UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended March 31, 2011
OR
| ¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the transition period from to
Commission file number 0-23791
SONOSITE, INC.
(Exact name of registrant as specified in its charter)
| Washington | 91-1405022 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) | |
| 21919 30th Drive SE, Bothell, WA | 98021-3904 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(425) 951-1200
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer a non-accelerated filer or smaller reporting company. See definitions of a large accelerated filer, an accelerated filer a non-accelerated filer or smaller reporting company in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | x | |||
| Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Common Stock, $0.01 par value |
13,806,479 | |
| (Class) | (Outstanding as of April 28, 2011) |
SonoSite, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2011
Table of Contents
2
| Item 1. | Financial Statements |
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands, except share data)
| March 31, 2011 |
December 31, 2010 |
|||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 83,208 | $ | 78,690 | ||||
| Accounts receivable, less allowances of $963 and $932 |
77,699 | 81,516 | ||||||
| Inventories |
39,947 | 37,126 | ||||||
| Deferred tax assets, current |
8,961 | 7,801 | ||||||
| Prepaid expenses and other current assets |
10,597 | 12,384 | ||||||
| Total current assets |
220,412 | 217,517 | ||||||
| Property and equipment, net |
9,082 | 9,133 | ||||||
| Investment in affiliate |
8,000 | 8,000 | ||||||
| Deferred tax asset, net |
3,430 | 4,373 | ||||||
| Goodwill |
39,851 | 37,786 | ||||||
| Identifiable intangible assets, net |
46,343 | 47,423 | ||||||
| Other assets |
5,592 | 4,823 | ||||||
| Total assets |
$ | 332,710 | $ | 329,055 | ||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 11,369 | $ | 10,597 | ||||
| Accrued expenses |
24,036 | 32,535 | ||||||
| Deferred revenue, current portion |
6,480 | 6,042 | ||||||
| Total current liabilities |
41,885 | 49,174 | ||||||
| Long-term debt, net |
98,555 | 97,379 | ||||||
| Deferred tax liability |
3,180 | 1,811 | ||||||
| Deferred revenue, net |
14,991 | 15,236 | ||||||
| Other non-current liabilities, net |
12,614 | 12,565 | ||||||
| Total liabilities |
171,225 | 176,165 | ||||||
| Commitments and contingencies |
||||||||
| Shareholders’ equity: |
||||||||
| Preferred stock, $1.00 par value Authorized shares—6,000,000 Issued and outstanding shares—none |
— | — | ||||||
| Common stock, $0.01 par value Shares authorized—50,000,000 Issued and outstanding shares: |
||||||||
| As of March 31, 2011 and December 31, 2010—13,608,492 and 13,539,633 |
137 | 135 | ||||||
| Additional paid-in-capital |
304,522 | 298,870 | ||||||
| Accumulated deficit |
(147,971 | ) | (148,975 | ) | ||||
| Accumulated other comprehensive income |
4,797 | 2,860 | ||||||
| Total shareholders’ equity |
161,485 | 152,890 | ||||||
| Total liabilities and shareholders’ equity |
$ | 332,710 | $ | 329,055 | ||||
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Statements of Income
(unaudited)
(In thousands, except net income per share amounts)
| Three Months Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| Revenue |
$ | 71,081 | $ | 55,977 | ||||
| Cost of revenue |
21,128 | 16,280 | ||||||
| Gross margin |
49,953 | 39,697 | ||||||
| Operating expenses: |
||||||||
| Research and development |
9,445 | 7,597 | ||||||
| Sales, general and administrative |
36,474 | 29,429 | ||||||
| Total operating expenses |
45,919 | 37,026 | ||||||
| Other income (expense) |
||||||||
| Interest income |
132 | 180 | ||||||
| Interest expense |
(2,344 | ) | (2,294 | ) | ||||
| Other |
(151 | ) | (148 | ) | ||||
| Total other expense, net |
(2,363 | ) | (2,262 | ) | ||||
| Income before income taxes |
1,671 | 409 | ||||||
| Income tax provision (benefit) |
667 | (973 | ) | |||||
| Net income |
$ | 1,004 | $ | 1,382 | ||||
| Net income per share: |
||||||||
| Basic |
$ | 0.07 | $ | 0.08 | ||||
| Diluted |
$ | 0.07 | $ | 0.08 | ||||
| Weighted average common shares outstanding: |
||||||||
| Basic |
13,608 | 16,284 | ||||||
| Diluted |
14,152 | 16,823 | ||||||
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
| Three Months Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| Operating activities: |
||||||||
| Net income |
$ | 1,004 | $ | 1,382 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
2,616 | 1,679 | ||||||
| Stock-based compensation |
2,039 | 1,009 | ||||||
| Deferred income tax (benefit) provision |
(41 | ) | 143 | |||||
| Amortization of debt discount and debt issuance costs |
1,263 | 1,179 | ||||||
| Excess tax benefit from exercise of stock-based awards |
(720 | ) | (436 | ) | ||||
| Other adjustments |
(3 | ) | (1 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
3,713 | 10,502 | ||||||
| Inventories |
(2,401 | ) | 1,349 | |||||
| Prepaid expenses and other assets |
2,017 | 988 | ||||||
| Accounts payable |
1,370 | 1,583 | ||||||
| Accrued expenses |
(8,571 | ) | (5,209 | ) | ||||
| Deferred revenue |
(194 | ) | (938 | ) | ||||
| Deferred liabilities |
462 | 507 | ||||||
| Net cash provided by operating activities |
2,554 | 13,737 | ||||||
| Investing activities: |
||||||||
| Purchase of investment securities |
