided by financing activities. This amount is shown as Excess tax benefit from exercise of stock options on our consolidated statement of cash flows. Total cash flows remain unchanged from what has been previously
reported. We have adopted the long-haul method to calculate the historical pool of windfall tax benefits, under which we calculate on a grant by grant basis the windfall or excess tax benefit that arose upon exercise of each award based
on a comparison of the total tax deduction to the as-if deferred tax asset that would have been recorded had we followed the recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation since its
effective date. We use a tax law ordering methodology for determining when tax benefits from stock option exercises are realized.
Prior to
adoption of SFAS 123R we accounted for stock option and restricted stock unit (RSU) grants under the intrinsic value method in accordance with the provisions of Accounting Principles Bulletin (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. Accordingly, compensation cost related to stock option grants to employees had been recognized only to the extent that the fair market value of the stock exceeded the exercise price of the stock
option at the date of the grant. We recognized compensation expense for the fair value of RSU grants ratably over the applicable vesting period. The fair value was based on the market price of our stock on the date of grant. We recorded share-based
compensation related to stock options in accordance with the accelerated methodology described in Financial Accounting Standards Board Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or
Award Plans. We presented all tax benefits resulting from the exercise of stock options as operating cash inflows in our consolidated statement of cash flows.
Net income per share
Basic net income per share is based on the weighted average number of
common shares outstanding during the period. Diluted net income per share is based on the weighted average number of common and dilutive common equivalent shares outstanding during the period. Potentially dilutive common equivalent shares consist of
common stock issuable upon exercise of stock options, restricted stock, and warrants using the treasury stock method. Diluted net income per share would also be impacted to reflect shares issuable upon conversion of our convertible senior notes if
our share price exceeds $38.20 per share. The call option we purchased is anti-dilutive and, therefore, excluded from the calculation of diluted net income per share.
54
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Summary of Significant Accounting Policies(Continued)
The following is a reconciliation of the numerator and denominator of the basic and diluted net
income per share calculations (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
Net income
|
|
$
|
6,884
|
|
$
|
7,231
|
|
$
|
5,436
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in computing basic net income per share
|
|
|
16,621
|
|
|
16,274
|
|
|
15,549
|
Effect of dilutive stock options and restricted stock units
|
|
|
547
|
|
|
583
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and potential common shares outstanding used in computing diluted net income per share
|
|
|
17,168
|
|
|
16,857
|
|
|
16,175
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.41
|
|
$
|
0.44
|
|
$
|
0.35
|
Diluted
|
|
$
|
0.40
|
|
$
|
0.43
|
|
$
|
0.34
|
The following weighted average potential common shares were excluded from the computation of
diluted net income per share as their effect would have been anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
Stock options and restricted stock (1)
|
|
535
|
|
344
|
|
149
|
Warrants (2)
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average potential common shares excluded from diluted net income per share
|
|
1,723
|
|
344
|
|
149
|
|
|
|
|
|
|
|
(1)
|
These potential common shares were excluded from the computation of diluted net income per share because their impact is anti-dilutive.
|
(2)
|
As further detailed in note 9, Convertible senior notes, in July 2007 we issued warrants to purchase up to 2.5 million shares of our common stock with a strike price of $46.965,
which are anti-dilutive since the strike price of the warrants is greater than the market price of our common stock.
|
The
computation of diluted net income per share does not include any potential dilutive common shares associated with our convertible senior notes. The convertible senior notes would become dilutive and included in the calculation of diluted net income
per share, for the number of shares that would be required to satisfy the conversion spread, if the average market price of our common stock exceeds approximately $38.20 per share.
Accumulated other comprehensive income
Unrealized gains or losses on our available-for-sale securities and foreign currency translation adjustments are included in accumulated other comprehensive income.
55
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
2. Summary of Significant Accounting Policies(Continued)
The following are the components of accumulated other comprehensive income at December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net unrealized loss on investments, net of tax
|
|
$
|
(83
|
)
|
|
$
|
(214
|
)
|
|
$
|
(324
|
)
|
Cumulative translation adjustments, net of tax
|
|
|
1,513
|
|
|
|
1,471
|
|
|
|
1,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
1,430
|
|
|
$
|
1,257
|
|
|
$
|
853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
The functional currencies of our international subsidiaries, consisting primarily of the British pound, the European Union euro and the Japanese yen, are
the local currency of the country in which the subsidiary is located. Assets and liabilities denominated in foreign currencies are translated at the exchange rate on the balance sheet date. Revenues, costs and expenses and cash flows of
international operations are translated at average rates of exchange prevailing during the period.
Recent accounting pronouncements
In September 2006, the Financial Accounting Standards Board, (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measures (SFAS 157), which defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting
pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We do not believe the adoption of SFAS 157 will have a
significant impact on our future consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (SFAS 159), including an amendment to FASB Statement No. 115. Under SFAS 159, entities may elect to measure specified financial instruments and warranty and insurance
contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period. The election, called the fair value option, will enable entities to achieve an offset accounting effect for changes in
fair value of certain related assets and liabilities without having to apply complex hedge accounting provisions. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not believe the adoption of SFAS 159 will have a
significant impact on our future consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), Business
Combinations, (SFAS 141(R)) and SFAS No. 160, Non-controlling Interest in Consolidated Financial Statements, an amendment of ARB No. 51, (SFAS 160). These new standards will significantly change
the accounting for and reporting of business combination transactions and non-controlling (minority) interests in consolidated financial statements. SFAS 141(R) and SFAS 160 are required to be adopted simultaneously and are effective for fiscal
years beginning after December 15, 2008. We are currently reviewing the provisions of SFAS 141(R) and SFAS 160 to determine the impact on our future consolidated financial statements.
56
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
3. Technology Transfer and License Agreement with ATL
We license ultrasound technology from ATL under a Technology Transfer and License Agreement executed at the time of our spin-off as a public company in
1998. Under that agreement, we took ownership of certain ultrasound technology developed as part of a government grant and also patent rights, which had been established or were being pursued for that technology. As part of this agreement, we also
entered into a cross-license whereby we had the exclusive right to use certain ATL technology existing on April 6, 1998 or developed by ATL during the three-year period following April 6, 1998 in ultrasound systems weighing 15 pounds or
less, and ATL had the exclusive right to use our technology existing on April 6, 1998 or developed by us during the same three-year period in ultrasound systems weighing more than 15 pounds. On April 6, 2003, this cross-license became
nonexclusive and, except for the patented technology of each party, now extends to all ultrasound systems regardless of weight.
