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 June 24, 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 August 1, 1995, 4,087,602 shares of the registrant's Common Stock, $.01
par value, were outstanding.
HOLOGIC, INC. AND SUBSIDIARIES
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 24, 1995 and September 24, 1994 3
Consolidated Statements of Income
Three and Nine Months Ended June 24, 1995
and June 25, 1994 4
Consolidated Statements of Cash Flows
Nine Months Ended June 24, 1995
and June 25, 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
ASSETS
June 24, September 24,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $6,669,473 $5,880,010
Short-term investments 4,051,352 3,519,515
Accounts receivable, less reserves of $850,000 10,700,895 10,893,649
Inventories 6,009,750 4,435,033
Prepaid expenses and other current assets 2,261,788 1,584,132
Total current assets 29,693,258 26,312,339
PROPERTY AND EQUIPMENT, at cost:
Equipment 2,431,130 1,922,473
Furniture and fixtures 647,544 553,393
Leasehold improvements 503,119 448,529
3,581,793 2,924,395
Less- Accumulated depreciation and amortization 2,179,655 1,796,826
1,402,138 1,127,569
OTHER ASSETS:
Other assets, net 1,725,126 1,057,254
$32,820,522 $28,497,162
LIABILITIES AND STOCKHOLDERS' EQUITY
June 24, September 24,
1995 1994
CURRENT LIABILITIES:
Line of credit $2,976,995 $2,417,034
Accounts payable 2,938,338 1,865,413
Accrued expenses 3,803,397 3,474,482
Deferred revenue 1,458,226 867,861
Total current liabilities 11,176,956 8,624,790
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 10,000,000 shares
Issued and outstanding - 4,080,317 and
4,024,581 shares, respectively 40,803 40,246
Capital in excess of par value 14,878,113 14,450,085
Retained earnings 6,836,072 5,551,074
Cumulative translation adjustment (111,422) (169,033)
Total stockholders' equity 21,643,566 19,872,372
$32,820,522 $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 Nine Months Ended
June 24, June 25, June 24, June 25,
1995 1994 1995 1994
REVENUES:
Product sales $10,804,357 $10,572,839 $29,108,081 $27,531,772
Other revenues 496,963 375,187 1,423,213 970,880
11,301,320 10,948,026 30,531,294 28,502,652
COSTS AND EXPENSES:
Cost of product sales 5,669,960 5,854,917 15,905,915 15,307,528
Research and development 1,014,569 927,743 3,091,135 2,555,574
Selling and marketing 2,112,318 1,355,906 5,646,786 4,123,451
General and administrative 1,158,790 1,194,155 3,198,596 3,104,010
Litigation expenses 800,968 -- 1,152,828 --
10,756,605 9,332,721 28,995,260 25,090,563
Income from operations 544,715 1,615,305 1,536,034 3,412,089
Interest income 164,012 93,544 446,583 227,882
Other (expense) income (91,059) 31,676 (247,619) (22,042)
Income before provision for
income taxes 617,668 1,740,525 1,734,998 3,617,929
PROVISION FOR INCOME TAXES 130,000 545,000 450,000 1,135,000
Net income $487,668 $1,195,525 $1,284,998 $2,482,929
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ .11 $ .28 $ .29 $ .60
Fully diluted $ .28 $ .58
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 4,409,771 4,259,580 4,408,750 4,137,264
Fully diluted 4,308,014 4,298,055
The accompanying notes are an integral part of these consolidated financial
statements.
4
HOLOGIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 24, June 25,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,284,998 $2,482,929
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Depreciation and amortization 420,121 358,222
Changes in assets and liabilities -
Accounts receivable 172,809 (5,878,923)
Inventories (1,406,904) (818,814)
Prepaid expenses and other current assets (513,527) (77,849)
Accounts payable 800,764 508,078
Accrued expenses 275,272 321,408
Deferred revenue 562,715 (226,408)
Net cash provided by (used in)
operating activities 1,596,248 (3,331,357)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of short-term investments (531,837) (1,063,108)
Purchase of property and equipment (612,634) (210,808)
Increase in other assets (120,674) (23,450)
Net cash used in investing activities (1,265,145) (1,297,366)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from line of credit 286,514 1,414,370
Exercise of stock options 104,496 155,124
Net cash provided by financing activities 391,010 1,569,494
EFFECT OF EXCHANGE RATE CHANGES ON CASH 67,350 (83,746)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 789,463 (3,142,975)
CASH AND CASH EQUIVALENTS, beginning of period 5,880,010 6,688,506
CASH AND CASH EQUIVALENTS, end of period $6,669,473 $3,545,531
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTION:
Patent rights acquired in exchange
for common stock $324,088 $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Income taxes $ 163,686 $ 700,938
Interest $ 101,685 $ 19,659
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 June 24, 1995, the consolidated
statements of income for the three and nine months ended June 24, 1995 and
June 25, 1994 and the consolidated statements of cash flows for the nine
months ended June 24, 1995 and June 25, 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 nine months ended June 24,
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 described in this and other notes
to the consolidated financial statements.