— | (42,246 | ) | |||||
| Proceeds from maturities of investment securities |
— | 53,298 | ||||||
| Purchases of property and equipment |
(689 | ) | (1,006 | ) | ||||
| Investment in affiliate |
— | (4,000 | ) | |||||
| Net cash (used in) provided by investing activities |
(689 | ) | 6,046 | |||||
| Financing activities: |
||||||||
| Excess tax benefit from exercise stock-based awards |
720 | 436 | ||||||
| Proceeds from exercise of stock-based awards |
3,047 | 1,568 | ||||||
| Minimum tax withholding on stock-based awards |
(121 | ) | (692 | ) | ||||
| Stock repurchases including transaction costs |
— | (90,046 | ) | |||||
| Repayment of long-term debt |
(7 | ) | (5 | ) | ||||
| Payment of LumenVu contingent consideration |
(300 | ) | (425 | ) | ||||
| Net cash (used in) provided by financing activities |
3,339 | (89,164 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
(686 | ) | 783 | |||||
| Net change in cash and cash equivalents |
4,518 | (68,598 | ) | |||||
| Cash and cash equivalents at beginning of period |
78,690 | 183,065 | ||||||
| Cash and cash equivalents at end of period |
$ | 83,208 | $ | 114,467 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash (refund) paid for income taxes |
$ | (754 | ) | $ | 333 | |||
| Cash paid for interest |
$ | 2,155 | $ | 2,156 | ||||
See accompanying notes to condensed consolidated financial statements.
5
Notes to Condensed Consolidated Financial Statements
(unaudited)
Interim Financial Information
1. Summary of significant accounting policies
Basis of presentation and use of estimates
The information contained herein has been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. The information reflects, in the opinion of SonoSite, Inc. management, all adjustments necessary (which are of a normal and recurring nature) for a fair presentation of the results for the interim periods presented. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of expected results for the entire year ending December 31, 2011 or for any other fiscal period. These condensed consolidated financial statements do not include all disclosures required by generally accepted accounting principles. For a presentation including all disclosures required by generally accepted accounting principles, these condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2010, included in our Annual Report on Form 10-K.
Fair value of financial instruments
We account for our assets and liabilities using a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the following fair-value hierarchy:
Level 1—Quoted prices for identical instruments in active markets;
Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant values are unobservable.
This hierarchy requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value.
The fair value of these financial instruments was determined using the following levels of inputs as of March 31, 2011 (in thousands):
| Fair Value Measurements at March 31, 2011 | ||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||
| Assets: |
||||||||||||
| Cash equivalents- money market funds |
$ | 69,352 | $ | — | $ | — | ||||||
| Unamortized option contract premiums |
— | 15 | — | |||||||||
| Total assets |
$ | 69,352 | $ | 15 | $ | — | ||||||
| Liabilities: |
||||||||||||
| Hedge contracts |
$ | — | $ | 501 | $ | — | ||||||
| Total liabilities |
$ | — | $ | 501 | $ | — | ||||||
6
The fair value of these financial instruments was determined using the following levels of inputs as of December 31, 2010 (in thousands):
| Fair Value Measurements at December 31, 2010 | ||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||
| Assets: |
||||||||||||
| Cash equivalents- money market funds |
$ | 70,473 | $ | — | $ | — | ||||||
| Unamortized option contract premiums |
— | 62 | — | |||||||||
| Total assets |
$ | 70,473 | $ | 62 | $ | — | ||||||
| Liabilities: |
||||||||||||
| Hedge contracts |
$ | — | $ | 463 | $ | — | ||||||
| Total liabilities |
$ | — | $ | 463 | $ | — | ||||||
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 or our competitors impacts the markets for our previously released products, we may be required to further write down the carrying cost of our inventories.
Inventories consisted of the following (in thousands):
| As of | ||||||||
| March 31,
2011 |
December 31, 2010 |
|||||||
| Raw material |
$ | 14,923 | $ | 13,671 | ||||
| Demonstration product |
14,095 | 13,008 | ||||||
| Finished goods |
10,929 | 10,447 | ||||||
| Total |
$ | 39,947 | $ | 37,126 | ||||
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. Revenue is recorded net of any discounts, trade-in allowances, and estimated returns. We estimate returns by reviewing our historical returns, considering customer reaction to new product introductions and current economic conditions. We make product upgrades available for purchase to our customers. We recognize licensing revenue using the proportional performance method, a ratable recognition approach over the life of the license. In addition to a standard warranty, we offer extended warranty and service contracts for coverage beyond the standard warranty period or coverage above what is covered by a standard warranty. Those service contracts are recorded as deferred revenue. For extended warranty and service contracts, revenue is recognized as services are provided or over the term of the contract.