Our
license from ATL had a royalty equivalent to a percentage of the net sales of ultrasound products under fifteen pounds that use ATL technology, until the royalty payments expired on September 21, 2007. For the years ended December 31,
2007, 2006 and 2005, we incurred a royalty expense to ATL of $1.5 million, $2.2 million and $2.0 million, which is included in cost of revenue.
4.
Cash, cash equivalents and investment securities
The following table summarizes our cash, cash equivalents and investment securities at
fair value (in thousands):
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2007
|
|
2006
|
Cash
|
|
$
|
13,478
|
|
$
|
36,038
|
Cash equivalents:
|
|
|
|
|
|
|
U.S. Government and agencies
|
|
|
54,683
|
|
|
|
Corporate bonds
|
|
|
109,255
|
|
|
|
Money market accounts
|
|
|
11,285
|
|
|
9,635
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
188,701
|
|
$
|
45,673
|
|
|
|
|
|
|
|
Investment securities:
|
|
|
|
|
|
|
Short-term
|
|
$
|
119,873
|
|
$
|
38,428
|
|
|
|
|
|
|
|
Long-term
|
|
$
|
1,257
|
|
$
|
3,014
|
|
|
|
|
|
|
|
As of December 31, 2007, we had $12.6 million in Columbia Strategic Cash Portfolio, which is
in the process of liquidation. In our judgment this investment, which is classified as a money market account, has a decline in fair value that is other than temporary, accordingly we have recognized an impairment loss of $0.2 million. Distributions
from this portfolio are solely at the discretion of the portfolio manager. We anticipate that $11.3 million will be distributed from this portfolio during 2008, which is recorded as a short-term investment and $1.3 million will be distributed after
2008, which is recorded as a long-term investment.
57
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. Cash, cash equivalents and investment securities(Continued)
The amortized cost, gross unrealized holding gains and losses and fair value of investment securities
classified as available-for-sale securities as of December 31 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost
|
|
Gross
unrealized
holding
gains
|
|
Gross
unrealized
holding
losses
|
|
|
Fair
value
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agencies
|
|
$
|
54,667
|
|
$
|
16
|
|
$
|
|
|
|
$
|
54,683
|
Corporate bonds
|
|
|
109,248
|
|
|
16
|
|
|
(9
|
)
|
|
|
109,255
|
Money market accounts
|
|
|
11,285
|
|
|
|
|
|
|
|
|
|
11,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
$
|
175,200
|
|
$
|
32
|
|
$
|
(9
|
)
|
|
$
|
175,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agencies
|
|
$
|
22,382
|
|
$
|
9
|
|
$
|
|
|
|
$
|
22,391
|
Corporate bonds
|
|
|
82,793
|
|
|
17
|
|
|
(3
|
)
|
|
|
82,807
|
Money market accounts
|
|
|
11,317
|
|
|
|
|
|
|
|
|
|
11,317
|
Asset-backed securities
|
|
|
3,373
|
|
|
|
|
|
(15
|
)
|
|
|
3,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
119,865
|
|
$
|
26
|
|
$
|
(18
|
)
|
|
$
|
119,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts
|
|
$
|
1,257
|
|
$
|
|
|
$
|
|
|
|
$
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
1,257
|
|
$
|
|
|
$
|
|
|
|
$
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market accounts
|
|
$
|
9,635
|
|
$
|
|
|
$
|
|
|
|
$
|
9,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
$
|
9,635
|
|
$
|
|
|
$
|
|
|
|
$
|
9,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agencies
|
|
$
|
4,047
|
|
$
|
|
|
$
|
(6
|
)
|
|
$
|
4,041
|
Corporate bonds
|
|
|
17,418
|
|
|
5
|
|
|
(22
|
)
|
|
|
17,401
|
Asset-backed securities
|
|
|
17,108
|
|
|
|
|
|
(122
|
)
|
|
|
16,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
38,573
|
|
$
|
5
|
|
$
|
(150
|
)
|
|
$
|
38,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
1,552
|
|
$
|
|
|
$
|
(14
|
)
|
|
$
|
1,538
|
Asset-backed securities
|
|
|
1,494
|
|
|
|
|
|
(18
|
)
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
3,046
|
|
$
|
|
|
$
|
(32
|
)
|
|
$
|
3,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments generally mature in less than three years.
58
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
4. Cash, cash equivalents and investment securities(Continued)
The following table summarizes our realized gains and losses on sales of investments for the years
ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Gains
|
|
$
|
8
|
|
|
$
|
18
|
|
|
$
|
1
|
|
Losses
|
|
|
(18
|
)
|
|
|
(13
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss), net
|
|
$
|
(10
|
)
|
|
$
|
5
|
|
|
$
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and long-term investments with unrealized losses as of December 31, 2007,
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
Gross
Unrealized
Holding
Losses
|
|
Fair
Value
|
Loss position for less than 12 months:
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
11
|
|
$
|
71,878
|
|
|
|
|
|
|
|
|
|
$
|
11
|
|
$
|
71,878
|
|
|
|
|
|
|
|
Loss position for more than 12 months:
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
1
|
|
$
|
1,532
|
Asset-backed securities
|
|
|
15
|
|
|
3,171
|
|
|
|
|
|
|
|
|
|
$
|
16
|
|
$
|
4,703
|
|
|
|
|
|
|
|
Total
|
|
$
|
27
|
|
$
|
76,581
|
|
|
|
|
|
|
|
The gross unrealized losses of $27,000 on 17 securities as of December 31, 2007 and $0.2
million on 36 securities as of December 31, 2006, were primarily caused by changes in interest rates. In 2007, a $0.2 million loss was recognized as an other-than-temporary impairment. There were no losses recognized for other-than-temporary
impairments during 2006 or 2005.
