UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 1995
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: 0-18281
Hologic, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2902449
(State of incorporation) (I.R.S. Employer Identification No.)
590 Lincoln Street, Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
(617) 890-2300
(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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of April 28, 1995, 4,079,987 shares of the registrant's Common Stock, $.01
par value, were outstanding.
1
HOLOGIC, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 25, 1995 and September 24, 1994 3
Consolidated Statements of Income
Three and Six Months Ended March 25, 1995
and March 26, 1994 4
Consolidated Statements of Cash Flows
Six Months Ended March 25, 1995
and March 26, 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION 12
SIGNATURES 14
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 25, September 24,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $9,848,209 $5,880,010
Short-term investments 1,497,158 3,519,515
Accounts receivable, less reserves of $850,000 8,360,929 10,893,649
Inventories 5,324,740 4,435,033
Prepaid expenses and other current assets 2,412,346 1,584,132
Total current assets 27,443,382 26,312,339
PROPERTY AND EQUIPMENT, at cost:
Equipment 2,246,192 1,922,473
Furniture and fixtures 622,855 553,393
Leasehold improvements 493,482 448,529
3,362,529 2,924,395
Less- Accumulated depreciation and amortization 2,039,056 1,796,826
1,323,473 1,127,569
OTHER ASSETS:
Other assets, net 1,593,413 1,057,254
$30,360,268 $28,497,162
LIABILITIES AND STOCKHOLDERS' EQUITY
March 25, September 24,
1995 1994
CURRENT LIABILITIES:
Line of credit $2,533,676 $2,417,034
Accounts payable 2,138,344 1,865,413
Accrued expenses 3,407,433 3,474,482
Deferred revenue 1,132,093 867,861
Total current liabilities 9,211,546 8,624,790
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 10,000,000 shares
Issued and outstanding - 4,079,987 and
4,024,581 shares, respectively 40,800 40,246
Capital in excess of par value 14,876,322 14,450,085
Retained earnings 6,348,404 5,551,074
Cumulative translation adjustment (116,804) (169,033)
Total stockholders' equity 21,148,722 19,872,372
$30,360,268 $28,497,162
The accompanying notes are an integral part of these consolidated financial
statements.
3
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
March 25, March 26, March 25, March 26,
1995 1994 1995 1994
REVENUES:
Product sales $8,520,603 $9,475,617 $18,303,724 $16,958,933
Other revenues 510,516 431,586 926,250 595,693
9,031,119 9,907,203 19,229,974 17,554,626
COSTS AND EXPENSES:
Cost of product sales 4,893,065 5,343,210 10,235,955 9,452,611
Research and development 1,108,986 845,327 2,076,566 1,627,831
Selling and marketing 1,711,619 1,340,614 3,534,468 2,767,545
General and administrative 1,198,136 1,120,190 2,391,666 1,909,855
8,911,806 8,649,341 18,238,655 15,757,842
Income from operations 119,313 1,257,862 991,319 1,796,784
Interest income 166,889 68,246 282,571 134,338
Other expense (72,592) (52,119) (156,560) (53,718)
Income before
provision for income taxes 213,610 1,273,989 1,117,330 1,877,404
PROVISION FOR INCOME TAXES 60,000 400,000 320,000 590,000
Net income $153,610 $873,989 $797,330 $1,287,404
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .03 $ .21 $ .18 $ .32
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 4,410,393 4,109,677 4,399,543 4,073,436
The accompanying notes are an integral part of these consolidated financial
statements.