Sales to distributors are generally made pursuant to standard distributor agreements. We recognize revenue when risk of loss and title has transferred to the distributor and collection of any resulting receivable is reasonably assured. Our only significant post-shipment obligation to distributors is our standard product warranty covering materials and workmanship. The distributor can only reject products for an obvious defect or shipping error, generally within 30 days of receipt, and in such cases, replacement products would be sent. Since the distributor’s remedy is the replacement of the product and not a refund or credit and returns are estimable, we do not defer revenue associated with these sales. Costs associated with the repair of returned, defective products are captured in our warranty liability. Our standard distributor arrangements do not have any other return provisions.
Our sales arrangements may contain multiple elements, which include hardware and software products. For the vast majority of our shipments, all deliverables are shipped together. However, in some cases certain elements of a multiple element arrangement are not delivered as of a reporting date. In September 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards related to revenue recognition for arrangements with multiple deliverables and
7
include some software elements. Effective January 1, 2010, we adopted new revenue recognition accounting guidance, which removes tangible products from the scope of the software revenue guidance if the products contain both software and non-software components that function together to deliver a product’s essential functionality. It also provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are within the scope of the software revenue guidance. Concurrently, we adopted guidance that provides principles and application direction on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. It also requires an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price. The guidance eliminates the use of the residual method, requires entities to allocate revenue using the relative-selling-price method and significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. When the undelivered element represents services under extended service contracts, revenue equal to the stated price, less any allocable discount on the overall multi-element arrangement is deferred and recognized evenly over the contract term as those services are provided. Adoption of these pronouncements did not have a material effect on the consolidated financial statements.
Warranty expense
We generally offer a five year warranty for our products. 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 using management’s judgment based upon our historical and anticipated product failure rates and service repair costs. Our warranty period for certain older generation products is one year. We periodically assess the adequacy of the warranty reserve and adjust the amount as necessary. The warranty is included with the original purchase.
The warranty liability is summarized as follows (in thousands):
| Three months ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| Beginning of period |
$ | 10,427 | $ | 8,400 | ||||
| Charged to cost of revenue |
1,379 | 1,117 | ||||||
| Applied to liability |
(1,009 | ) | (817 | ) | ||||
| End of period |
$ | 10,797 | $ | 8,700 | ||||
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 or obtained through acquisition.
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 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.
The determination of our provision for income taxes requires judgment, the use of estimates, and the interpretation and application of complex tax laws. Judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from tax authorities. When facts and circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate.
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, warrants, and unvested restricted stock units 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.
8
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):
| Three Months Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| Net income |
$ | 1,004 | $ | 1,382 | ||||
| Basic weighted average common shares outstanding |
13,608 | 16,284 | ||||||
| Effect of dilutive stock options and unvested restricted stock units |
544 | 539 | ||||||
| Diluted weighted average common shares outstanding |
14,152 | 16,823 | ||||||
| Net income per share: |
||||||||
| Basic |
$ | 0.07 | $ | 0.08 | ||||
| Diluted |
$ | 0.07 | $ | 0.08 | ||||
The following common shares were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive (in thousands):
| Three Months Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| Stock options and unvested restricted stock units |
541 | 612 | ||||||
| Warrants outstanding(1) |
1,121 | 1,121 | ||||||
| Total common shares excluded from diluted net income per share |
1,662 | 1,733 | ||||||
| (1) | As further detailed in note 5, 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. In 2009 and 2008, we repurchased warrants that were for the purchase of up to 0.4 million and 1.0 million shares respectively. |
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.
Other comprehensive income
Foreign currency translation adjustments and unrealized gains or losses on our available-for-sale securities are included in accumulated other comprehensive income.
The following are the components of accumulated other comprehensive income (in thousands):
| Three Months Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| Net income |
$ | 1,004 | $ | 1,382 | ||||
| Other comprehensive (loss) income: |
||||||||
| Foreign currency translation adjustment |
1,937 | (325 | ) | |||||
| Unrealized losses arising during the period |
— | (6 | ) | |||||
| Comprehensive income |
$ | 2,941 | $ | 1,051 | ||||
9
2. Cash and cash equivalents
The following table summarizes our cash, cash equivalents and investment securities at fair value (in thousands):
| March 31,
2011 |
December 31, 2010 |
|||||||
| Cash |
$ | 13,856 | $ | 8,217 | ||||
| Cash equivalents: |
||||||||
| Money market accounts |
69,352 | 70,473 | ||||||
| Total cash and cash equivalents |
$ | 83,208 | $ | 78,690 | ||||
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. The carrying value of cash and cash equivalents held in money market accounts approximates the fair value.