5. Financial statement detail as of December 31, 2007 and 2006
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Raw material
|
|
$
|
10,710
|
|
$
|
9,054
|
Demonstration inventory
|
|
|
7,601
|
|
|
5,665
|
Finished goods
|
|
|
11,429
|
|
|
8,301
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
29,740
|
|
$
|
23,020
|
|
|
|
|
|
|
|
59
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
5. Financial statement detail as of December 31, 2007 and 2006(Continued)
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Equipment, other than computer
|
|
$
|
14,304
|
|
|
$
|
12,623
|
|
Software
|
|
|
7,089
|
|
|
|
6,725
|
|
Computer equipment
|
|
|
4,906
|
|
|
|
4,346
|
|
Furniture and fixtures
|
|
|
3,170
|
|
|
|
2,879
|
|
Leasehold improvements
|
|
|
3,512
|
|
|
|
3,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,981
|
|
|
|
29,704
|
|
Less accumulated depreciation and amortization
|
|
|
(22,848
|
)
|
|
|
(18,952
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
10,133
|
|
|
$
|
10,752
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2007, 2006, and 2005 was $4.0 million,
$2.7 million and $2.7 million.
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Payroll and related
|
|
$
|
10,024
|
|
$
|
6,463
|
Outside services
|
|
|
2,060
|
|
|
899
|
Warranty, current portion
|
|
|
1,243
|
|
|
777
|
Accrued interest
|
|
|
3,866
|
|
|
|
Royalties
|
|
|
978
|
|
|
1,394
|
Other
|
|
|
6,260
|
|
|
5,926
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
24,431
|
|
$
|
15,459
|
|
|
|
|
|
|
|
Other non-current liabilities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
Contingent purchase consideration
|
|
$
|
4,409
|
|
$
|
|
Deferred rent
|
|
|
1,791
|
|
|
1,432
|
Warranty liability, net of current portion
|
|
|
2,802
|
|
|
1,541
|
Deferred revenue, net of current portion
|
|
|
2,073
|
|
|
2,344
|
|
|
|
|
|
|
|
Total deferred liabilities
|
|
$
|
11,075
|
|
$
|
5,317
|
|
|
|
|
|
|
|
We have classified amounts of our warranty liability as non-current based upon our estimated
timing of repair costs. The warranty liability is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
Charged to
cost of
revenue
|
|
Applied to
liability
|
|
|
End
of year
|
Year ended December 31, 2007
|
|
$
|
2,318
|
|
$
|
3,160
|
|
$
|
(1,433
|
)
|
|
$
|
4,045
|
Year ended December 31, 2006
|
|
$
|
995
|
|
$
|
2,397
|
|
$
|
(1,074
|
)
|
|
$
|
2,318
|
Year ended December 31, 2005
|
|
$
|
561
|
|
$
|
1,049
|
|
$
|
(615
|
)
|
|
$
|
995
|
60
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
6. Acquisitions
In July 2007, we acquired all of the outstanding stock of LumenVu, Inc. (LumenVu), a private development stage company that developed, in conjunction with a leading academic research institution, a
patented technology to improve the accuracy of catheter placement. The results of LumenVus operations have been included in our consolidated financial statements since that date. The acquisition, which was an asset purchase, had a purchase
price that consisted of cash consideration of $2.9 million, note receivable forgiveness of $0.1 million, assumed liabilities of $0.6 million, which were paid at closing, and future cash payments of $10.0 million, which had a present value of $4.0
million at the date of acquisition. The future cash payments are contingent upon the continued development of the product and revenues recognized from the sale of products incorporating this technology. The liability for contingent consideration
will be accreted to operating expenses over the expected payment period. During 2007, we recorded $0.3 million of accretion expense. Based on the fair value of assets acquired $11.8 million was allocated to an intangible technology asset, which will
be amortized over ten years commencing with sales of products incorporating this technology. No amortization expense has been recorded as of December 31, 2007. Since the amortization of this intangible technology asset is not deductible for tax
purposes we have recorded a deferred tax liability of $4.3 million. Additionally, we recorded a deferred tax asset associated with net operating losses of LumenVu of $0.2 million. We expect to introduce products based on this technology in early
2009.
In April 2005, we acquired the remaining 70% of SonoSite China Medical for $0.4 million. The results of SonoSite China Medical
operations have been included in our consolidated financial statements since that date. The estimated fair value of the assets acquired and liabilities assumed at the date of acquisition was $0.5 million primarily for indefinite-lived intangible
assets, including $0.1 million of deferred tax assets. The indefinite-lived intangible asset represents reacquired distribution rights. We have determined that they have indefinite lives because there are no legal, regulatory or contractual
provisions that may limit their useful lives.
In May 2004, we acquired 100% of the outstanding common shares of SonoMetric Health, Inc.
(SonoMetric). The results of SonoMetrics operations have been included in our consolidated financial statements since that date. We purchased all of SonoMetrics outstanding common shares for an immediate cash payment of $1.5
million, plus future cash payments of up to $4.5 million contingent upon the amount of revenue recognized from the sale of the purchased software over the five-year period following the closing date of the acquisition. We accrued contingent payments
of $1.0 million and $0.7 million as of December 31, 2007 and 2006, respectively, as a result of revenue recognized on the sale of the software. These contingent payments are recorded as additional goodwill.
7. Goodwill and other intangible assets
As of
December 31, 2007 and 2006, goodwill was $3.4 million and $2.5 million, respectively. As of December 31, 2007 intangible assets subject to amortization, which collectively had a remaining weighted average useful life of 10.4 years, were
$12.4 million, net of accumulated amortization of $1.4 million. As of December 31, 2006 intangible assets subject to amortization were $0.9 million, net of accumulated amortization of $1.1 million. Amortization expense of $0.3 million, $0.4
million and $0.4 million related to intangible assets was recorded for the years ended December 31, 2007, 2006 and 2005. Amortization expense of intangible assets is estimated to be $0.5 million in 2008, $1.4 million per year in 2009 and 2010
and $1.3 million in 2011. As of December 31, 2007 and 2006, indefinite-lived intangible assets were $0.5 million. During the fourth quarter of 2007, we completed our annual impairment assessment of our goodwill and indefinite-lived intangible
assets and determined that they were not impaired.