(a) Inventories: Inventories are stated at the lower of cost (first-
in, first-out) or market and consist of the following:
June 24, September 24,
1995 1994
Raw materials and work-in-process $3,944,232 $3,258,076
Finished goods 2,065,518 1,176,957
$6,009,750 $4,435,033
Work-in-process and finished goods inventories consist of material,
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. A
transaction loss of $26,422 and $93,595 for the three and nine months ended
June 24, 1995, respectively, and a transaction gain of $42,181 and a
transaction loss of $2,369, for the three and nine months ended June 25, 1994,
respectively, are included in other (expense) income 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 nine months ended June 24, 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 89,750 12.375-18.00
Terminated (5,420) 5.625-14.125
Exercised (27,715) 1.00-7.375
Outstanding at June 24, 1995 640,316 $.10-$18.00
7
(5) Significant Customers and Concentration of Credit Risk
In the nine months ended June 24, 1995 and June 25, 1994, the Company
had one customer who comprised 25% and 34% of product sales, respectively.
This customer had amounts due to the Company of approximately $1,900,000 at
June 24, 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 June 24, 1995
balance sheet.
(7) Patent Litigation
The Company incurred litigation expenses in fiscal 1995 in connection
with two separate patent disputes. These expenses are expected to continue at
their current level until the patent issues are resolved.
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 third quarter of fiscal 1995
increased 3% to $11,301,320 from $10,948,026 for the third quarter of fiscal
1994. Total revenues for the current nine month period increased 7% to
$30,531,294 from $28,502,652 for the first nine months of fiscal 1994. The
increase in total revenues was due to the increase in product sales and other
revenues. The increase in product sales for the current three and nine month
periods was primarily due to an increase in the total number of
QDR[registered] and Scanora product shipments, and an increase in field
service support and maintenance revenues due to the larger installed base in
1995. Other revenues also increased for the current three and nine month
periods due to increases in bone density analysis services provided primarily
to pharmaceutical companies.
Total revenues for the third quarter of fiscal 1995 increased 25% from
$9,031,119 in the immediately preceding quarter primarily due to an increase
in the total number of QDR and Scanora product shipments. The Company began
shipping its entire line of ACCLAIM[trademark] series bone densitometers,
including the lower-priced QDR 4500C, in the third quarter of the current
year. Sales of the new ACCLAIM series products increased 125% from the
immediately preceding quarter and accounted for over one-half of the current
quarter's QDR product shipments. The Company also began international
shipments of an ultrasound bone analyzer which was acquired from WalkerSonix
in the first 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 nine months of fiscal 1995, approximately 37% of product
sales were generated in Europe, 34% in Asia, 19% in the United States and 10%
in other international markets. In the first nine months of fiscal 1994,
approximately 31% of product sales were generated in Europe, 38% in Asia, 26%
in the United States and 5% in other international markets.
Costs and Expenses. The cost of product sales decreased to 52% of
product sales in the current quarter from 55% in the third quarter of 1994 and
decreased to 55% of product sales in the first nine months of 1995 from 56% in
the comparable nine month period of 1994. In the current three and nine month
periods, gross margins improved due to product cost reductions and
manufacturing efficiencies associated with the recently introduced ACCLAIM
series of bone densitometers, and an increase in field service maintenance and
support revenues.
9
Research and development expenses increased 9% to $1,014,569 (9% of
total revenues) in the current quarter from $927,743 (8% of total revenues) in
the third quarter of 1994. For the current nine month period, research and
development expenses increased 21% to $3,091,135 (10% of total revenues) from
$2,555,574 (9% of total revenues) for the first nine months of 1994. The
increase in research and development expenses in 1995 is primarily due to (i)
the addition of engineering personnel working on the development of new
products and the enhancement of existing products, and (ii) the funding of
certain outside development activities relating to a project with Serex
involving the use of bio-chemical markers.