3. Acquisition
In June 2010, we acquired all of the outstanding stock of VisualSonics, Inc. (“VisualSonics”), a leader in the development, manufacturing, and marketing of ultra high-resolution, ultrasound-based imaging technology (“micro-ultrasound”) designed to enable discovery research, medical diagnosis and imaging small physiological structures in humans and animals. VisualSonics’ micro-ultrasound product platform currently serves the pre-clinical research market. We intend to integrate VisualSonics’ micro-ultrasound technology with our miniaturization competency and user design to deliver ultra high-frequency micro-ultrasound into clinical medicine.
During the measurement period the preliminary amounts have been and will continue to be updated based upon new information received related to the facts and circumstances that existed at the acquisition date. During the measurement period for the three months ended March 31, 2011 we obtained information related to the tax effects of the acquisition and the ability to utilize pre-acquisition tax credits to offset tax liabilities arising on the distribution of certain assets acquired. This resulted in a decrease to deferred tax assets of $1.2 million and an increase to goodwill of $1.2 million. We have not been able to complete the analysis of potential liabilities to federal, state, local and international taxes. We are still gathering the information needed to determine whether additional liabilities as of the acquisition date is required.
The results of VisualSonics operations have been included in our consolidated financial statements since the date of acquisition. For comparability purposes, the following table presents our pro forma revenue and earnings for the period ended March 31, 2010 had the acquisition date been January 1, 2010 (in thousands):
| Revenue | Net income (loss) | |||||||
| Results of operations as reported |
$ | 55,977 | $ | 1,382 | ||||
| Add: VisualSonics operations |
7,934 | (111 | ) | |||||
| Pro forma results for the three months ended March 31, 2010 |
$ | 63,911 | $ | 1,271 | ||||
VisualSonics’ earnings were adjusted to reflect the statutory tax rate utilized by VisualSonics in the pro forma period presented. Pro forma results exclude non-recurring expenses-related to long-term debt and liability classified equity instruments, but includes amortization of intangible assets and stock based compensation resulting from this acquisition.
Pro forma information set forth above is for informational purposes only and should not be considered indicative of actual results that would have been achieved if VisualSonics had been acquired at the beginning of 2010, or results that may be obtained in any future period.
4. Income tax expense
The income tax provision for the three months ended March 31, 2011 is based on projections of total year pre-tax income and the annual effective tax rate. The annual effective tax rate is applied to our ordinary worldwide pre-tax income. Discrete items are individually computed and recognized when the items occur. The following table summarizes our income tax provision (in thousands except percentages):
| Three Months Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| Income tax provision (benefit) |
$ | 667 | $ | (973 | ) | |||
| Effective tax rate |
39.9 | % | (237.9 | )% | ||||
10
The increase in our consolidated effective tax rate for the three months ended March 31, 2011 as compared to the same period for 2010 resulted from discrete tax benefits recorded in the three months ended March 31, 2010 related to favorable resolution of uncertain tax positions upon completion of tax audits in certain foreign jurisdictions.
5. Long-term debt
In July 2007, we completed the offering of $225.0 million aggregate principal amount of 3.75% convertible senior notes (“Notes”), which are due in 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. The Notes have no restrictive covenants and the if-converted value is approximately equivalent to the current principal outstanding.
To account for the Notes, we bifurcated a component of the conversion option. We calculated the fair value of the liability component of the Notes using a discount rate of similar liabilities without conversion features and determined the carrying amount of the equity component by deducting the fair value of the liability component from the initial carrying value of the convertible debt. This resulted in an initial recognition of $63.9 million of debt discount, to be amortized over a seven year period at an effective interest rate of 8.5%, and a corresponding deferred tax liability of $23.6 million. Additionally, $2.1 million of debt issuance costs, which were included in other assets in our consolidated balance sheet, were classified as equity on a proportionate basis as the equity component.
The following table summarizes the carrying value of the debt and equity components (in thousands):
| As of | ||||||||
| March 31,
2011 |
December 31, 2010 |
|||||||
| Convertible senior notes: |
||||||||
| Outstanding |
$ | 114,745 | $ | 114,745 | ||||
| Debt discount |
(16,482 | ) | (17,647 | ) | ||||
| Convertible senior notes, net |
$ | 98,263 | $ | 97,098 | ||||
| Equity component |
$ | 33,957 | $ | 33,957 | ||||
We pay cash interest on the Notes at an annual rate of 3.75%, payable semi-annually on January 15 and July 15 of each year, which began on January 15, 2008.
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 is 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 60th 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 were recorded as an increase to stockholders equity.
The debt discount and debt issuance costs are being amortized through July 2014. Interest expense for the amortization of debt discount and debt issuance costs was $1.3 million and $1.2 million for the three months ended March 31, 2011 and 2010. Interest expense for the contractual coupon was $1.1 million and $1.1 million for the three months ended March 31, 2011 and 2010.