61
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
8. Hedging activities
During 2007 the currencies hedged were the British pound, the European Union euro, the Japanese yen, the Australian dollar and the Canadian dollar. As of December 31, 2007, we had $40.0 million in notional amount
of foreign currency forward and participating forward contracts. The fair value of these contracts as of December 31, 2007 was not material to our results of operations or financial position. These contracts expire on March 31, 2008 and
serve as economic hedges of a substantial portion of our intercompany balances denominated in a currency other than the USD. Recognized gains and losses from foreign currency contracts for the years ended December 31, 2007, 2006 and 2005 were
losses of $2.1 million, losses of $1.1 million and gains of $2.3 million, and are included in other income (loss) in the consolidated statements of operations. These gains and losses were substantially offset by foreign exchange gains and losses on
intercompany balances. Foreign exchange gains and losses on intercompany balances, net of foreign currency contracts, were gains of $1.4 million and $0.4 million for the years ended December 31, 2007 and 2006, and losses of $0.8 million the
year ended December 31, 2005.
9. Convertible senior notes
In July 2007, we completed the offering of $225.0 million aggregate principal amount of 3.75% convertible senior notes (Notes) due 2014. The Notes may be converted, under certain circumstances described
below, based on an initial conversion rate of 26.1792 shares of common stock per $1,000 principal amount of notes (which is equivalent to an initial conversion price of approximately $38.20 per share). The net proceeds from the issuance of the Notes
were $217.6 million, after deducting debt issuance costs.
Holders may convert their Notes based on an initial conversion rate of 26.1792
shares of our common stock per $1,000 principal amount of notes, subject to adjustment, at their option at any time prior to April 15, 2014 under the following circumstances: (1) during any fiscal quarter beginning after September 30,
2007 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater
than or equal to 130% of the applicable conversion price on each applicable trading day of such preceding fiscal quarter; (2) during the five business day period after any ten consecutive trading day period in which the trading price per note
for each day of that ten consecutive trading day period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such day; or (3) upon the occurrence of specified corporate transactions. On
or after April 15, 2014, holders may convert their Notes at any time prior to the close of business on the third scheduled trading day immediately preceding the maturity date.
Upon conversion, we will pay cash and shares of our common stock, if any, based on a daily conversion rate multiplied by a volume weighted average price
of our common stock during a specified period following the conversion date. Conversions will be settled in cash up to the principal amount of the Notes, with any conversion value above the principal amount settled in shares of our common stock.
Holders of the Notes may require us to repurchase the notes for cash equal to 100% of the principal amount to be repurchased plus accrued and unpaid interest upon the occurrence of a fundamental change. In addition, we will adjust the conversion
rate for holders who elect to convert notes in connection with a fundamental change. We may not redeem any of the Notes at our option prior to maturity.
We will pay cash interest at an annual rate of 3.75%, payable semi-annually on January 15 and July 15 of each year, beginning January 15, 2008. Debt issuance costs of approximately $7.1 million are
being amortized to interest expense over the term of the Notes and have been included in other assets in our consolidated balance sheet.
62
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
9. Convertible senior notes(Continued)
In connection with the offering, we used a portion of the offering proceeds to enter into a
convertible note hedge transaction whereby we purchased a call option for up to 2.5 million shares of our common stock at a price of $38.1982 per share. These options, which hedge approximately 42% of the risk of additional share issuance,
expire on July 15, 2014 and must be settled in net shares. The cost of the call option was $28.6 million and has been recorded as a reduction to stockholders equity. The tax benefit from the deduction related to the purchase of the call
option as part of the convertible note hedge transaction will be recorded to additional paid in capital over the term of the hedge transaction.
Additionally, to partially offset the cost of the convertible note hedge transaction, we sold
warrants to purchase up to 2.5 million shares of our common stock at a price of $46.965 per share. The warrants expire on various dates from October 15, 2014 through the 60
th
scheduled trading day following October 15, 2014 and must be settled in net shares. We received approximately $19.5 million in cash proceeds from the sales of these warrants
and they have been recorded as an increase to stockholders equity.
The net proceeds from the issuance of the Notes, net of issuance costs,
the convertible note hedge transaction, and the warrant transaction were $208.5 million.
The fair value of our convertible senior notes,
which have a carrying value of $225.0 million, was $249.1 million at December 31, 2007.
10. Shareholders equity
Stock compensation plans
At
December 31, 2007, we had seven stock-based employee compensation plans: the 1998 Nonofficer Employee Stock Option Plan (1998 NOE Plan), the 1998 Stock Option Plan (1998 Plan), the Nonemployee Director Stock Option Plan
(Director Plan), the Management Incentive Compensation Plan (MIC Plan), the Adjustment Plan, the 2005 Stock Incentive Plan (2005 Plan) and the 2005 Employee Stock Purchase Plan (2005 ESPP Plan).
Total stock-based compensation expense recognized in our consolidated statements of operations for the years ended December 31, 2007,
2006 and 2005 were $6.8 million, $7.3 million and $0.3 million, respectively, before income taxes. Stock-based compensation expense relates to stock options of $3.0 million, RSU awards of $3.3 million and the employee stock purchase plan of $0.5
million in 2007, stock options of $4.0 million, RSU awards of $2.7 million and the employee stock purchase plan of $0.6 million in 2006 and RSU awards of $0.4 million net of the reversal of stock options of $0.1 million in 2005. The related deferred
tax benefit was $2.3 million, $2.2 million and $0.1 million for the years ended December 31, 2007, 2006 and 2005. The amount of stock-based compensation capitalized to inventory was not material as of December 31, 2007 or 2006.
Under the 1998 NOE Plan, 1998 Plan, MIC Plan, 2005 Plan and option grants outside our stock option plans, as of December 31, 2007, 2,565,452
total shares of common stock were authorized primarily for issuance upon exercise of stock options at prices equal to the fair market value of our common shares at the date of grant. As of December 31, 2007, 312,428 shares were available for
grant under these stock option plans. In most cases, stock options issued prior to October 22, 2002 are exercisable at 25% each year over a four-year vesting period and have a ten-year term from the grant date. Employee option grants made after
October 2002 to new employees vest 25% after one year of employment and then monthly over the next three years, and grants made to employees after their first year of employment vest monthly over four years.
63
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
10. Shareholders equity(Continued)
Under the Director Plan, as of December 31, 2004, 125,000 shares of common stock were authorized
for issuance of stock options at prices equal to the fair market value of our common shares at the date of grant. At December 31, 2005, there were no longer shares available for grant under this Plan. Stock options are exercisable and vest in
full one year following their grant date provided the optionee has continued to serve as our director. Each option expires on the earlier of ten years from the grant date or 90 days following the termination of a directors service as our
director.