4
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 25, March 26,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $797,330 $1,287,404
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization 264,498 236,929
Changes in assets and liabilities-
Accounts receivable 2,553,567 (3,432,272)
Inventories (780,960) (160,795)
Prepaid expenses and other current assets (709,971) (154,356)
Accounts payable 100,528 664,525
Accrued expenses (116,467) 513,015
Deferred revenue 248,289 (101,049)
Net cash provided by (used in) operating activities
2,356,814 (1,146,599)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net sales (purchases) of short-term investments 2,022,357 (563,882)
Purchase of property and equipment (405,764) (200,037)
Increase in other assets (93,447) (88,494)
Net cash provided by (used in)
investing activities 1,523,146 (852,413)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net settlement on line of credit (60,620) --
Exercise of stock options 102,703 8,025
Net cash provided by financing activities 42,082 8,025
EFFECT OF EXCHANGE RATE CHANGES ON CASH 46,156 (29,709)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,968,199 (2,020,696)
CASH AND CASH EQUIVALENTS, beginning of period 5,880,010 6,688,506
CASH AND CASH EQUIVALENTS, end of period $9,848,209 $4,667,810
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 104,480 $ 100,000
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS:
Preferred stock investment acquired in
exchange for common stock $ 324,088 --
The accompanying notes are an integral part of these consolidated financial
statements.
5
HOLOGIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements of Hologic, Inc. (the Company)
presented herein have been prepared pursuant to the rules of the Securities
and Exchange Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
September 24, 1994, included in the Company's 1994 Annual Report to
Stockholders as filed with the Securities and Exchange Commission on December
23, 1994.
The consolidated balance sheet as of March 25, 1995, the consolidated
statements of income for the three and six months ended March 25, 1995 and
March 26, 1994 and the consolidated statements of cash flows for the six
months ended March 25, 1995 and March 26, 1994, are unaudited but, in the
opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of results for these
interim periods.
The results of operations for the three and six months ended March 25,
1995, are not necessarily indicative of the results to be expected for the
entire fiscal year ending September 30, 1995.
(2) Summary of Significant Accounting Policies
The accompanying consolidated financial statements reflect the
application of certain accounting policies as described in this note and
elsewhere in the accompanying consolidated financial statements.
(a) Inventories: Inventories are stated at the lower of cost (first-
in, first-out) or market and consist of the following:
March 25, September 24,
1995 1994
Raw materials and work-in-process $3,718,262 $3,258,076
Finished goods 1,606,478 1,176,957
$5,324,740 $4,435,033
Work-in-process and finished goods inventories consist of materials,
labor and manufacturing overhead.
6
(b) Foreign Currency Translation:
Assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect at the end of the
period, and revenues and expenses are translated at the weighted average
exchange rate in effect during the period. Gains and losses from foreign
currency translation are included in the stockholders' equity section under
cumulative translation adjustment. Foreign currency transaction gains and
losses arising primarily from settlement of sales transactions with the
Company's foreign subsidiaries are included in results of operations.
Transaction losses of $26,802 and $67,173 for the three and six months ended
March 25, 1995, respectively, and transaction losses of $47,028 and $44,550
for the three and six months ended March 26, 1994, respectively, are included
in other expense in the accompanying consolidated statements of income.
(c) Foreign Currency Hedging:
The Company previously hedged certain foreign currency risks by entering
into forward contracts at the beginning of each quarter to hedge foreign
currency denominated sales for that quarter. All forward contracts were
settled by the end of each quarter. In the third quarter of fiscal 1994, the
Company's European subsidiaries began to borrow sufficient funds in their
local currency through a credit line, as discussed below, to pay the Company
for all intercompany sales which reduces the foreign currency exposure on
those transactions. The Company did not enter into any foreign exchange
contracts during the six months ended March 25, 1995.
(3) Line of Credit
The Company has an international line of credit with a bank for the
equivalent of $3,000,000, which bears interest at PIBOR plus 2%. The
borrowings under this line are denominated in the local currency of its
European subsidiaries and are primarily used by these subsidiaries to settle
intercompany sales.