Our senior convertible debt is measured for disclosure only at fair value using quoted market prices (Level 1). As of March 31, 2011 and December 31, 2010, the fair value of our senior convertible debt was $128.4 million and $126.0 million, respectively.
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6. Hedging activities
We are exposed to foreign currency risk from both trade receivable balances denominated in a currency other than the local currency and intercompany receivable balances denominated in currencies other than US Dollar (“USD”) and from translation of our foreign subsidiaries operating results. We enter into foreign currency forward and option contracts to reduce the impact of fluctuations on earnings associated with foreign currency exchange rate changes. These foreign currencies include the Australian dollar, the British pound, the Canadian dollar, the European Union euro, and the Japanese yen. We use foreign exchange contracts to mitigate risk and do not intend to engage in speculative transactions. Currently our foreign exchange contracts do not qualify for derivative hedge accounting. We seek to manage the counterparty risk associated with engaging in foreign currency contracts by limiting transactions to counterparties with which we have established banking relationships
We use foreign currency forward contracts to hedge a substantial portion of our intercompany receivable balances denominated in currencies other than the USD. As of March 31, 2011, we had $35.8 million in notional amount of foreign currency contracts that expire through April 29, 2011. Gains and losses in the fair value of these contracts are intended to offset the losses and gains, resulting from the changes in the underlying intercompany balances. The fair value of these contracts as of March 31, 2011 was not material to our results of operations or our financial position.
We use foreign currency forward and option contracts to hedge the impact of currency fluctuations on the translation of the financial statements of our foreign operations. As of March 31, 2011, we had $6.1 million in notional amount of foreign currency contracts expiring at various dates through September 2011.
Recognized gains and losses, which are included in other expense on the consolidated statement of income, are as follows (in thousands):
| Three Months Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| Hedges of intercompany balances |
||||||||
| Loss on foreign currency hedges |
$ | (833 | ) | $ | (908 | ) | ||
| Gain on translation of intercompany receivables |
753 | 685 | ||||||
| Hedges of translation of foreign operations |
||||||||
| (Loss) gain on foreign currency hedges |
(158 | ) | 266 | |||||
| (Loss) gain related to hedge activities |
$ | (238 | ) | $ | 43 | |||
7. Segment reporting
Public companies are required to report financial and descriptive information about their reportable operating segments as required by FASB ASC Topic No. 280, Segment Reporting. We market our products in the United States and internationally through our direct sales force and our indirect distribution channels.
Our chief executive officer reviews financial information presented on a company wide basis, accompanied by disaggregated information about revenues by geographic regions for purposes of allocating resources and evaluating financial performance. Each of our geographic regions report directly to our chief operating decision maker. We do not specifically allocate operating expenses to geographic regions, nor do we allocate specific assets. Therefore, geographic region information reported includes only revenues. Accordingly, we have a single operating and reporting segment.
Geographic regions are determined by the shipping destination. Revenue by geographic region is as follows (in thousands):
| Three Months Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| United States |
$ | 34,079 | $ | 24,815 | ||||
| Europe, Africa and the Middle East |
17,242 | 15,470 | ||||||
| Latin America and Canada |
7,329 | 4,680 | ||||||
| Asia Pacific |
12,431 | 11,012 | ||||||
| Total revenue |
$ | 71,081 | $ | 55,977 | ||||
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Revenue from individual countries or customers in foreign countries is not material.
Long-lived assets, excluding deferred tax assets and certain other assets, by geographic location are as follows (in thousands):
| Three Months Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| United States |
$ | 18,721 | $ | 14,226 | ||||
| International |
3,952 | 2,208 | ||||||
| Total long-lived assets |
$ | 22,673 | $ | 16,434 | ||||
8. 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.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This quarterly report on Form 10-Q contains forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. Forward-looking statements in this report include, without limitation:
Words such as “believe,” “anticipate,” “expect” and “intend” may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties, and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. You should not unduly rely on these forward-looking statements, which speak only as of the date of this report.
We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our future quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K. Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business in Item 1A. “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2010. These are risks that could cause our actual results to differ materially from those anticipated in our forward-looking statements or from our expected or historical results. Other factors besides the risks, uncertainties and possibly inaccurate assumptions described in this report could also affect actual results.
Overview
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of SonoSite, Inc. MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements.
Our business strategy is to lead in the design, development and commercialization of high performance, innovative ultrasound technology and hand-carried ultrasound (“HCU”) systems. We intend to sustain long-term growth of our business through technological innovation, broadening of sales distribution channels, entering into and maintaining strategic relationships, expanding into new clinical and geographic markets, and delivering high-quality products to customers. We are focusing on the development of innovative products with the objective of improving patient care and efficiency through ease of use, high performance imaging, and providing quicker results to physicians and clinicians. We also are investing in research and development in existing and new lines of business and other areas that we believe may contribute to our long-term growth. We are focused on increasing sales force efficiency and effective cost management.