The 2005 ESPP Plan, which qualifies under Section 423 of the Internal Revenue Code, permits all U.S. based employees to
purchase shares of our common stock. Participating employees may purchase common stock through payroll deductions at the end of each participation period at a purchase price equal to 85% of the lower of the fair market value of the common stock at
the beginning or the end of the participation period. As of December 31, 2007 1,000,000 shares of common stock were authorized for issuance under the 2005 ESPP Plan. During the years ended December 31, 2007, 2006 and 2005, 74,501, 76,907
and 28,251 shares of common stock were issued under this plan, respectively.
Prior to the spin-off from ATL, we had no stock option plans
specifically identified as our plans. All stock options granted through that date were part of ATL option plans.
In 2003, we granted
10,000 options to a non-employee. For the year ended December 31, 2005, we recorded stock-based compensation expense related to these options of $0.1 million. During the year ended December 31, 2006, we determined that the vesting
requirements of the 10,000 options would not be met. Accordingly, we reversed $0.1 million in previously recorded stock-based compensation expense.
Through 2004, we granted a total of 165,000 options outside of all plans to corporate officers, of which 85,000 options are outstanding. These options are included within the information presented herein and contain similar provisions to
our 1998 Plan.
The following table illustrates the effect on net income and net income per share if we had applied the fair value
recognition provisions of SFAS 123 to stock-based employee compensation (in thousands, except per share data):
|
|
|
|
|
|
|
2005
|
|
Net income, as reported
|
|
$
|
5,436
|
|
Add: stock-based compensation expense included in reported net income, net of tax
|
|
|
255
|
|
Deduct: stock-based compensation expense determined under fair value method for all awards, net of tax
|
|
|
(2,527
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
3,164
|
|
|
|
|
|
|
Basic net income per share:
|
|
|
|
|
As reported
|
|
$
|
0.35
|
|
Pro forma
|
|
$
|
0.20
|
|
Diluted net income per share:
|
|
|
|
|
As reported
|
|
$
|
0.34
|
|
Pro forma
|
|
$
|
0.19
|
|
Our results for prior years have not been restated.
64
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
10. Shareholders equity(Continued)
The fair value for stock option awards was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for the years ended December 31, 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
ESPP
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
Expected term (in years)
|
|
|
5.0
|
|
|
|
4.6
|
|
|
|
5.4
|
|
|
|
0.5
|
|
|
|
0.5
|
|
Expected stock price volatility
|
|
|
38
|
%
|
|
|
41
|
%
|
|
|
54
|
%
|
|
|
28
|
%
|
|
|
29
|
%
|
Risk-free interest rate
|
|
|
4.7
|
%
|
|
|
4.6
|
%
|
|
|
3.9
|
%
|
|
|
4.5
|
%
|
|
|
5.0
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Weighted average fair value of options granted
|
|
$
|
12.13
|
|
|
$
|
16.45
|
|
|
$
|
15.59
|
|
|
$
|
7.70
|
|
|
$
|
7.92
|
|
The expected term of the options represents the estimated period of time until exercise and is
based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on historical volatility of our stock over the
historical period commensurate with the expected term assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with an equivalent remaining term. The Company has not paid dividends in the past
and does not plan to pay any dividends in the near future.
The assumptions used to calculate the fair value of options granted are
evaluated and revised, as necessary, to reflect market conditions and our experience. In conjunction with the adoption of SFAS 123R, we changed our method of attributing the value of stock-based compensation expense from the accelerated
multiple-option method to the straight-line single-option method. Compensation expense for all stock-based awards granted on or prior to December 31, 2006 will continue to be recognized using the accelerated multiple-option method, while
compensation expense for all stock-based awards granted subsequent to December 31, 2006 will be recognized using the straight-line single-option method. Compensation expense is recognized only for those options expected to vest, with
forfeitures estimated at the date of grant based on the Companys historical experience and future expectations. Prior to the adoption of SFAS 123R, the effect of forfeitures on the pro forma expense amounts was recognized as the forfeitures
occurred.
Summary of stock option activity
The following table presents summary stock option activity for the year ended December 31, 2007 (shares presented in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
Weighted
average
remaining
contractual
life
|
|
Aggregate
intrinsic
value (in
thousands)
|
Outstanding, beginning of year
|
|
1,612
|
|
|
$
|
24.18
|
|
|
|
|
|
Granted
|
|
114
|
|
|
$
|
29.71
|
|
|
|
|
|
Exercised
|
|
(235
|
)
|
|
$
|
15.86
|
|
|
|
|
|
Forfeited
|
|
(9
|
)
|
|
$
|
32.66
|
|
|
|
|
|
Expired
|
|
(21
|
)
|
|
$
|
31.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
1,461
|
|
|
$
|
25.79
|
|
4.97
|
|
$
|
13,351
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year
|
|
1,214
|
|
|
$
|
24.01
|
|
4.61
|
|
$
|
12,847
|
|
|
|
|
|
|
|
|
|
|
|
|
65
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
10. Shareholders equity(Continued)
The aggregate intrinsic value in the table above is based on our average stock price of $33.41 on
December 31, 2007, which would have been received by the optionees, excluding applicable income taxes, had all options been exercised on that date. As of December 31, 2007, total unrecognized stock-based compensation expense related to
nonvested stock options was $2.3 million, which is expected to be recognized over a weighted average period of approximately 1.3 years. During the years ended December 31, 2007, 2006 and 2005, the total intrinsic value of stock options
exercised was $3.6 million, $11.1 million and $10.5 million, respectively.
The Company issues new shares of common stock upon exercise of
stock options.