(4) Stock Option Plans
A summary of stock option activity is as follows:
Number Exercise
of Shares Price Per Share
Outstanding at September 24, 1994 583,701 $.10-$17.75
Granted 39,650 13.50-18.00
Terminated (4,660) 5.625-14.125
Exercised (27,385) 1.00-7.375
Outstanding at March 25, 1995 591,306 $.10-$18.00
7
(5) Significant Customers and Concentration of Credit Risk
For the six months ended March 25, 1995 and March 26, 1994, the Company
had one customer who comprised 32% and 27% of product sales, respectively.
This customer had amounts due to the Company of approximately $2,935,000 at
March 25, 1995, all of which were within the payment terms of the sales.
(6) Collaboration Agreement
In September 1994, the Company entered into a collaboration agreement
with another entity to perform certain limited medical research. In March
1995, the Company paid approximately $76,000 in cash and issued shares of its
common stock valued at approximately $324,000 for the purchase of an equity
interest in the company of approximately 5% on a fully diluted basis. This
investment is included in other assets in the accompanying March 25, 1995
balance sheet.
8
PART I - FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
HOLOGIC, INC. AND SUBSIDIARIES
Results of Operations
Revenues. Total revenues for the second quarter of fiscal 1995
decreased 9% to $9,031,119 from $9,907,203 for the second quarter of fiscal
1994. Total revenues for the current six month period increased 10% to
$19,229,974 from $17,554,626 for the first six months of fiscal 1994. The
decrease in product sales for the current three month period was primarily due
to a decrease in the total number of QDR[registered trademark] product
shipments, especially the lower-priced QDR-1000 systems, and a decrease in the
number of Scanora systems sold, a specialized system for taking x-rays of the
teeth and jaw which is distributed by the Company in Europe. The increase in
product sales for the current six month period was primarily due to the first
quarter's increase in QDR product shipments in the Company's international
markets, particularly to Japan. In the first quarter, there was also a shift
in product sales mix with an increased percentage of sales being derived from
the higher-priced QDR-2000plus systems and an increase in sales of two
products distributed by the Company, Scanora and DTX-100. Other revenues also
increased for the current three and six month periods due to increases in
royalty revenues from the licensing of the Company's technology and in bone
density analysis services provided primarily to pharmaceutical companies.
Total revenues for the second quarter of fiscal 1995 decreased 11% from
$10,198,855 in the immediately preceding quarter primarily due to a decrease
in the total number of QDR, Scanora and DTX product shipments.
The Company introduced its new family of x-ray bone densitometers, the
ACCLAIM[trademark] series, in the first quarter of fiscal 1995 and began
shipments of the high-end product, the QDR-4500A, in the current quarter.
Approval to market this next generation of bone densitometers in the U.S. was
granted by the FDA in January 1995. The QDR-4500C, the lower-priced product
within the ACCLAIM series, was not available for shipment in the current
quarter which contributed to the decrease in QDR product shipments,
particularly in the U.S. The full line of ACCLAIM series bone densitometers,
including the lower-priced QDR-4500C, became available for sale in the third
quarter of fiscal 1995.
The Company's sales continue to be affected by the ever changing and evolving
healthcare landscape which includes the lack of regulatory approvals of new
drug therapies to prevent and treat osteoporosis, uncertainty concerning the
expansion of medical reimbursement practices for bone density examinations and
preventive health maintenance issues.
In the first six months of fiscal 1995, approximately 41% of product sales
were generated in Asia, 40% in Europe, 12% in the United States and 7% in
other international markets. In the first six months of fiscal 1994,
approximately 33% of product sales were generated in Asia, 34% in Europe, 28%
in the United States and 5% in other international markets.
9
Costs and Expenses. The cost of product sales increased slightly to 57%
of product sales in the current quarter from 56% in the second quarter of 1994
and remained constant at 56% of product sales in the first six months of
fiscal 1995 and 1994. In the current quarter, gross margins declined slightly
as the improvement from the sales price premium earned on the QDR 4500A, which
the Company began shipping in the current quarter, was offset by the decrease
in the QDR product volume and a greater percentage of sales to international
dealers which result in lower selling prices than through the Company's direct
sales force. In the current six month period, gross margins remained
relatively constant with the comparable period of fiscal 1994 as improvement
in selling prices from the QDR-4500A shipments were offset with a greater
percentage of sales to international dealers.