In August 2009, we acquired all of the outstanding stock of CardioDynamics International Corporation (“CDIC”), a leader in impedance cardiography (“ICG”) for noninvasive hemodynamic assessment that develops, manufactures, and markets ICG devices and sensors. The ICG product line provides non-invasive assessment of cardiac output and other hemodynamic parameters. The business combination enables us to expand our distribution platform and product offerings into the primary care setting.
In June 2010, we acquired all of the outstanding stock of VisualSonics, Inc. (“VisualSonics”) a leader in high-frequency, high-resolution, ultrasound-based imaging systems (or “micro-ultrasound” systems) designed specifically for live imaging of small animals. Live imaging is a useful tool for life sciences research and for the pre-clinical stage of the drug development process. VisualSonics’ technology provides clinicians and research scientists with a simple method for viewing and quantifying extremely small physiological structures and for imaging living tissue with near-microscopic resolution. This business combination positions us for long-term growth in both the clinical point-of-care markets, and the pre-clinical markets.
Over the last few years, we have laid a foundation for long-term growth through expansion in four vertical markets including acute, primary care, musculoskeletal, and field medicine. We will be introducing innovative products, entering into strategic relationships, expanding into new markets, and providing high quality products with an industry-leading 5-year warranty. In fiscal year 2011, we plan to continue to build on this foundation and to execute well in key areas, including continuing to innovate using existing and new technologies, to build and maintain key relationships in distribution channels, to improve sales productivity, delivering high quality products, and managing the expense structure.
Key opportunities include the following:
Product Innovation — Our products provide exceptional reliability, image quality, and ease of use in a lightweight design that can be either hand-carried, used on a stand or mounted on a wall or ceiling. We are committed to continuing to develop our next generation of products and expanding our existing product base by using new and existing technologies. In
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2010 we introduced Enhanced Needle Visualization, a significant development in ultrasound imaging that enables improved needle tracking with increased confidence during deep needle procedures. In fiscal year 2009, we introduced the NanoMaxx system, which is based on our fourth generation product platform, and we acquired the BioZ product line from CDIC. We will continue to release new and innovative products in 2011.
Sales and Marketing – Our sales and marketing organization will continue to focus on creating greater awareness of the benefits of point-of-care ultrasound in order to better penetrate established markets, accelerate growth in emerging markets and identify new markets. Over the past two years we have implemented a strategy in our sales channels to better cover key accounts and drive awareness of the safety, cost and efficiency benefits of point-of-care at the institutional level. We believe that this will continue to help us more effectively address considerations that are important at the administrative level, and that complement the clinical benefits we have been communicating at the clinician level. We intend to expand VisualSonics’ geographic market coverage to better address the growth opportunities outside of North America. Additionally, we intend to augment the resources we have to address attractive growth opportunities in emerging economies for our entire business.
Strategic Relationships and Acquisitions — We are focused on building relationships and gaining access to products and technologies that will enable us to continue to penetrate and develop point-of-care visualization. We believe that new relationships, products, and technologies can accelerate market penetration to customers not served by our direct sales force. Through our acquisition of VisualSonics we intend to integrate micro-ultrasound technology with our miniaturization competency and user design to deliver ultra high-frequency micro-ultrasound into clinical medicine. In 2010 we announced an alliance with Physio-Control, Inc., the global leader in the development and delivery of emergency medical response solutions, for the development of the point-of-care visualization market in the emergency medical services segment. During 2010, we invested in Carticept Medical Inc. (“Carticept”), a privately held company that develops innovative injection products for the treatment of musculoskeletal injuries. We believe this relationship will expand our access to the market segment for ultrasound-guided injections.
Results of Operations
The increase in revenue over the prior year quarter was attributable to the acquisition of VisualSonics and improved execution against our market strategies. Our financial performance during 2010 reflected an increase in revenue and operating income. We believe our strong and growing product pipeline, alongside our expanding distribution capability, has positioned us well to capitalize on a growing market for point of care ultrasound. As we enhance our product offerings, integrate the acquisition of VisualSonics and develop strategic alliances, we believe opportunities to increase revenue will grow.