The following is a summary of stock options outstanding as of December 31, 2007 (shares presented in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding
|
|
Options exercisable
|
Range of exercise prices
|
|
Number
outstanding
|
|
Weighted
average
remaining
contractual
life
|
|
Weighted
average
exercise
price
|
|
Number
exercisable
|
|
Weighted
average
exercise
price
|
$6.94$16.03
|
|
390
|
|
3.69
|
|
$
|
13.80
|
|
390
|
|
$
|
13.80
|
$16.27$26.185
|
|
296
|
|
4.93
|
|
$
|
19.78
|
|
294
|
|
$
|
19.80
|
$26.19$30.25
|
|
315
|
|
5.83
|
|
$
|
28.52
|
|
199
|
|
$
|
28.01
|
$30.95$38.97
|
|
211
|
|
5.87
|
|
$
|
34.74
|
|
185
|
|
$
|
35.03
|
$40.58$40.58
|
|
249
|
|
5.16
|
|
$
|
40.58
|
|
146
|
|
$
|
40.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,461
|
|
4.97
|
|
$
|
25.79
|
|
1,214
|
|
$
|
24.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
We have granted RSU awards to employees under the 1998 Plan and the 2005 Plan. Generally, the vesting period for our RSU awards is three years from the
date of grant. As of December 31, 2007, total unrecognized stock-based compensation expense related to nonvested RSU awards was $6.2 million, which is expected to be recognized over a weighted average period of approximately 1.5 years.
The following table presents summary RSU award activity for the year ended December 31, 2007 (shares presented in thousands):
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
average
grant date
fair value
|
Non-vested, beginning of period
|
|
414
|
|
|
$
|
35.67
|
Granted
|
|
140
|
|
|
$
|
32.53
|
Forfeited
|
|
(61
|
)
|
|
$
|
33.45
|
|
|
|
|
|
|
|
Non-vested, end of period
|
|
493
|
|
|
$
|
35.06
|
|
|
|
|
|
|
|
No RSU awards vested during the year ended December 31, 2007.
66
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
10. Shareholders equity(Continued)
Stock purchase rights
In April 1998, we and First Chicago Trust Company of New York (First Chicago) entered into a Rights Agreement. The Rights Agreement was
subsequently amended in October 2001 to reflect that EquiServe Trust Company, N.A. had succeeded First Chicago as the rights agent, and in August 2003, and again in November 2007, to reflect that Computershare Trust Company N.A. had succeeded
EquiServe and to adopt certain changes approved by our Board of Directors. The Rights Agreement has certain anti-takeover provisions, which will cause substantial dilution to a person or group that attempts to acquire us. Under the Rights Agreement,
each of our shareholders has one share purchase right for each share of common stock held, with each right having an exercise price approximating our board of directors estimate of the long-term value of one share of our common stock. The
rights are triggered if an acquiror acquires, or successfully makes a tender offer for, 20% or more of our outstanding common stock. In such event, each shareholder other than the acquiror would have the right to purchase, at the exercise price, a
number of newly issued shares of our capital stock at a 50% discount. If the acquiror were to acquire 50% or more of our assets or earning power, each shareholder would have the right to purchase, at the exercise price, a number of shares of
acquirors stock at a 50% discount. Our board of directors may redeem the rights at a nominal cost at any time before a person acquires 20% or more of our outstanding common stock, which allows board-approved transactions to proceed. In
addition, our board of directors may exchange all or part of the rights (other than rights held by the acquiror) for such number of shares of our common stock equal in value to the exercise price. Such an exchange produces the desired dilution
without actually requiring our shareholders to purchase shares. The Rights Agreement expires on April 5, 2013.
11. Income taxes
The components of income before income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
U.S. operations
|
|
$
|
7,968
|
|
$
|
5,334
|
|
$
|
6,550
|
Foreign operations
|
|
|
3,048
|
|
|
2,479
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
Total income before income taxes
|
|
$
|
11,016
|
|
$
|
7,813
|
|
$
|
7,848
|
|
|
|
|
|
|
|
|
|
|
The components of income tax provision (benefit) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
2005
|
Current:
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
536
|
|
$
|
170
|
|
|
$
|
96
|
State and local
|
|
|
466
|
|
|
77
|
|
|
|
27
|
Foreign
|
|
|
1,197
|
|
|
115
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
2,199
|
|
|
362
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
1,419
|
|
|
1,931
|
|
|
|
2,088
|
State and local
|
|
|
20
|
|
|
141
|
|
|
|
124
|
Foreign
|
|
|
494
|
|
|
(1,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
1,933
|
|
|
220
|
|
|
|
2,212
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
4,132
|
|
$
|
582
|
|
|
$
|
2,412
|
|
|
|
|
|
|
|
|
|
|
|
67
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
11. Income taxes(Continued)
The provision for income taxes differs from the amount computed by applying the federal statutory
income tax rate to the net income or loss. The sources and tax effects of the differences for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
U.S. federal tax expense at statutory rates
|
|
35.0
|
%
|
|
34.0
|
%
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
1.6
|
%
|
|
1.9
|
%
|
|
1.9
|
%
|
Meals and entertainment
|
|
1.3
|
%
|
|
1.6
|
%
|
|
1.3
|
%
|
Expiring state net operating losses
|
|
|
|
|
1.3
|
%
|
|
|
|
Research and experimentation credits
|
|
(3.3
|
)%
|
|
(2.5
|
)%
|
|
(2.7
|
)%
|
Foreign tax rates
|
|
1.8
|
%
|
|
1.2
|
%
|
|
(4.8
|
)%
|
Deferred tax rate change
|
|
(2.9
|
)%
|
|
(0.2
|
)%
|
|
|
|
Other
|
|
4.0
|
%
|
|
1.7
|
%
|
|
1.0
|
%
|
Valuation allowance changes and tax uncertainties
|
|
|
|
|
(31.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
37.5
|
%
|
|
7.4
|
%
|
|
30.7
|
%
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences and carryforwards that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Domestic net operating loss carryforwards
|
|
$
|
10,666
|
|
|
$
|
16,336
|
|
Foreign net operating loss carryforwards
|
|
|
608
|
|
|
|
1,237
|
|
Research and experimentation tax credit carryforwards
|
|
|
2,866
|
|
|
|
2,498
|
|
Allowances and accruals not recognized for tax purposes
|
|
|
5,488
|
|
|
|
3,936
|
|
Stock-based compensation
|
|
|
4,661
|
|
|
|
2,346
|
|
Depreciation
|
|
|
331
|
|
|
|
252
|
|
Other
|
|
|
1,477
|
|
|
|
1,193
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
26,097
|
|
|
|
27,798
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangibles and amortization
|
|
|
(4,643
|
)
|
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
21,454
|
|
|
$
|
27,414
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance on deferred taxes decreased by $4.0 million and $1.0 million in 2006 and
2005, respectively. The allowance was zero as of December 31, 2007 and 2006. The valuation allowance on foreign deferred tax assets was eliminated in 2006 because consideration of all relevant factors, including current operations and recent
earnings history indicate that realization of the related deferred tax assets are now more likely than not to occur.