Research and development expenses increased 31% to $1,108,986 (12% of
total revenues) in the current quarter from $845,327 (9% of total revenues) in
the second quarter of fiscal 1994. For the current six month period, research
and development expenses increased 28% to $2,076,566 (11% of total revenues)
from $1,627,831 (9% of total revenues) for the first six months of 1994. The
increase in research and development expenses in 1995 is primarily due to the
addition of engineering personnel working on the development of new products
and the enhancement of existing products.
Selling and marketing expenses increased 28% to $1,711,619 (20% of
product sales) in the current quarter from $1,340,614 (14% of product sales)
in the second quarter of fiscal 1994. For the current six month period,
selling and marketing expenses increased 28% to $3,534,468 (19% of product
sales) from $2,767,545 (16% of product sales) for the first six months of
1994. The increase in selling and marketing expenses in the current quarter
was primarily due to an increase in sales personnel and related expenses, and
marketing and promotional costs incurred in the introduction of the Company's
fourth generation QDR system, the QDR 4500A ACCLAIM. The increase for the
current six month period was also due to increased sales commissions based on
higher sales volume.
General and administrative expenses increased 7% to $1,198,136 (13% of
total revenues) in the current quarter from $1,120,190 (11% of total revenues)
in the second quarter of fiscal 1994. During the first six months of fiscal
1995, general and administrative expenses increased 25% to $2,391,666 (12% of
total revenues) from $1,909,855 (11% of total revenues) in the first six
months of 1994. The increase in general and administrative expenses in fiscal
1995 were primarily due to legal costs associated with current patent
litigation and, to a lesser extent, increased headcount.
Interest Income. Interest income increased to $166,889 in the current
quarter from $68,246 in the second quarter of fiscal 1994 and increased to
$282,571 in the current six month period from $134,338 in the comparable
period in fiscal 1994 primarily due to a higher rate of return on cash, cash
equivalents and short-term investments combined with a higher average
investment base. In addition, the Company is currently earning interest on a
number of long-term receivables with certain Latin American customers.
10
Other Expense. In the second quarter and for the first six months of
fiscal 1995, the Company incurred other expenses of $72,592 and $156,560,
respectively. These expenses were primarily from the interest costs on the
line of credit established in the third quarter of fiscal 1994 and, to a
lesser extent, foreign currency exchange losses arising from the Company's
U.S. dollar denominated sales transactions to its European subsidiaries. The
Company's European subsidiaries utilize the line of credit to borrow funds in
their local currency to pay for intercompany sales, thereby reducing the
foreign currency exposure on those transactions. In fiscal 1994, these
expenses were primarily due to foreign currency exchange losses, net of hedge
transactions. To the extent that foreign currency exchange rates fluctuate in
the future, the Company may be exposed to continued financial risk. Although
the Company has established a borrowing line denominated in the two foreign
currencies (the French Franc and the Belgian Franc) in which the subsidiaries
currently conduct business to minimize this risk, there can be no assurance
that the Company will be successful or can fully hedge its foreign currency
exposure.
Provision for Income Taxes. The Company's effective tax rate for the
first six months of fiscal 1995 is 29%. The Company's effective tax rate is
lower than the statutory tax rates due primarily to tax benefits associated
with the Company's foreign sales corporation and the utilization of tax
credits.
Liquidity and Capital Resources
The Company has funded its operations primarily through cash flows from
operations and the issuance of securities.
At March 25, 1995, the Company's working capital was $18,231,836. At
such date, the Company had $11,345,367 in cash, cash equivalents and short-
term investments. The current cash, cash equivalents and investments balance
increased approximately $1,946,000 from September 24, 1994 primarily due to a
decrease in the Company's accounts receivable balance and an increase in
accounts payable, which was partially offset by an increase in inventories.