The following financial information sets forth our results of operations and is derived from our condensed consolidated financial statements (in thousands except percentages):
| Three Months Ended March 31, | ||||||||||||||||
| 2011 | 2010 | |||||||||||||||
| Revenue |
$ | 71,081 | 100.0 | % | $ | 55,977 | 100.0 | % | ||||||||
| Cost of revenue |
21,128 | 29.7 | 16,280 | 29.1 | ||||||||||||
| Gross margin |
49,953 | 70.3 | 39,697 | 70.9 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
9,445 | 13.3 | 7,597 | 13.6 | ||||||||||||
| Selling, general and administrative |
36,474 | 51.3 | 29,429 | 52.6 | ||||||||||||
| Total operating expenses |
45,919 | 64.6 | 37,026 | 66.1 | ||||||||||||
| Operating income |
4,034 | 5.7 | 2,671 | 4.8 | ||||||||||||
| Other loss |
(2,363 | ) | (3.3 | ) | (2,262 | ) | (4.0 | ) | ||||||||
| Income before income taxes |
1,671 | 2.4 | 409 | 0.7 | ||||||||||||
| Income tax provision (benefit) |
667 | 0.9 | (973 | ) | (1.7 | ) | ||||||||||
| Net income |
$ | 1,004 | 1.4 | % | $ | 1,382 | 2.5 | % | ||||||||
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Revenue
Overall revenue increased for the three months ended March 31, 2011 compared to the three months ended March 31, 2010. The increase for the three months ended March 31, 2011 was primarily attributable to revenue growth from the acquisition of pre-clinical VisualSonics, organic growth from the U.S. Direct and Enterprise channels, and a favorable impact from exchange rates of $1.2 million or 2.2% over the prior year quarter. Revenue is as follows (in thousands except percentages):
| Three Months Ended March 31, |
Percentage Change |
|||||||||||
| 2011 | 2010 | |||||||||||
| Revenue: |
||||||||||||
| US-Clinical |
$ | 31,477 | $ | 24,815 | 26.8 | % | ||||||
| International-Clinical |
31,368 | 31,162 | 0.7 | |||||||||
| Pre-clinical |
8,236 | — | 100.0 | |||||||||
| Total revenue |
$ | 71,081 | $ | 55,977 | 27.0 | % | ||||||
US-Clinical
US-Clinical revenue for three months ended March 31, 2011 increased by 26.8% compared to the three months ended March 31, 2010 due primarily to an increase in US direct and enterprise sales, offset by a decrease in revenue from primary care sales.
International-Clinical
International-Clinical revenue for the three months ended March 31, 2011 increased by 0.7% compared to the three months ended March 31, 2010 due primarily to increased revenues from Canada, Latin America, UK and the Middle East, offset by decreases in Europe. Changes in exchange rates had a 2.2% combined favorable impact on revenue for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010.
Pre-clinical
On June 30, 2010, we acquired all of the outstanding stock of VisualSonics. Revenue from VisualSonics for the three months ended March 31, 2011 was $8.2 million.
Gross margin
| Three Months Ended March 31, |
Percentage of Revenue | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Gross margin |
$ | 49,953 | $ | 39,697 | 70.3 | % | 70.9 | % | ||||||||
Gross margin for the three months ended March 31, 2011 decreased by 0.6 percentage points compared to the three months ended March 31, 2010 due to the slightly lower margins of VisualSonics, discounts on significant orders, and a shift in sales mix to dealers versus direct revenues internationally. Changes in exchange rates had a 3.1% combined favorable impact on gross margin for the three months ended March 31, 2011 as compared to the three months ended March 31, 2010.
Operating expenses
| Three Months Ended March 31, |
Percentage of Revenue | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Research and development |
$ | 9,445 | $ | 7,597 | 13.3 | % | 13.6 | % | ||||||||
| Sales, general and administrative |
$ | 36,474 | $ | 29,429 | 51.3 | % | 52.6 | % | ||||||||
Research and development expenses were $9.4 million for the three months ended March 31, 2011, compared to $7.6 million for the three months ended March 31, 2010. The increase for the three months March 31, 2011 compared to the prior year was primarily attributable to the addition of VisualSonics and an increase in consulting and outside services, and payroll expenses.
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Sales, general and administrative expenses were $36.5 million for the three months ended March 31, 2011, compared to $29.4 million for the three months ended March 31, 2010. The increase for the three months ended March 31, 2011 compared to the prior year was primarily attributable to the addition of VisualSonics, increased payroll expenses and outside services, offset by decreased travel costs.
Other income (expense)
| Three Months Ended March 31, |
Percentage of Revenue | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Other income (expense) |
$ | 2,363 | $ | 2,262 | (3.3 | )% | (4.0 | )% | ||||||||
Total other loss was $2.4 million for the three months ended March 31, 2011, compared to $2.3 million for the three months ended March 31, 2010. The increase for the three months March 31, 2011 compared to the prior year was due to higher foreign exchange losses.
Income tax provision (benefit)
| Three Months Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| Income tax provision (benefit) |
$ | 667 | $ | (973 | ) | |||
| Effective tax rate |
39.9 | % | (237.9 | )% | ||||
The income tax provision (benefit) is based on a blended federal and state rate applied to U.S. income and the applicable foreign rates applied to foreign income. For the year ended December 31, 2011, we have forecasted an annual tax rate of 36.3%. This annual forecast includes an estimated increase in the valuation allowance on VisualSonics’ net operating losses and tax credits generated during the year because it is more likely than not these losses and credits will not be realized.
The net increase in our consolidated effective tax rate for the three months ended March 31, 2011, as compared to the three months ended March 31, 2010, resulted primarily from recorded tax benefits of $1.2 million for the three months ended March 31, 2010 related to favorable resolution of uncertain tax positions upon completion of tax audits in our foreign jurisdictions. The recording of these discrete items in the first quarter of 2010 resulted in an overall effective tax benefit rate of 237.9%.