For income tax
purposes, our results through the spin-off from ATL were included in the consolidated federal income tax return of ATL and, accordingly, the net operating loss (NOL) generated prior to the spin-off from ATL is not available to us for use
in periods subsequent to that date. During the period from the spin-off from ATL through December 31, 2007, we accumulated U.S. federal income tax NOL carryforwards, net of amounts utilized, of $29.3 million that expire between 2020 and 2026
and foreign NOL carryforwards, net of
68
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
11. Income taxes(Continued)
amounts utilized, of $8.7 million, of which $8.6 million are perpetual in nature and $0.1 million expire in 2014. Additionally, we accumulated research and
experimentation tax credit carryforwards of $2.9 million that expire between 2018 and 2027 and alternative minimum tax credits of $0.9 million that are perpetual in nature.
We have not provided for U.S. deferred taxes on earnings of non-U.S. subsidiaries as such earnings, which are immaterial, are deemed permanently
reinvested. Determination of unrecorded deferred taxes on earnings of non-U.S. subsidiaries is not practicable.
Under certain provisions
of the Internal Revenue Code of 1986, as amended, the availability and utilization of our NOL and tax credit carryforwards may be subject to limitation if it should be determined that there has been a change in ownership of more than 50%.
On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN
48). The adoption of FIN 48 did not have a material effect on our consolidated financial position or results of operations. Our unrecognized tax benefits at December 31, 2007 related to various foreign jurisdictions and U.S. tax credits.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
3,225
|
|
Increases related to prior year tax positions
|
|
|
|
|
Decreases related to prior year tax positions
|
|
|
|
|
Increases related to current year tax positions
|
|
|
92
|
|
Increases related to foreign currency translation
|
|
|
158
|
|
Decreases related to change in foreign tax rate
|
|
|
(57
|
)
|
Settlements
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
3,418
|
|
|
|
|
|
|
The entire $3.4 million of unrecognized tax benefits at December 31, 2007 would reduce income
tax expense if ultimately recognized. We do not expect any significant increases or decreases to our unrecognized tax benefits within 12 months of this reporting date.
Subsequent to adoption, interest and penalties incurred associated with unresolved income tax positions will be included in income tax expense. Accrued interest and penalties are insignificant.
We conduct business globally and, as a result, file numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various
state and foreign jurisdictions. In the normal course of business, we are subject to examination by tax authorities throughout the world, including such major jurisdictions as the U.S., United Kingdom, France and Japan. We are subject to U.S.
federal, state and local, or non-U.S. income tax examinations for years after 2003. However, carryforward attributes that were generated prior to 2003 may still be adjusted by a taxing authority upon examination if the attributes have been or will
be used in a future period.
12. Employee Benefit Plan
401(k) Retirement Savings Plan
All our employees in the U.S. are eligible to participate in our 401(k) Plan. Terms of the
401(k) Plan permit an employee to contribute up to a maximum of 16% of an employees annual compensation on a post-tax or pre-tax basis, up to the maximum permissible by the Internal Revenue Service during any plan year. We match
69
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
12. Employee Benefit Plan(Continued)
each employees contribution in increments equivalent to 100% for the first 3% and 50% for the second 3% of the employees contribution percentage.
In 2007, 2006 and 2005 we contributed $1.2 million, $1.3 million and $1.0 million in matching contributions to the 401(k) Plan in accordance with the plans terms. Employees immediately vest in the contributions the employee makes. Vesting in
our contribution on behalf of the employee occurs at equal increments at the end of each year of the first five years of an employees service with us.
13. Commitments and contingencies
Indemnification Obligations and Guarantees (excluding product warranty)
We provide (i) indemnifications of varying scope and size to our customers and distributors against claims of intellectual property infringement made
by third parties arising from the use of our products; (ii) indemnifications of varying scope and size to our customers against third party claims arising as a result of defects in our products; (iii) indemnifications of varying scope and
size to consultants against third party claims arising from the services they provide to us; and (iv) guarantees to support obligations of some of our subsidiaries such as lease payments. These indemnifications and guarantees require only
disclosure. To date, we have not incurred material costs as a result of these obligations and do not expect to incur material costs in the future. Accordingly, we have not accrued any liabilities in our consolidated financial statements related to
these indemnifications or guarantees.
Operating leases
We currently lease office and manufacturing space, automobiles and office equipment under operating leases. As of December 31, 2007, future minimum lease payments are as follows (in thousands):
|
|
|
|
2008
|
|
$
|
3,320
|
2009
|
|
|
3,013
|
2010
|
|
|
2,502
|
2011
|
|
|
2,359
|
2012
|
|
|
2,247
|
Thereafter
|
|
|
2,703
|
|
|
|
|
Total
|
|
$
|
16,144
|
|
|
|
|
Rent expense for the years ended December 31, 2007, 2006 and 2005 was $3.2 million, $2.8
million and $2.7 million.
Other commitments
In 2005, we entered into an agreement to contribute up to $1.0 million to a research university. This pledge, which is to be paid over a four-year period, is conditioned upon our election to make a payment on an annual basis. We contributed
$0.3 million in 2007, $0.3 million in 2006 and $0.1 million in 2005.
As part of our agreements with our suppliers, suppliers may procure
resources and material expected to be used for the manufacture of our product in accordance with our production schedule provided to them. In the event these items are not used in the quantities submitted as part of the production schedule or
material becomes obsolete as a result of production timing, material changes or design changes, we may be responsible for compensating our suppliers for these procurements. As of December 31, 2007, these commitments were not significant.
70
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
13. Commitments and contingencies(Continued)
At December 31, 2007 we maintained a deposit of $1.0 million with our bank in the United Kingdom
as security for payment of customs and duties charges. At December 31, 2006 this amount was $0.6 million. These amounts are included in other long-term assets.