At March 25, 1995, one customer had an accounts receivable balance of
approximately $2,935,000. The increases in accounts payable and inventories
are primarily due to the Company's production ramp-up for the QDR 4500A
ACCLAIM which the Company began shipping in the current quarter. Working
capital increased by approximately $544,000 in the first six months of fiscal
1995, primarily from the addition of the period's net income.
The Company does not currently have any significant capital commitments
and believes that existing sources of liquidity and funds expected to be
generated from operations, including a $3 million line of credit for use by
its European subsidiaries, will provide adequate cash to fund the Company's
anticipated working capital and other cash needs for the foreseeable future.
11
PART II - OTHER INFORMATION
HOLOGIC, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings.
Patent Litigation. Except as set forth below, there have been no
material developments with respect to the litigation described in the
Company's Quarterly Report on Form 10-Q for the quarter ended December 24,
1994.
On May 3, 1995, the U.S. District Court for the Western District of
Wisconsin denied a motion by Lunar to prevent the Company from supplying the
whole body measurement capability on its new QDR 4500 series, and issued a
preliminary injunction enjoining Hologic from making, using or selling two
software options with certain of its bone densitometers. Theses options
concern vertebral morphometric and prosthetic hip software.
This order does not affect the Company's sale of any of its bone
densitometer systems so long as the products do not contain the allegedly
infringing software. The Company does not believe that these options were
material to its sales, and therefore does not expect the injunction to impact
unit sales.
During the Company's quarter ended March 25, 1995 and through the date
of this report, no action has been taken by the United States District Court
for the Western District of Wisconsin or the United States District Court for
the District of Massachusetts relating to the Company's claims against Lunar
for infringing certain of the Company's patents.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
12
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company held its Annual Meeting of Stockholders on February 28,
1995. Approximately 3,529,110 shares or 87.5% of the Common Stock issued and
outstanding as of the record date, were represented at the meeting in person
or by proxy. Set forth below is a brief description of each matter voted upon
at the meeting and the voting results with respect to each matter.
1. A proposal to elect the following five persons to serve as members
of the Company's Board of Directors for the ensuing year:
Name For Withheld Abstain
S. David Ellenbogen 3,517,864 11,246 0
Irwin Jacobs 3,517,239 11,871 0
William A. Peck 3,517,864 11,246 0
Gerald Segel 3,517,864 11,246 0
Jay A. Stein 3,517,864 11,246 0
2. A proposal to adopt the Company's 1995 Employee Stock Purchase Plan.
For: 3,428,979 Against: 14,820 Abstain: 40,872
3. A proposal to ratify the appointment of Arthur Andersen, LLP as
independent public accountants of the Company.
For: 3,481,185 Against: 2,930 Abstain: 44,995
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(11) Statement Re: Computation of Earnings Per Share.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended March 25, 1995.
13
HOLOGIC, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hologic, Inc.
(Registrant)
May 8, 1995 /s/ S. David Ellenbogen
Date S. David Ellenbogen
Chairman and Chief Executive Officer
May 8, 1995 /s/ Glenn P. Muir
Date Glenn P. Muir
Vice President, Finance and Treasurer
(Principal Financial and Chief Accounting
Officer)
14
HOLOGIC, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Three Months Ended Six Months Ended
March 25, March 26, March 25, March 26,
1995 1994 1995 1994
PRIMARY:
Net income $ 153,610 $ 873,989 $797,330 $1,287,404
Weighted average shares outstanding 4,043,022 3,948,689 4,034,546 3,947,553
Common stock equivalents outstanding,
pursuant to the treasury stock method 367,371 160,988 364,997 125,883
Primary weighted average number of common
and common equivalent shares outstanding 4,410,393 4,109,667 4,399,543 4,073,436
Per share amount $ .03 $ .21 $ .18 $ .32
15