Liquidity and Capital Resources
Our cash and cash equivalents balance was $83.2 million as of March 31, 2011, compared to $78.7 million as of December 31, 2010. Cash and cash equivalents were primarily invested in money market accounts.
Cash Flows
| Three Months Ended March 31, |
||||||||
| 2011 | 2010 | |||||||
| Net cash provided by (used in): |
||||||||
| Operating activities |
$ | 2,554 | $ | 13,737 | ||||
| Investing activities |
(689 | ) | 6,046 | |||||
| Financing activities |
3,339 | (89,164 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
(686 | ) | 783 | |||||
| Net change in cash and cash equivalents |
$ | 4,518 | $ | (68,598 | ) | |||
Operating activities provided cash of $2.6 million for the three months ended March 31, 2011, compared to $13.7 million for the three months ended March 31, 2010. The decrease in cash flows from operating activities for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 was a decrease in working capital offsetting increased operational performance.
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Investing activities used cash of $0.7 million for the three months ended March 31, 2011, compared to cash provided of $6.0 million for the three months ended March 31, 2010. The decrease in cash flows from investing activities for the three months ended March 31, 2011 compared to March 31, 2010 was due primarily to asset purchases of $0.7 million for the first quarter 2011, compared to net cash provided by maturities of investment securities offset by our initial $4.0 million investment in Carticept for the first quarter 2010.
Financing activities provided cash of $3.3 million for the three months ended March 31, 2011, compared to cash used of $89.2 million for the three months ended March 31, 2010. The increase in cash flows from financing activities for the three months ended March 31, 2011, compared to March 31, 2010, resulted primarily from stock exercises of $3.6 million for the first quarter 2011, compared to $1.3 million of stock exercises offset by of $90.0 million of stock repurchases in the first quarter of 2010.
Risk Factors
A complete listing of our risk factors is contained in the Item 1A. “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2010. There were no significant changes in those risk factors during the first quarter of 2011.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to product returns, bad debts, inventories, investments, warranty obligations, service contracts, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
As discussed in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2010, our critical accounting policies and estimates include revenue recognition, business combination, valuation of investments and inventories, warranty expense, income taxes, stock-based compensation, and convertible debt. There were no significant changes to these critical accounting policies during the first quarter of 2011.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Interest rate risk
We are exposed to market risk relating to changes in interest rates, which could adversely affect the value of our investments.
As of March 31, 2011, our cash and cash equivalents consisted of $69.4 million of interest-bearing money market accounts. We believe that the impact on the fair market value of our securities and related earnings for 2011 from a hypothetical 10% increase or decrease in market interest rates would not have a material impact on cash and cash equivalents.
Foreign currency risk
Because of our international presence, we are exposed to foreign currency risk from both trade and intercompany balances denominated in currencies other than US Dollar (“USD”) and from translation of our foreign subsidiaries operating results. We enter into foreign currency forward and option contracts to reduce the impact of fluctuations on earnings associated with foreign currency exchange rate changes. These foreign currencies include the Australian dollar, the British pound, the Canadian dollar, the European Union euro, and the Japanese yen. We use foreign exchange contracts to mitigate risk and do not intend to engage in speculative transactions. Currently our foreign exchange contracts do not qualify for derivative hedge accounting. We seek to manage the counterparty risk associated with engaging in foreign currency contracts by limiting transactions to counterparties with which we have established banking relationships.
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A sensitivity analysis of a change in the fair value of these contracts, totaling $41.9 million in notional amount, indicates that if the USD weakened by 10% against the applicable foreign currency, the fair value of these contracts would decrease by approximately $4.1 million. Conversely, if the USD strengthened by 10% against the applicable foreign currency, the fair value of these contracts would increase by approximately $4.2 million. The offsetting gains and losses resulting from the changes in the intercompany balances as described above are not reflected in the sensitivity analysis above.
| Item 4. | Controls and Procedures |
Evaluation of disclosure controls and procedures
As of March 31, 2011, our chief executive officer and our chief financial officer have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act), and they have concluded that our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
We continue to review, revise and improve the effectiveness of our internal controls. There have been no changes in the our internal controls over financial reporting during the third quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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| Item 1. | Legal Proceedings |
We currently do not have any material outstanding claims that we have initiated or that have been initiated against us.
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| Item 6. | Exhibits |
| Exhibit No. |
Description | |
| 10.1 |
SonoSite, Inc. FY2011 Variable Incentive Bonus Plan (162(m) Qualified) | |
| 31.1 |
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 |
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 |
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002) | |
| 32.2 |
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 Section 906 of the Sarbanes-Oxley Act of 2002) | |
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Pursuant to the requirements of Section 13 or 15 d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SONOSITE, INC. (Registrant) | ||||||
| Dated: May 6, 2011 | By: | /S/ MARCUS Y. SMITH | ||||
| Marcus Y. Smith | ||||||
| Senior Vice President, Chief Financial Officer and Treasurer | ||||||
| (Authorized Officer and Principal Financial Officer) | ||||||
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