Selling and marketing expenses increased 56% to $2,112,318 (20% of
product sales) in the current quarter from $1,355,906 (13% of product sales)
in the third quarter of fiscal 1994. For the current nine month period,
selling and marketing expenses increased 37% to $5,646,786 (19% of product
sales) from $4,123,451 (15% of product sales) for the first nine months of
1994. The increases in selling and marketing expenses in 1995 were primarily
due to an increase in sales personnel and related expenses, marketing and
promotional costs incurred in connection with the introduction of the
Company's fourth generation QDR system, the QDR 4500 ACCLAIM series, and
increased sales commissions.
General and administrative expenses decreased 3% to $1,158,790 (10% of
total revenues) in the current quarter from $1,194,155 (11% of total revenues)
in the third quarter of fiscal 1994. During the first nine months of fiscal
1995, general and administrative expenses increased 3% to $3,198,596 (10% of
total revenues) from $3,104,010 (11% of total revenues) in the first nine
months of 1994. In fiscal 1995, the Company has increased its headcount and
incurred higher legal costs than in 1994. These increases were partially
offset by a reduction in the charge for bad debts and reduced contributions to
various employee benefit and incentive plans.
Litigation expenses incurred in fiscal 1995 are in connection with two
separate patent disputes. Legal expenses in connection with the patent
litigation with Lunar Corporation began in September 1994 and represent over
one-half of the total litigation expenses. A trial date with Lunar has been
set for September 1995. These expenses are expected to continue at their
current level until the patent issues are resolved.
Interest Income. Interest income increased to $164,012 in the current
quarter from $93,544 in the third quarter of fiscal 1994 and increased to
$446,583 in the current nine month period from $227,882 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 third quarter and for the first nine months of
fiscal 1995, the Company incurred other expenses of $91,059 and $247,619,
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 both transactions
by the Company's European subsidiaries in currencies other than their
functional currency and 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 the third quarter of fiscal 1994, the
Company recognized other income of $42,181 for foreign currency exchange gains
arising from the Company's U.S. dollar denominated sales transactions to its
European subsidiaries. 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 nine months of fiscal 1995 is 26%. The Company's effective tax rate is
lower than the statutory tax rates primarily due to tax benefits associated
with the Company's foreign sales corporation, the utilization of net operating
losses in foreign jurisdictions and tax credits.
Liquidity and Capital Resources
The Company has funded its operations primarily through cash flows from
operations and the issuance of securities.
At June 24, 1995, the Company's working capital was $18,516,302. At
such date, the Company had $10,720,825 in cash, cash equivalents and short-
term investments. The current cash, cash equivalents and investments balance
increased approximately $1,321,000 from September 24, 1994 primarily due to a
decrease in the Company's accounts receivable balance and an increase in
current liabilities, which was partially offset by an increase in inventories.
At June 24, 1995, one customer had an accounts receivable balance of
approximately $1,900,000. The increases in current liabilities and
inventories are primarily due to the Company's production ramp-up for the QDR
4500 ACCLAIM series which the Company began shipping in the second quarter.
Working capital increased by approximately $829,000 in the first nine 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 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.
On July 11, 1995, the Company filed suit in the United States District
Court for the Western District of Wisconsin, against Lunar seeking injunctive
relief and damages for the manufacture and sale of certain Lunar DXA products
which the Company claims infringe a patent owned by Hologic and recently
granted at the U.S. Patent Office. The suit also seeks a declaration that the
Company's "MXA-Plus" and "Single Cursor" software options do not infringe two
Lunar patents and that the Lunar patents are invalid and unenforceable.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
12
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits furnished:
(11) Statement Re: Computation of Earnings Per Share.
(27) Financial Data Schedule for the nine months
ended June 24, 1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended June 24, 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)
August 4, 1995 /s/ S. David Ellenbogen
Date S. David Ellenbogen
Chairman and Chief Executive Officer
August 4, 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 Nine Months Ended
June 24, June 25, June 24, June 25,
1995 1994 1995 1994
PRIMARY:
Net income $ 487,668 $1,195,525 $1,284,998 $2,482,929
Weighted average
shares outstanding 4,080,071 3,962,493 4,049,721 3,952,533
Common stock equivalents
outstanding, pursuant to the
treasury stock method 329,700 297,087 359,029 184,731
Primary weighted average
number of common and common
equivalent shares outstanding 4,409,771 4,259,580 4,408,750 4,137,264
Per share amount $ .11 $ .28 $ .29 $ .60
FULLY DILUTED:
Net income $1,195,525 $2,482,929
Weighted average shares outstanding 3,962,493 3,952,533
Common stock equivalents outstanding,
pursuant to the treasury stock method 345,521 345,522
Fully diluted weighted average number
of common and common equivalent
shares outstanding 4,308,014 4,298,055
Per share amount $ .28 $ .58