In the U.S., we have complemented our direct sales efforts by entering into group purchasing agreements with major healthcare group purchasing organizations (GPO). Typically, a GPO negotiates with medical
suppliers, such as us, on behalf of the GPOs member healthcare facilities, providing such members with uniform pricing and terms and conditions. In exchange, the GPO identifies us as a preferred supplier for its members. Member facilities
participating in the GPOs purchasing program can consist of hospitals, medical group practices, nursing homes, surgery centers, managed care organizations, long term care facilities, clinics and integrated delivery networks. Currently, we have
GPO supply agreements with various groups including AmeriNet, Inc., Premier, Inc., Novation LLC, MedAssets HSCA, Inc., Broadlane, Inc. (includes Kaiser Permanente, Tenet Healthcare and others) Consorta, Inc. and ROI/Sisters of Mercy and First
Choice. These agreements require us to pay fees based on the amount of sales generated from these agreements. For the years ended December 31, 2007, 2006 and 2005, we recorded fees related to these agreements as sales and marketing expenses in
the amounts of $1.8 million, $1.4 million and $1.0 million, respectively.
Contingencies
We filed a patent infringement suit against Zonare Medical Systems, Inc. in the federal district court of the Central District of California alleging that
Zonare infringed one of our key patents through sales of its z.one ultrasound system. On March 14, 2007, Zonare filed an answer to our claim which included a counterclaim against us alleging that our products infringe its patent related to its
portable docking station.
On May 15, 2007, GE Healthcare, a competitor of ours, filed a lawsuit against us in the federal district
court in the Western District of Wisconsin. The lawsuit alleges that our MicroMaxx and/or TITAN products willfully infringe certain of GEs U.S. patents relating to ultrasound technology. GE is seeking unspecified monetary damages and an
injunction. On July 5, 2007, we filed a counterclaim against GE and certain of its affiliates. In parallel, we filed our answer to the complaint denying all of GEs claims and alleging that the asserted patents are either invalid, not
infringed, or both. Subsequent to these initial filings, both parties supplemented their claims with additional allegations of patent infringement. Our complaint also seeks unspecified monetary damages and a court injunction against future
infringement by GE and its affiliates.
We have not accrued any amounts for potential losses related to these matters. Because of
uncertainties related to the potential outcome and any range of loss on the pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes
available, we will assess the potential liability related to these matters. If and when we determine that a negative outcome of such matters is probable and reasonably estimable we will record accruals for losses. Our estimates regarding such losses
could differ from actual results. Revisions in our estimates of the potential liability could materially impact our results of operations, financial position and cash flow. We expense legal costs as incurred.
14. Related party transaction
In January 2007, we
accepted 4,560 shares of common stock valued at approximately $133,000 along with cash from our President and Chief Executive Officer as payment of the exercise price for 19,218 options, pursuant to the terms of the 1998 plan. The shares were valued
at the closing stock price on the date of the transaction.
71
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
15. Segment reporting
We currently have one reportable segment. We market our products in the United States and internationally through our direct sales force and our indirect distribution channels. Our chief operating decision maker
evaluates resource allocation decisions and our performance based upon revenue recorded in geographic regions and does not receive financial information about expense allocation on a disaggregated basis. Geographic regions are determined by the
shipping destination. Revenue by geographic location for the years ended December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
United States
|
|
$
|
104,147
|
|
$
|
89,732
|
|
$
|
79,794
|
Europe, Africa and the Middle East
|
|
|
58,955
|
|
|
48,940
|
|
|
41,213
|
Latin America and Canada
|
|
|
17,770
|
|
|
12,260
|
|
|
9,580
|
Asia Pacific
|
|
|
24,196
|
|
|
20,151
|
|
|
16,904
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
205,068
|
|
$
|
171,083
|
|
$
|
147,491
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets, excluding investment securities and deferred tax assets, included in other
assets, by geographic location as of December 31 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
United States
|
|
$
|
32,662
|
|
$
|
13,900
|
International
|
|
|
3,338
|
|
|
2,403
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
36,000
|
|
$
|
16,303
|
|
|
|
|
|
|
|
72
SONOSITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
16. Quarterly resultsunaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended,
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
(in thousands, except per share amounts)
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
42,795
|
|
|
$
|
47,397
|
|
|
$
|
50,041
|
|
|
$
|
64,835
|
|
Cost of revenue
|
|
|
12,875
|
|
|
|
14,651
|
|
|
|
15,292
|
|
|
|
19,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
29,920
|
|
|
|
32,746
|
|
|
|
34,749
|
|
|
|
45,148
|
|
Operating expenses
|
|
|
32,168
|
|
|
|
31,276
|
|
|
|
35,089
|
|
|
|
39,579
|
|
Other income (loss)
|
|
|
1,302
|
|
|
|
1,272
|
|
|
|
2,469
|
|
|
|
1,522
|
|
Income tax (provision) benefit
|
|
|
383
|
|
|
|
(1,035
|
)
|
|
|
(642
|
)
|
|
|
(2,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(563
|
)
|
|
$
|
1,707
|
|
|
$
|
1,487
|
|
|
$
|
4,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
0.10
|
|
|
$
|
0.09
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,494
|
|
|
|
16,606
|
|
|
|
16,657
|
|
|
|
16,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,494
|
|
|
|
17,112
|
|
|
|
17,188
|
|
|
|
17,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
36,869
|
|
|
$
|
39,515
|
|
|
$
|
40,346
|
|
|
$
|
54,353
|
|
Cost of revenue
|
|
|
10,991
|
|
|
|
10,835
|
|
|
|
11,707
|
|
|
|
16,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
25,878
|
|
|
|
28,680
|
|
|
|
28,639
|
|
|
|
38,213
|
|
Operating expenses
|
|
|
27,085
|
|
|
|
27,896
|
|
|
|
29,230
|
|
|
|
33,363
|
|
Other income (loss)
|
|
|
660
|
|
|
|
1,132
|
|
|
|
1,125
|
|
|
|
1,060
|
|
Income tax (provision) benefit
|
|
|
184
|
|
|
|
(622
|
)
|
|
|
(59
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(363
|
)
|
|
$
|
1,294
|
|
|
$
|
475
|
|
|
$
|
5,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
16,013
|
|
|
|
16,303
|
|
|
|
16,366
|
|
|
|
16,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
16,013
|
|
|
|
16,922
|
|
|
|
16,903
|
|
|
|
16,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The quarterly information presented above reflects, in the opinion of management, all adjustments
necessary (which are of a normal and recurring nature, except for a tax benefit recorded in the quarter ended December 31, 2006 related to the reversal of the valuation allowance on foreign deferred taxes) for a fair presentation of the results
for the interim period presented.
73